‘A Little Bit Of Blood In The Streets’ In Florida
A pair of reports from Florida. “Only 221 builders applied for new-home permits in Port St. Lucie last month, compared with 752 in June 2005 and monthly averages above 500 each year since 2003. The city’s new-home starts have dwindled nearly every month this year, with 375 permits issued in February and 325 in May.”
“City officials knew this slowdown was coming. They just didn’t expect it to hit so hard, so suddenly. ‘I think things were overpriced,’ assistant building official Bob Kymalainen said.”
“With a seven-month supply of vacant homes on the market in St. Lucie County, real estate analyst Brad Hunter in West Palm Beach doesn’t expect the slowdown to subside any time soon. If the slowdown continues, the building department will abandon its six-day workweek in favor of five days, Kymalainen said. Three new inspectors planned for the upcoming budget year won’t be hired.”
The Herald Tribune. “After three years of happy times and quick sales, real estate foreclosure is back. The U.S. real estate market has cooled, and foreclosure rates are notching upward and are almost certain to head higher. The distress isn’t limited to Joe Six-Pack. Many pros and semi-pros are starting to wish they owned fewer homes than they do, especially if they bought recently.”
“In May, there were 1,441 homes listed in North Port, but only 80, or 5.5 percent, sold, says Dave Hofer, who keeps statistics on the area. In Port Charlotte things were worse: 1,543 listings and 72 sales, or 4.6 percent.”
“Down in Venice, George Huhn, a commercial real estate broker with an investor following, helped a couple of banks by taking over problem loans in 2001-02. Now, banks are starting to call him again, asking him to relieve them of problem first mortgages they held onto, before they become foreclosure actions.”
“Banks do it for two reasons. ‘No.1, for reasons of negative publicity and image, the banks don’t want to be involved in foreclosure actions,’ he said. Secondly, during the boom years, some lenders all but disbanded the departments performing the difficult work of foreclosure. ‘Now they are looking at some hard choices, and what they are electing to do is outsource, and that is where we come in,’ Huhn said.”
“Even the pros and semi-pros in the Sarasota Real Estate Investors Association are feeling some distress these days. At one recent meeting, investor Peter Magnuson acknowledged the issue in a pep talk to the 75 or so members present. ‘There’s a little bit of blood in the streets,’ Magnuson said. ‘I think that is the people who overcommitted themselves and are looking for a way to unwind what they got into.’”
“‘People who bought these pre-construction deals hoping to make big money on them and now they’re stuck with them and it is eating them out of house and home,’ he said.”
“The distress isn’t limited to Joe Six-Pack. Many pros and semi-pros are starting to wish they owned fewer homes than they do, especially if they bought recently.”
This would be an interesting point of discussion. Did the pros do better this time in seeing it coming or are they more surpised than the sheeple.
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Who coined the phrase Joe Six-pack? Surprised the MHT used that.
Goes to show you you how much the pros/semi-pros listened to the cheerleaders . What was it ,the NAR in 2005 was predicting another 5 years of this high appreciation in real estate ?
Big lesson on the “art of prediction” by people in the game . But I suppose because the mania went on longer than it should of to begin with ,the speculators thought they were home free . I believe it was a major surprise to this speculator group /realtors .
This is the beauty of the collapse of a bubble which went on far beyond anyone’s expectations. As the early-bird bears are all discredited as overly-pessimistic gloomsters, the bulls become increasingly cock-sure that prices will go up at double-digit rates forever. The resulting speculative binge results in a parabolic runup in prices which virtually assures a hard landing in the aftermath.
“As the early-bird bears are all discredited as overly-pessimistic gloomsters, the bulls become increasingly cock-sure that prices will go up at double-digit rates forever. The resulting speculative binge results in a parabolic runup in prices which virtually assures a hard landing in the aftermath. ”
This is the principle of reflexivity explained by
George Soros. The market prices of an asset will always go beyond the fundamental values. At this point, investors will buy an asset since the price of an asset is going up. That is why just using fundamentals a person will get out too soon. This is what happened to the Nasdaq in 1999-2000.
The actual real estate “pros” that I know *finished* getting out of real estate last year. Again, it was the risk vs. reward calculation. It was not that they were trying to time the market, it was that the risks got way out of whack. A subtle difference, but they were willing to leave some possible remaining upside on the table. Maybe that’s why they are “pros”.
Yes, from all the investment people I know, the smart money is already out of RE.
No real estate “pros” ever get out, they reduce leverage and/or shift property types.
Banks want the bad loans off the books…hmmm…isn’t that something that some here (Ben) have blogged about?
This is when the news starts to get really bad, and hopefully credit gets tightened.
I remember during the S&L(RTC) crisis the big talk was that it would be much harder to get loans any more. Wow, how soon they forget, the risk out there now is much worse than any thing in the 80’s.
So when a bank sells a ‘non-performing’ loan instead of taking it to foreclosure, how many cents on the dollar do they end up selling it for?
Less than one hundred. Hwahaha
It depends on the type of loan and who is buying. In the current environment, I’d bet they are getting something pretty near 80 cents on the dollar (there is a ton of risk capital floating around out there).
They can only hope to get 60-70 cents on the dollar for the house at auction. They have to be buying these loans for less.
At auction, if it comes to that, the bank’s attorney’s / representatives, always bid the amount of the note, with very very few exceptions.
All depends. I worked on the Finance side of NPL’s at Merrill Lynch and some of the NPL portfolios they were able to purchase were 30-40 cents on the dollar. (however they were primarily Japanese NPL’s)
This seems like a decent thread topic at some point.
(Who is likely to buy the paper and at what discount, etc.)
Haven’t you folks heard of OCWEN? Google it up.
Creative Investor Associations for real estate across the country are slowly recognizing the ramifications of what is going on. They are still trying to put a positive spin on it though.
The real light bulb moment will come when they start recognizing that they are toast. Then all the “newbie” idiots that they rake in from seminars will not be fanning out all over the country to buy houses in podunk towns. Then, the downturn kicks up another notch…
i would like to know how many from the seminars were taught how to get into property by fraud on the loan applications .It just seems a little odd to me that so many people knew the ends and outs of obtaining numerous properties at once .
There is a little old lady that lives down the street from me, and she no idea that the realtors double escrowed the property she bought in May of 2005 and added another 30K to the price . Conflict of interet to say the least .
“In May, there were 1,441 homes listed in North Port, but only 80, or 5.5 percent, sold, says Dave Hofer, who keeps statistics on the area. In Port Charlotte things were worse: 1,543 listings and 72 sales, or 4.6 percent.”
If 5% of the inventory sold, isn’t this a twenty month supply of houses on the market!
Yes. What a nice number. What will be next after this number. A nice 30% price plunge?
“Even the pros and semi-pros in the Sarasota Real Estate Investors Association are feeling some distress these days.
No, the true real estate pros are sitting fat dumb and happy having used the unprecedented runaway prices to deleverage and the unprecedented low interest rates to lower costs. If the true pros also work in the industry they have squirreled away lots of reserves to live comfortably through this downturn just like they did last time. Alternately if they got burned last time then they turned pro and are prepared this time anyway.
What this guy is talking about are the people that imagine themselves to be professionals. Huge difference. Even in the industry it is easy to tell the difference these days. The pro is the guy the amateurs go to for loan until their next check.
The Pros being the Toll brothers ,who sold their insider shares Sept 05.
Socked away the 100 mil or so ,and let the chips fall where they may…The pros being Buffet who sold his house in Laguna beach last winter . There is still some money to be made, but huge potential for loss coming to a town near you…
I’ve said repeatedly that Robert Toll is the Mark Cuban of the housing bubble.
Which sports team will he buy?
The LA Galaxy. They aren’t making any more galaxies you know.
He will start his own football league similar to the XFL.
That is a great analogy.
“they have squirreled away lots of reserves to live comfortably through this downturn”
Yep………I’ve been able to spend time with family and friends I lost touch with over the last few years. Also read a couple of good books. I think it kind of ticks my LO’s off that I’m so “whatever” about it all. Hey, I saw winter coming……..
Every longtime reader knows you are one of those true pros I describe. I’m starting to get “flack” for my cold, callous (semi-pro) attitude. It is my moral duty to not show sympathy lest these people fail to learn a lesson that only pain will teach.
nnvmtgbrkr,
good for you for making some good decisions. Enjoy your posts. People should realize or know RE is a cyclical industry and plan ahead for good and bad times. It will get very tough for the RE market in the years ahead.
“saw winter coming” - well put.
“Even the pros and semi-pros in the Sarasota Real Estate Investors Association are feeling some distress these days. At one recent meeting, investor Peter Magnuson acknowledged the issue in a pep talk to the 75 or so members present. ‘There’s a little bit of blood in the streets,’ Magnuson said. ‘I think that is the people who overcommitted themselves and are looking for a way to unwind what they got into.’”
How does this work exactly? A bunch of nitwits get together and talk about property acquisition every month? What makes them “pros” and “semi pros”? A pro takes the more serious approach and talks to more realtors and reads NAR bulletins before buying a property? I mean nothing should have cash flowed for the last couple of years so what metric were these bozos using? I find it interesting that they are referred to as pros when (almost, and I say this as a disclaimer) anyone buying real estate as an investment in Florida had to be disregarding long established metrics regarding cash flow and cap rate? This club seems more along the lines of the stories I heard about a bunch of little old ladies forming a club and throwing darts (or the equivalent thereof) at the wall street journal back in the dot com days. Pros my ass!
“How does this work exactly?”
I’ll tell you… these are the same folks that think their car is an asset. It’s all a question of financial literacy… and they don’t have it.
“It’s not what you don’t know that will hurt you, it’s what you think you know that you don’t.” - Somebody
“It’s not what you don’t know that hurts you, it’s what you do know that ain’t so.”
–Will Rogers
These are also the same people who call themselves “investors” when they are merely speculators, and stupid ones at that. Most of those people would have equal luck playing “flip the coin”.
Too many people equate reading the local newspaper and hearing water cooler talk with professional investing. Professional investing takes time and effort into diving trends, developing price/asset/appreciation models, and making the actual investment. Most of those fools just bought based on stories from wife/girlfriend/neighbor/dog, saw their equity rise (a rising tide lifts all boats), and became self-proclaimed professional investors.
This club seems more along the lines of the stories I heard about a bunch of little old ladies forming a club and throwing darts (or the equivalent thereof) at the wall street journal back in the dot com days.
Throwing a dart is a great strategy for stocks, and it’s a great strategy for other types of investment. Unless you’ve got a crystal ball, how are you gonna pick a winner? (well, unless you have insider information, which is illegal).
Just as with other types of investing, people who make huge profits never describe themselves as “lucky,” but rather as “talented.” Yeah, right. Very few people have beat the market for long periods of time, and even those folks are lucky (If a million people flipped coins, SOMEONE is gonna land heads a hundred times in a row).
What you’ve got now is a bunch of people who watched a late-night infomercial on real estate, used new exotic mortgages to purchase a bunch of houses, and felt like financial geniuses with all of the paper gains of the last few years. But they don’t understand risk, or when to cut your losses, and they’re the reason for the swelling inventory, the plummet in sales, and the steady price. If they would just act like real investors, they would lower their price, sell their houses, and move on with things.
What you’ve got now is a bunch of people who watched a late-night infomercial on real estate, used new exotic mortgages to purchase a bunch of houses, and felt like financial geniuses with all of the paper gains of the last few years. But they don’t understand risk, or when to cut your losses, and they’re the reason for the swelling inventory, the plummet in sales, and the steady price. If they would just act like real investors, they would lower their price, sell their houses, and move on with things.
And the ones that are now finally selling are finding out how illiquid real estate really is.
Isn’t Port St. Lucie on a peninsula with a huge nuclear power plant? I seem to recall that was the case.
Nice! Extra warm water! Maybe they can put that in the MLS.
PSL is inland not really on a peninsula. But there is FPL’s St. Lucie nuclear reactor on Hutchinson Island, a barrier island, in the vicinity:
http://www.fpl.com/environment/nuclear/about_st_lucie.shtml
And yes, the manatees LOVE that warm water in the area!
psl is the last outpost for people who want to live in south florida, but are afraid to live in “south florida”. they dont like the new neighbors from miami-dade and broward. north florida is too country and west florida is too boring. the prices were incredible until late 2004. it is a waste land of development with no retail or nightlife. and yes, next to a nuclear reactor. the housing is sucking water out of the rivers and streams and now some places are 25 to 50% empty due to flip-floppers.
What if a Cat 5 makes a direct hit there? Are they in deep doo doo while South Florida is covered with Nuclear Waste?
No.
I used to live in Jensen Beach and surfed at the power plant many. many times.
The reactors are made to break away self-contained and will float inland…intact…if a tsunami / Cat 5 storm surge hits.
Let’s hope FPL’s nuke is built better than their light poles; many of which didn’t withstand Cat 1-ish Wilma here in Miami.
I’m not a huge fan of nuclear power, but a properly constructed reactor can and has taken a direct hit from the eye of a category 5 storm without the containment buildings being compromised.
It happened with the Turkey Creek plant near Miami during Hurricane Andrew. Reports from the rideout team there said the concrete was so thick and solid that they couldn’t even really tell there was a storm going on outside the barriers.
“Only 221 builders applied for new-home permits in Port St. Lucie last month, compared with 752 in June 2005 and monthly averages above 500 each year since 2003. The city’s new-home starts have dwindled nearly every month this year, with 375 permits issued in February and 325 in May.”
‘The slight change in new-home permits and new-home starts in Port St. Lucie indicates the market is beginning to level out,…’
It drops by 50% but that is only a SLIGHT change.
“City officials knew this slowdown was coming. They just didn’t expect it to hit so hard, so suddenly. ‘I think things were overpriced,’ assistant building official Bob Kymalainen said.”
RE industry economists David Lereah, Douglas Duncan, and David Seiders all saw the slowdown coming as well. They just did not bother to warn any prospective homeowners who would be adversely affected until it was too late, instead waxing on about “soft landings” and “permanently high plateaus.”
Financial times reports slower job growth connected to weakness in housing market link
sorry. Here’s the link:http://clipmarks.com/clipmark/AC510841-42EF-4ECF-918B-4679EA2DEA26/
An asset puts money in your pocket.
A liability takes money out of your pocket.
Regarding a car, if you have more money at the end of the month because of driving it, then it is an asset. Otherwise a liability. (a business that makes money driving, it is an asset (ie taxi, bus company, delivery, etc). Regular commuting (liability).
Housing - receive rent more than mortgage (asset).
All others (including primary residence) - liability.
Primary residence when sold for a profit, then and only then, an asset.
But, but, with a HELOC your house can put money into your pocket.
Good point. Land is an asset, everything built on the land is a liability.
Need to leave CA, Perhaps we need a refresher course in accounting 101?
If the slowdown continues, the building department will abandon its six-day workweek in favor of five days, Kymalainen said. Three new inspectors planned for the upcoming budget year won’t be hired.”
Oh yeah, a housing downturn will only affect the construction and RE sectors……..right! This boom has it’s tentacles in every sector you can think of. Avoid a recession? No chance!
Yes it is true, I have a friend who works in construction, HVAC work on new construction. He has been working in Spring Hill Florida (Hernando County) for the past 3 years. It has been all that he could do to get the work done working 12 hour days 6-7 days a week. Since about December last year the work has been slowing up. This past month he has very little work to do and this past 2 weeks has not had any jobs. He states that the county is no longer giving permits for new construction. Also I have noticed that some new projects that were started since the begining of the year have alot less activity, and one site near my work has NO activity. They were loading up the equipment as I drove by today. One foundation and brick work only in the entire thing, and no one has worked on that for the past month. Also realator that I know has had very little activity at all on the purchase side. last 2 deals fell thru on financing. This realator has quit taking any listings that are not priced to sell and the ones that are get no traffic on open house days.
‘There’s a little bit of blood in the streets,’ Magnuson said.
And in related news Magnuson was happy to report on a personal matter that he was relieved to hear his mistress was “only a little bit pregnant.”
Black Knight to Cote: “it’s only a flesh wound !”
Suddenly the yield curve looks a lot more inverted than just a few days ago (6mo yield is 11 bps above the 30-yr) . Is the bond market trying to tell us something important? How come risky homebuilder stocks are not listening?
http://www.bloomberg.com/markets/rates/index.html
I know that inverted yield curves are often precursors to recessions, but I don’t know why that is. Can anyone explain this to me? Thanks in advance.
Inverted yield curve implies that the market is betting on lower interest rates in the future, probably because the Fed will lower rates to combat a recession.
I recently move from the Port St. Lucie/Stuart area and have a lot of friends working in the construction and government industry. This place is going to be a HUGE mess. Port St. Lucie has very little industry, retail, etc… Their economy runs on construction. While the Mayor may say other communities would love to have a month of 221 building permits, the job loss coming is going to devastate that area. I like to think of it as Detroit and the automotive industry. If a automotive plant was producing over 700 cars last year and now they are only producing 221 cars, they going to lay-off about 60 to 70 percent of their workforce. Add in the multiplier of government, retail, yard maintenance, suppliers who will also scale back and you have an economy about to implode. The shocking part of all of this is a lot of the government and construction works believe everything is going to be fine.
I really feel sorry for all my friends down there. Add in their ARMs and interest only house payment, rising insurance and tax payments and most of them are not going to make it.
I think things were overpriced,’ assistant building official Bob Kymalainen said.”
———————————————————————-
What a genius! …..and he knew the slowdown was coming too!
And he is the Assisstant Building Official,
I own about 100,000 sf of commercial space in Florida. It is all paid for, has been for years because my family has been in this business since 1959.
There are about 6 strip malls completed or under construction at present in my market. I own one and just re-upped my leases for all my tenants at fair rates for them and me. What is going to happen is when all this inventory comes online is the cash starved “experts” who decided a strip mall was the way to go will approach my tenants with very, very sweet incentives to move.
I decided to head them off at the pass by having the tenants reup their lease prior to the due date, I gave them a small concession in their next months rent to do so. The writing is on the wall, the commercial market here (just outside Pensacola) is going to be vastly overbuilt and there will be blood on the streets. I’ve been rat holing money for years and hope to pick up a few of these properties as they going in to receivership.
I decided a few years ago to diversify a bit and bought 3 single family homes (all foreclosures at great deals). I sold two of the three at the first of the year for very tidy profits and am keeping the third because it is rented to a friend of mine who is a neat freak, I know it is being very well taken care of. I kid my wife by telling her that I kept the third in case we ever got a divorce (not in the cards hopefully ever) she’d have a place to go. We should have sold the two last March and I told my wife that but they were rented, one of them to a good friend and I just couldn’t kick him out. That pause cost me about 40k but I am not one to look back, as I said I made good money on the sales, just not as much as I could have in early 2005.
It is a real hoot coming to this site and reading about all these “experts” who have or are going to get their clock cleaned in the next few years.
There are several residential developments that have recently been completed around here. In one of them not even a single lot has been prepped for a home and the big boys in the area have pulled WAY back. No new houses are coming out of the ground, they are just trying to get rid of existing inventory. I’ve been tempted to play prospective buyer to see what kind of percs they are throwing out now. No incentives of any substance have been advertised yet but I’d bet they are out there if one were to poke around a bit.
Oh, and God help all these experts when they go into the commercial market for insurance, the rates they factored in a year or two ago are now not worth the paper they are written on. The rates have gotten so bad that we’ve self insured on one property except for the liability portion (cost 2k for the liability). The building has 28,000 sf and I was quoted 25k for insurance with a 5% deductable for windstorm. So if a hurricane were to damage that building, I’d need not even call the agent unless damages exceeded 50K (building valued at 1 mil for insurance purposes). So I now have 23k for repairs and would have had to put up the first 50k anyway. I know plenty of contractors that could do a hell of a lot of work to that building for 73k. I hope everyone followed me on that one
Regards to all,
FLreappraiser.
Any experience with WCI and/or JOE? I am short these two from time to time and JOE has been having a nice run lately that I cannot figure out; WCI is still lagging.
Joe’s having problems with their super premium developments. None of their inventory is selling, and they’ve had to extend their original build-out dates in Watercolor and Watersound because no one is selling or building in the secondary market. The Rivercamps developments are also having a hard time convincing people to buy actual swampland for a premium price.
I still think they’ll do okay long-term because they’ve owned so much of their land inventory free and clear for decades and seem to be positioned to handle ups and downs in the market, but at least the next 3-4 years are going to be rough for them.
“‘People who bought these pre-construction deals hoping to make big money on them and now they’re stuck with them and it is eating them out of house and home,’ he said.”
Really? Awwwww.
No experience with St Joe. other than they have gone into the Mexico Beach/Cape San Blas area and driven prices through the roof. I think it was the WSJ that did an article on them a month or so ago that said they are having a hard time attracting buyers.
Jill is correct, they have the horsepower to weather any real estate dip be it prolonged or not. I read a book about the Dupont family years ago and that is where the money actually came from to buy their FL land. In fact, the land across the street from my office was owned by an distant heir to the Duponts until it sold in 2005.
FLreappraiser
Thanks for the info.