Lenders ‘Pull The Plug’ On Florida Condos
The Naples news has this report on Floridas housing bubble. “With season in full swing in south Lee and Collier, the first signs of what a cooling-off of the real estate market here looks like are starting to emerge. The market is flush with sellers, many seeking to cash out on appreciation gains that have been among the highest in the country.”
“It’s a buyers market in the two-county area, ‘but the sellers don’t know it yet,’ said Joe Ballarino, a past president of the Naples Area Board of Realtors.”
“As of last week, there were more than 8,000 homes and condominiums on the market in the Naples area, almost as many as the roughly 8,900 that sold during all of last year, Ballarino said.”
“Carol Dicupero, an agent in Naples, said prices appear to be coming down daily, but buyers aren’t jumping in. ‘Buyers may be taking a wait-and-see attitude,’ she said. Downward price pressure is a function of how desperate sellers are to get out of the market.”
“The hundreds of units that have washed onto the market represent a sharp contrast to the fall when business and government leaders, worried about an affordable housing crunch, noted that there were less than a handful of units on the market for under $200,000.”
The Palm Beach Post. “Major commercial lenders are withdrawing from financing South Florida condo construction and conversion deals, another sign the overheated market may be too hot to handle. ‘We are seeing lenders overall pulling the plug,’ said Dan Kodsi, a developer in Boca Raton.”
“It’s not only lenders on the construction end who are newly nervous about risk. The federal government hopes to damp the sale of exotic home mortgages which enable even credit-poor prospective homeowners to buy. So, even if condo developers get financing, condo buyers may not.”
“The likely upshot: ‘There are many thousands of condo units announced as future projects or in the planning stages that will never get going,’ predicts Bradley Hunter. ‘They won’t even get to the starting line.’”
“You don’t have to be a real estate whiz to spot the early warning signs that condo financing is being hamstrung by everything from the high price of construction to skittishness over rising interest rates. ‘See how many are dark at night,’ said Jack McCabe of condos newly on the market. ‘There might be one light on for every 20 units. People are not living there. It is the height of the season, but they are sitting dark.’”
“Rebel Cook, a local broker, said, ‘People call me every day asking me to sell their properties.’ Real estate agent Darlene Delano said when she recently took a client to view a North Flagler condo, it was empty. ‘This is a four-story building and we did not see one person while we were parking, or on any floor,’ Delano said. ‘In fact, we didn’t see anyone from the time we walked in, to the time we left.’”
“Even ‘pre-sold’ buildings are struggling. That’s because would-be owners who put down deposits thinking they would secure a 2.5 percent interest rate mortgage are now facing rates of 5.5 percent and higher, just as the condo is ready for occupancy, and they have to sign mortgage papers. ‘Within the last three weeks, I have seen several reservation holders who walked away from earnest money deposits,’ McCabe said. ‘There was a fellow who had put over $100,000 down who walked away.’”
“The more optimistic believe that empty condos will ease the shortage of affordable apartments, as investors who can’t sell opt for leasing their empty units. Delano said she represents several people ‘who have bought units and now are unable to sell them, so they are contemplating renting.’”
“But, she said, most condo deeds restrict rentals. Further, ‘People are not going to be able to rent these out at anywhere near the amount needed to cover’ their costs, McCabe said. That’s because many of the new units were designed to appeal to the luxury market, and a lease big enough to cover seven-figure mortgages is out of reach for many renters.” “Balin agreed. ‘The numbers don’t work as a rental,’ he said.”
Remember the “economist” who last year stated that South Florida had entered a new paradigm and the boom would continue for years to come. I need to find that quote (it was in a NY Times article - “new dot com or something)
Did he perchance mention that the South Florida RE market had reached a “permanently high plateau”?
South Florida,” he said, ”is working off of a totally new economic model than any of us have ever experienced in the past” according to a realtor who predicted that a land shortage will support higher prices indefinitely.”
- New York Times, Trading Places: Real Estate Instead of Dot-Coms, 3/25/05
Found it, unfortunately my memory was a little off.
Look at this “appraised value” vs. asking price. WTF?
http://fortmyers.craigslist.org/rfs/134978295.html
“It’s a buyers market in the two-county area, ‘but the sellers don’t know it yet,’ said Joe Ballarino, a past president of the Naples Area Board of Realtors.”
Give the sellers a year or two with no success in selling overpriced homes in the path of this year’s Cat 5 hurricanes. They will eventually figure it out.
Does this guy think he can wave his wand and presto - it’s a buyers’ market. Maybe it will be a buyers’ market when prices drop 50-70%.
Maybe they ran out of buyers.
I was talking with a friend of mine in Fort Myers yesterday and he said that the City of Naples was having trouble finding Assistant State Attorneys for $80,000/year because prospects couldn’t afford to buy a home in the area.
I’m dreaming of Naples this morning because of this frigging ice storm we have in Dallas.
Asst. State Attorneys making $80K is a laugh. Most ASAs in FL make less than the cleaning crews that work in their offices.
Maybe that’s the reason why millions of Mexicans have moved to the US and taken those jobs.
That’s what my friend told me - I didn’t check it out because I haven’t taken the Florida bar exam, yet.
I promise to rent one of these white elephants for 1/3 of the mortage costs, provided the owner promises to feed any squirrels on the premises. Oh, they must write a four-page essay explaining what they’ve done to deserve to have such a credit-worthy renter such as myself gracing their overpriced “investment” with my presence.
I friend of mine and her whole family bought preconstruction condos in Naples just so they can flip it in a year for a 100k gain.
Looks like they arrived to the party just as everyone else finished drinking all the kegs. Looks like they’re stuck with cleaning up the vomit.
I assume most of the flippers have not taken Econ 101. It boggles my mind how they assumed prices would keep going up. Their is going to be blood in the streets as flippers must sell for a loss to compete with developers who have cut the rates on their new construction.
Look all you stupid bears always say it’s going to go down and it didn’t in 2002, 2003, 2004, or 2005 so just shutup because obviously it will never happen.
TxChick wonders about the Palm Beach Gardens property selling for 40% of appraisal. The guy surely paid less and just got his hurricane insurance bill and tax bill. If his appraisal is $1.2 that may be the taxable basis. What’s the rate these days around Fort Meyers? 2%? Ouch.
In the article the kind of people who can and do walk away from $100,000 deposits may have been stupid to put that much down but if it was say 10% on a $1m then it was what was required. They might have been smart investors. Smart investors know it is possible to lose money and they know when to take a loss. Following up with $900k in debt and facing $1k HOA dues and $2k taxes (each per month) on a condo worth anything less than $1.2m is a bad investment. I see no shame in walking in those cases.
The sheeple never learn from history. I used to live in FL- moved there in 96 and RE was down due to the hurricane Andrew aftermath. In Fort Lauderdale, a condo on the beach could be had for less than 100K as people were afraid to live in them. The market is “cooling” now- imagine what a hit from a cat 4or5 hurricane will do to the market?
If Florida gets hit with another bad hurricane season I would expect prices to be down by 35-45 % this time next year. Who would buy under these circumstances?
I’m already seeing condo price drops in Orlando. The Crest at Waterford Lakes, which I lived in as a renter before it was converted to a condo complex, recently dropped its asking price for a two-bedroom unit. When I moved out in October, the asking price was $225k. Now there is a big sign attached to one of the (very empty) buildings listing a price of $195k for a two-bedroom. Now, IMHO, $195k is still crazy money for one of these shoeboxes, but it’s interesting to see such a drop. The problem for the Crest is that now the going rate seems to be even lower. So these guys may very well keep chasing the going rate right down the toilet.
I used to live in Thatchers landing in Waterford lakes 6 years ago. I remember how proud I was to sell with a gain of $9k in a year. I should have kept it as a rental!
I think the lustre and allure of the PB County/Naples market as the WASP paradise may be taking a beating from the hurricanes.
My wife and I were down in WPB the week before last. PB County as a whole is still recovering from 2004 hurricane damage as well as Wilma damage last fall. Both of us were born and raised in Florida over the last 30 years and had never seen such entrenched economic loss. Of the more obvious signs: We flew in over Broward/PB County and fully 25% of the houses east of I-95 still had blue tarps pulled over the roofs. Roadside business signs made out of glass and lighting were still broken or blown out all over the place.
Locals tell us electricity outages last fall were the longest and worst. Local businesses have taken it hard. We even saw a McDonalds laying dark with blown out windows in a bustling neighborhood. You know it’s bad when Mickey-Ds doesn’t come back.
The 2005 gains on the heels of the 2004 hurricane season mystified me. Locals say that Wilma may have pre-saged a breaking point for many recent imports to the area as well as the Naples/Punta Gorda region and that the economy in S. Florida is much worse-off than anyone realizes.
Some irony if hurricanes pop this Florida housing bubble?
Indeed. I have a colleague down there living in a 3-bedroom single-story cinderblock house in WPB proper who just received his Citizens hurricane insurance bill for the year - $1200. This is on top of his other annual casualty insurance costs and a whopping property-tax bill from PB County that knocked him off of his feet (he bought in 2004).
as there are deductibles for the insurance policies, every household took some type of direct hit to their pocketbooks ($10, 20, 30K). add lost income from wilma, increased taxes and insurance, and you have a real economic hit on the general economy.
we were fortunate enough not to have any damage from Wilma as we live in the extreme northern part of Palm Beach County. We got the eyewall of the storm, but the north side was not as bad as the south. Anyway, even those of us with NO damage are paying out the wazoo for insurance. Our 2,400 or so sq. ft. house costs about $2,300 to insure per year, with something like a 2% deductible in the event of a storm (meaning any cane damage claim will cost a few thousand dollars BEFORE the insurance kicks in). It’s definitely a major expense. The tax and insurance portion of our monthly mortgage payment alone adds up to several hundred dollars a month.
What about the Spring sales season? Any thoughts if sales will pick up or its going to be a season with very few sales or a season where sellers price to move the propoerty?
I guess after this article I’ll be hearing from the guy in Naples who rejected my offer in January. Too bad, it would be lower this time. I knew it was nuts to buy there now but I really liked the place.
Historically bubbles always end when the liquidity dries up… and not before.
The short-term rates were the driver. Long-term rates were irrelevant.
1% teaser rates are soooooo 2004.
Haha I like this last line from the Palm Beach Post article:
“And, of course, building has not ground to a complete halt. About 600 showed up at The Related Group of Florida’s recent party to unveil its tony ICON Palm Beach, a 21-story residential tower on Flagler Drive. According to a spokeswoman, two people signed contracts on the spot.”
I wonder if the developer considered his party a “success” because he got 2 contracts out of the 600 people that showed up? Last year he would have had 600 fools in line waiting overnight to sign contracts; this year 598 people in line for a free meal, and 2 suckers that actually buy…
…and those units aren’t actually “sold” until closing. The two folks can walk if they are willing to forego their deposit. The developers of ICON are the same that scrapped their plans for ICON Las Vegas (guess they feel they can still get a few suckers to bite in Miami or I think they may be too far along with development to pull out at this point. Is this the phase III ICON?)
When I left my apartment-going-condo complex this morning, there were four U-Hauls lined up in the parking lot, all being loaded by what looked to be parents of the people moving out. I ran into a neighbor, who said that it is like this during the week too (she works from home and is around during the day), and she said that she has talked to DOZENS of residents who are all leaving, and hasn’t met a single person who opted to buy at the $300/sq. ft. prices the converter is asking. They announced the conversion at the beginning of Jan., and you have to give at least 30 days notice to terminate your lease, so I expect that it will be a pretty steady stream of people moving out–I’m leaving in mid-March.
Oh, and my neighbor also said that when the Bay area had that bad rainstorm a couple of weeks ago, that water was GUSHING through the ceiling and down the walls of her second-floor apt. The funny thing is, there is an unoccupied unit above her, so the water had to flood through that floor first. I don’t even want to think about the damage, or what would happen if a hurricane ever hit. The building was constructed in 1998 and has some of the most wretched construction quality I’ve ever seen. The morons who actually buy here are going to be hemorrhaging money within a few months, if they can even get financing or insurance.
Asst State Attorneys in Naples start at 40K. Home ownership is out unless you marry someone wealthy or mom and dad help out.
plus the possibility that 3 or 4 flippers may bear the entire hoa cost of a 12 unit building. that adds 300 - 500 or more a month to the cost of ownership.
There are many houses on the market with major hurricane damage- Blue tarp roofs, blown out screen enclosures, etc. I have been told that there is almost a YEAR wait on roof tiles and screens. Prospective buyers do not want to make a $500,000 purchase and not be able to go on their back porch in the summer because they will be eaten alive by mosquitos without the screens. They also do not want to worry about the NEXT hurricane season approaching in a few months with only a tarp on the roof.
I agree we are still in the denial stage. Sellers think that they can still get last years’ prices. I am waiting for the spring when the listings will again double from the present levels.
It seems like some of the greatest excesses will prove to be in markets where many were lulled into think that it’s different here in “________”. South Florida is different — baby boomers will be moving here in droves as they retire, everyone wants a second-home in balmy Florida, etc. Washington D.C. is different — lots of government workers, steady jobs and income, growth in jobs from Homeland Security Defense, house prices here have never gone down. This kind of thinking, that’s its different here, lead to some pretty big risk taking because “investors” discounted the risks too deeply.