“Things Are Really Tough” In Florida
From Tampa Bay Online in Florida. “More than a year after launching one of the area’s most expensive condo conversions, Bay Communities is trying a novel approach to unload its unsold units at The Hamptons in Tampa Palms. The developer will sell 100 condominiums on Dec. 9 at a public auction, 40 condos will be sold ‘absolute’ - awarded to the highest bidder with no minimum bid.”
“The developer owes the county $1 million in back taxes. The Tampa Palms Owners Association also has a lien on the property for unpaid dues.”
“The Hamptons has 315 units, and they were the priciest conversions in New Tampa. As of this summer, Bay Communities had sold just 70 units. With 13 condo conversions in one year, most New Tampa developers gave up and started leasing the units again.”
The Palm Beach Post. “Florida led the nation in foreclosure activity for the third quarter of this year as adjustable rate mortgages came home to roost, a report shows. The number of households in foreclosure throughout the state spiked 55 percent compared with the second quarter of this year, and rose 26 percent over the third quarter of 2005.”
“In Palm Beach County, one in every 153 households was in foreclosure in the third quarter, up 26 percent over the third quarter of 2005. Foreclosures rose 38 percent over the previous quarter.”
“St. Lucie County foreclosures jumped 68 percent over the same quarter a year ago, and 65 percent over the second quarter of this year.”
“The median sale price of a Martin County home was $339,900 last year, $182,550 more than a family of four earning the median annual income of $52,450 could afford, according to Florida Housing Finance Corp.”
“‘If we don’t start solving the problem with the price of housing … we’re going to end up with a bunch of companies with no workers,’ Seacoast National Bank’s Teresa Idzior said. Stan Fitterman, adviser for the Florida Housing Coalition, added: ‘Or with no companies.’”
The News Press. “First Home Builders, Southwest Florida’s largest homebuilder and a division of national homebuilder K. Hovnanian, will lay off 50 to 75 workers, the company said today. Company officials said they are ‘adjusting the team to current market conditions,’ according to spokesperson Samantha Scott.”
“This summer, Bonita Springs-based builder WCI Communities slashed an undisclosed number of jobs.”
“‘Our results this quarter continue to reflect the impact of dramatically lower demand for our Florida traditional and tower homes,’ said Jerry Starkey, WCI’s president and CEO. ‘Traditional home cancellations were about twice our historical rate during the quarter and we also experienced a higher rate of defaults in our Tower Division.’”
“The aggregate value of traditional and tower homebuilding orders for the quarter fell 82 percent over the same period a year ago to $120.1 million, while the number of unit orders declined 81.5 percent to 140.”
The Orlando Sentinel. “Eugene Ralph fears his life savings may be lost, the $66,000 swallowed by a bankrupt Kissimmee company whose owner has been arrested by the FBI and charged with fraud.”
“Like at least 100 other investors, Ralph was told he could buy a newly converted condominium unit for as little as $150,000, but make no mortgage payments for two years. Ralph bought two units in southwest Orlando that Main Street USA had converted to a condo project. He has never been inside his units; he doesn’t even have the keys. But the two mortgages he signed are already in default.”
“‘I can’t even sell them,’ said Ralph, who lives in Kissimmee. ‘Things are really tough.’”
“Anthony and Evette Cortes of Orlando dug deep into their savings to make a $14,900 down payment on a condo unit in The Villas at Waldengreen. Main Street USA made two mortgage payments, then Main Street USA defaulted on its promise to pay its condo investors’ mortgages for the first two years.”
“The couple has been making the payments since then, but they say it isn’t easy coming up with $1,128 each month in the hope of keeping their investment alive. ‘It’s tough,’ said Cortes. ‘I’m working a lot of overtime trying to make ends meet.’”
“The site of the old Langford Hotel in Winter Park, torn down to make way for luxury condominiums and a new, five-star hotel, has been put up for sale, a partner in the project confirmed Monday.”
“After the purchase, the buyers announced plans to develop luxury condos and an adjacent, five-star hotel with such amenities as a spa and 24-hour concierge service. The condo hotel was supposed to have somewhere from 110 to 158 rooms. The 23 condominium units have all been built and all but four have been sold, Heistand said.”
“He said the condos were not sold with any promise that an adjacent hotel would be built. ‘We put nothing like that in contracts,’ said Jim Heistand, president of the Orlando investment company that developed condominiums on part of the property. The condos sold for more than $1.75 million each.”
I hope the problem with the News Press links is temporary. Related links:
‘As state-run Citizens Property Insurance Corp. reluctantly pads its lead as the largest property insurer in the state, its risk exposure is also piling up at record levels. That exposure last week had ballooned to $396.5-billion on 1.3-million policies, nearly twice what it was at the end of 2005.’
‘Shares of Technical Olympic USA Inc. plunged nearly 30 percent in morning trade on the New York Stock Exchange. In a statement, Technical Olympic said ‘problems’ at the Transeastern JV reflect its inability to sell enough homes in a slowing Florida housing market and were not a result of Hollywood, Florida-based company’s actions.’
hey housing bubbles comrades:
the decline appeared to take on a life of its own, too much reminiscent of the ascent only three years ago (three damn long years if you ask me). anyhow, no matter what anyone says, greenspan or the rest of the RE goons, it’s going to get ugly. haha.
David Merkel
Improper Financing Will Keep Housing in the Frying Pan for Now
11/7/2006 3:09 PM EST
Perhaps there’s no such thing as a bad asset, but there are often assets that are mis-finanaced. Houses are long-term assets, even for those who are only planning on living in them for a short period of time. Ordinarily, housing is a stable asset, usually not declining much in price ever, unless unemployment shoots up disproportionately in an area. (Think of Houston in the mid-’80s, after the last big energy bust, or Detroit now.)
Even stable assets can be over-levered, or financed with the wrong sort of debt. Floating rate debt, or debt that negatively amortizes, can provide nasty surprises in the wrong investment environments. People who finance their houses this way are implicitly betting that all the income earners of their home will continue to earn at current rates or better, and that no unforseen disaster might happen, such as bad health, accident, divorce, major damage/libility not covered by insurance, forced relocation, etc.
Time and chance happen to all men, so there will always be some disasters. This forces some degree of selling into a soft market where there aren’t a lot of buyers knocking, because there isn’t a lot of fresh equity or untapped borrowing capacity. There have been large-scale home auctions in California and Florida. Both are places where employment is pretty good. Many of the houses did not sell, and those that did sell sold for around 2/3rds of the asking price.
Employment does not tell the whole story with housing. Most of the time it does, but not now. Bubbles by nature are financing phenomena; they pop when cash flow becomes insufficient to support the financing. This is just my guess; take it with a shaker full of salt: I think we are in inning four of the housing price retracement, which began in September 2005. Maybe it will be over by the time we get a new President.
PS — Be aware. Strong bull markets bring out scams because of greed. Scams also appear in bear markets because of fear. Be very careful when anyone offers you an unusual deal in residential real estate; it could be a scam.
Position: none, but the hedge fund that I work for has numerous negative bets on housing, and those who finance it, supply it, etc.
I agree with the general gist of that article, but its a mistake to consider financing as part of an asset–its a liability. Now if you’re smart, the asset will outlive the liability and the marginal benefit of the asset exceeds that of the marginal cost of the related liability.
Its been said here before countless times, but it bears repeating: When you buy a house, you are acquiring a 100% liability, not an asset: there is no net gain in assets (any cash you put down is transferring one asset to another). Slowly over time you gain ownership of the asset and reduce the liability. The tax deduction is simply a counter-liability, not an asset in itself (conversely, depreciation is a counter-asst, not a liability).
Depreciation is most definitely a liability!
If you don’t believe it, I have a rotten zuccini to sell to you. The rotting was a “counter-asset” as per your definition.
And in any case, there’s no distinction between a “counter-liability”, and an “asset” (except that the specific example can be repealed by Congress any time.)
The author of the article is a student of very modern finance, which takes an interesting perspective that essentially you don’t budget dollars you budget risk and when considering the risk of a transaction (either alone or in conjunction with your total portfolio of transactions) the financing of the transaction is a key part of the whole risk level. There are many items that would increase or reduce the risk (a levered home in Washington DC would have a given level of risk, but combining that with a position short a similar level of housing futures would change that risk position substantially).
It’s very different from traditional accounting methods that are measure only cash and value transactions.
As that funny satire site said and I paraphrase from memory: it’s impossible to pay too much for a house, it’s guaranteed to go up 20% per year. Why pay $600K for a house when you could offer $700K and be guaranteed 20% return?
Also Mort. Fraud.. ‘ Bonnie & Claudes ”
http://biz.yahoo.com/special/housing110706_article1.html
..soon to be daily headlines in the next year I’m sure.
“Like at least 100 other investors, Ralph was told he could buy a newly converted condominium unit for as little as $150,000, but make no mortgage payments for two years….”
Wait a tick! I thought the RE industry was trying to get rid of speculators. Offering to pay buyer mortgages for 6 - 12 - 24 months makes it even easier to speculate, IMO.
“Main Street USA made two mortgage payments, then Main Street USA defaulted on its promise to pay its condo investors’ mortgages for the first two years.”
Brings to mind the ‘price guarantee’ promises smaller builders are offering. If the builder goes BK, they’re worthless! Buyer beware, be very aware.
Right , builders aren’t trying to attract speculators ,right ,sure . Wonder if the lender approved of the 2 year builder pay payments incentives or was that another under the table deal just to get the lender to make higher loan amounts .What a mess .
All my warnings to this site are starting to happen like clockwork
Screw this incentive stuff people ,get a lower price .
Is that in the Trump seminar? Make promises you can’t keep and file BK?
Holy sheepdip Batman!
Florida led the nation in foreclosure activity for the third quarter of this year as adjustable rate mortgages came home to roost, a report shows. The number of households in foreclosure throughout the state spiked 55 percent compared with the second quarter of this year, and rose 26 percent over the third quarter of 2005.”
And the major ARM resets start NEXT year. Where oh where is Lierah?
She is falling hard and she is falling fast. Hurry! To the bubble-mobile.
Hopefully the NAR got tired of the flak and put a leash on him. Likely in a back office somewhere proctoring exams for new agents.
And WCI’s earnings projections are based on selling a lot of condos this winter. They say that if people cancel their orders, they can easily replace them with new buyers with a 10% drop in prices. Since 30% drops in prices don’t seem to be moving condos in Florida, this plan seems shaky. However, Wall Street seems have bought the plan, since WCI is up about 5% today. (disclosure–I’ve done well on WCI puts and am holding my Jan and March positions to see what they can pull off).
Ohhhh, brother! This is just the start, too. Florida is going down the tubes faster than I thought. I guess we knocked Colorado out of first place in foreclosure activity. Wotta mess! Unfortunately, both of the front-running goobernatorial candidates are so anemic, there an end to the pain any time soon. I’m also getting nervous about the “affordable housing” noises. It’s so unnecessary. There will be plenty of affordable housing shortly, so just leave it alone already, that and taxes. Just fix the insurance issue and Florida will adjust. Damn! I miss those old time smoky-back-room Florida Democrats. Yeah, they were a little corrupt, but when they negotiated with big business, they always made sure they got something for the peeps in return for favors.
Palmetto — LOL — remember the old “Bolita” days? I think that back then, we were sort of an amateur Louisiana.
Hey, Chip, the heyday of Bolita was before my time, but there’s always cockfights and jailai, although since I moved out of South Florida, I don’t hear much about jailai. I know you are thinking of moving, but if you can hang in here in Florida, things will get back to the good old days, I have a feeling. Believe it or not, I’m hopeful, now that things are tanking fast. BTW, I’m hearing Palatka’s the place to be. Never had a bubble and the insurance is low. What do you hear?
“In Palm Beach County, one in every 153 households was in foreclosure in the third quarter, up 26 percent over the third quarter of 2005. Foreclosures rose 38 percent over the previous quarter.”
Ugh oh… We’re looking at a situation where you might actually have REO’s appearing on the market faster than the natural absorption rate of housing! Forget new home sales and forget normal resales, we’re talking a completely locked market!
Folks, for this to persist is *really* bad. Normally I don’t like government intervention and I certainly don’t want to see a bailout. I’m calling for the reforming of the NRT in 1Q 2007. Palm Beach country neads help ASAP.
Neil
But who will be the new owners? Surely not the subprime lenders that repackaged the mortgages.
> I’m calling for the reforming of the NRT in 1Q 2007.
What is NRT, and why and how would you like it to be reformed?
The Tokyo airport? Yeah, they need a full-length runway so that two 747s can land at once.
Did I get the initials wrong? IIRC National real estate trust. The government agency that disposed of all the defunct mortgages in the 1993-1996 timeframe. By having it processed through the federal government, the various leins on a property could be cleaned up. Basically, the government takes over a foreclosed property, lien holders declare their stake. When the lien holders agree to their stake (and if they don’t, the government can just reduce it), the property is auctioned. Thus a property isn’t a rotting blight because there is a lien for 1st mortgage, 2nd mortgage, HOA, taxes, roof repair, lawn service, etc. As these liens often add up to more than a property is worth. Each “stakeholder” is promised a fraction of the homes auction sales price. Upon completion of the auction, all liens are dismissed. Otherwise you just end up with a bunch of homes in dispute of the final owner.
although the runway idea might be great!
Neil
Thanks for the explanation.
yeah, there will be a NRT — but this time, they will let the FBs keep the house. I forgot about that; before my time — I’m 29. Think about it — this would be a great way to pump $$$ into the economy by letting the government “nationalize” real estate (ultimately hold the lien, and let the FBs become leasers). Oh, renting from Uncle Sam would not be fun, but I could see something like this happening down the road. thoughts?
“Oh, renting from Uncle Sam would not be fun, but I could see something like this happening down the road. thoughts?”
Abysmal an idea as it may be, I too have considered that to be a distinct possibility. Sign here, comrade.
Badger boy,
You’re going to be more correct than you realize but off on the final owner. The previous NRT often went FIRST to the FB (in 1995/1996) if they qualified for a mortgage at some fraction of the home’s estimated value. The government didn’t hold onto the liens though. They simply provided a clearinghouse for sales. However, not every FB qualified (e.g., job loss). The thought is the FB would pay a little more (to avoid moving) than someone at auction.
However, there is still that 1099… And this time, there are a bunch of buyers who did commit fraud. Ok, some will get away with it, and that pisses me off!
Even more won’t be able to pick up the home prior to auction. Those that will excluded:
1. Investment/2nd homes
2. Major income drops (e.g., the lazier realtors ™)
3. Those who do not have a high enough FICO
4. Those that lack legal citizenship
5. Those who used multi-family mortgage
and I’m sure I forgot a few…
Neil
I think it was Resolution Trust Corp.
“The median price of a Martin County home was $339,000 last year.” Let’s see, I bought a Martin County house in 1972 for $18,000 and sold it in 1981 for $41,000. Evidently it doubled 3 times since then. What if I had just kept those 12% muni bonds that I bought with the proceeds? Wait a minute, i DID keep them. But eventually they were called. Too bad. Well, my point is, despite the apparently obscene run-up in housing prices, savers can do pretty well too.
Aleem Hussain
sorry folks, but i ain’t buyin no cheap hotel from anybody with this many vowels in their name
He picked up those vowels cheap on Wheel of Fortune and must be trying to flip them for triple the price.
I have a realtor in my family…. has anyone else noticed that when one of their listings sells its ‘he/she sold the home’ but when it does not sell its ‘it did not sell because bla bla’….. its never ‘i failed to sell it because bla bla’.
posted ” I have a realtor in my family….”
Try Dr. Phil maybe he can help?
I thought there was already a 12 step program.
“Anthony and Evette Cortes of Orlando dug deep into their savings to make a $14,900 down payment on a condo unit in The Villas at Waldengreen. Main Street USA made two mortgage payments, then Main Street USA defaulted on its promise to pay its condo investors’ mortgages for the first two years.”
“The couple has been making the payments since then, but they say it isn’t easy coming up with $1,128 each month in the hope of keeping their investment alive. ‘It’s tough,’ said Cortes. ‘I’m working a lot of overtime trying to make ends meet.’”
This sucks. Time for some white collar crime capital punishment sentences. These who conduct investments scams probably should be shot. We don’t need them around.
Gee, someone promises you a can’t lose investment for an intial downpayment paybable immediately? I met this Nigerian guy with the same offer.
no, americans shoul know better then to be so gulable these days. come on say it with me…”IF IT’S TOO GOOD TO BE TRUE, IT PROBABLY IS”!!!!
How’s this for scams…kind of a long article but a good read.
The Bonnie and Clyde of Mortgage Fraud
http://preview.tinyurl.com/ucfl2
This link takes you directly to the article…I don’t know what in the hell tinyurl is doing…they are issuing two web paths now
http://tinyurl.com/ucfl2
Sorry Kurt , I added that above also..you beat me ,and didn’t read down yet..
no problemo…happens to the best of us!
Well worth the read. Riveting. Thanks for sharing.
The only thing surprising about mortgage fraud is that there isn’t more of it. Its so damn easy for someone with no morals or ethics. And mortgage companies are accomplices through their extreme lack of due diligence.
Pete — “The only thing surprising about mortgage fraud is that there isn’t more of it.”
We don’t know that, yet.
You will know the bottom is in when nobody among the general public wants anything to do with real estate, when everyone thinks you’re crazy for even thinking of investing in real estate. That will be the time to consider buying. We’re not even close yet.
Amen. Those who have posted recently wondering if they should start making low-ball offers only run the risk of catching the proverbial falling knife.
Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.
Warren Buffett
There are three kinds of people in the world: those who can count, and those who can’t. Warren Buffet
Consumer Borrowing Down in September
http://tinyurl.com/yjmpa3
This part of the thread is excellent. Bubbleviewer you are 100% correct! When everyone thinks RE is bad, then you will know it is time to come out from the rubble and start looking for deals. Luvs, your quote of Buffet is correct. Don’t buy ANYTHING for an investment if you aren’t willing to hold for ten years. OCKurt, thanks for that story. I wonder, is this the beginning of the end for the American consumer. I am sure we will have an uptick w/the holidays coming, but January is usually very bleak and what will happen after that? Me thinks this is the beginning of the slide, esp. since housing is only going to get worse.
Just talked to a buddy of mine who knows the ins and outs of Winter Park real estate. It’s his understanding that the developer wanted to build the condo, but couldn’t get the variance without promising to build the hotel, too. So surprise, surprise, surprise — condo’s a go and all of as sudden he can’t justify the hotel. Also heard that most of the unsold condo units are the 1BR units that were supposed to be condotel ones, and no one wanted to buy in and have their unit used as a hotel room.
I couldn’t make this crap up.
http://www.local10.com/news/10262433/detail.html
PLEASE notice the profession listed of the individual in question. Things must be reaaallly bad..
I’m kind of jealous.
I would have expected someone up here in Illinois Tollway land to have thought of this first.
We used a variation of this in the 70s playing foosball (when it was kind of big). We’d stick shirts into the goals to stop them up. At least I wasn’t an adult!
And note later in the article they visited his “$350,000 house” for comment. I guess the home ATM is out of order.
Desperate times call for desperate measures.
Here’s a good one: I bumped into a student of mine (I teach and tutor the GRE and GMAT part-time, something I’ve done off and on for years) at the Barnes & Noble in Jacksonville on Sunday. In his hand was a book with a title like “How to Make Money in Foreclosures.”
We got to talking - he works at CSX, the rail freight company headquartered here and apparently makes good money - but wants to go get an MBA and become an investment banker - BTW, that won’t happen, he’s just not that bright.
Anyway, meanwhile, he thinks the Florida real estate market is ripe for appreciation! He wants to buy a house in foreclosure, rent it out, make an extra couple hundred a month! Why? Because Florida is different! Everybody is moving here! Why (he told me), in 20 years we’ll have more population than New York! Florida is growing like crazy - we’re building new track all over Fla. and Ga.!
The point is, the guy has ZERO sense of history. He was amazed when I told him that when I was a kid growing up (in Va.) Florida had a population of less than 3 million and there was nothing between Daytona and south Florida - he honestly thought the boom had just started and here was a chance to get in and get some.
I was very cautious in everything I said, even understating my true beliefs about the difficulty (impossibility for him) of trying to make money in this market - but I did let him know about the tax and insurance situation; he seemed genuinely surprised that I wasn’t more bullish. But, fortunately, he had a decent opinion of me to start with, and so by the time we stopped talking I think he had already decided to not buy the book - I think I noticed him putting it back a little later. Man, this guy should stay with CSX - if he wants to make money he doesn’t know how good he has it right where he is.
It’s this lack of perspective that just kills people, esp. in bubbles. I know some boomers and older have also gotten caught out, but judging by what I see there are a lot of 20-something sheep with dreams of riches still out there waiting to be sheared.
I was befuddled a long time as to how people could think a train wreck like this could resolve itself positively after seeing the last one.
Then it occurred to me. A lot of people who are buying into or bought into this line of BS were in high school or college during the last bust! They didn’t see it!
Once I had that epiphany, the rest became much easier to understand.
TxChick,
I was befuddled forever working in New York trying to figure out how people could spend what they did spend.
After a few years, I figured it out. It’s not that I’m poor, it’s that they are all leveraged up to their eyeballs!
Unbelievable!
That kid doesn’t realize how much you really helped him.
As my old boss at Yellow Freight said…”What we do here isn’t brain surgery, folks…”
Paul posts “The point is, the guy has ZERO sense of history.”
This is the single greatest failing, from bonehead kids like this and our current leadership in most parts of government. The last book any of them read was TV Guide.
Paul posts “The point is, the guy has ZERO sense of history.
It’s this lack of perspective that just kills people,
GWBush
Not just kids are nuts. Just came from a conversation w/ a 65 year old friend. She and her guy are looking to move up from their $160K(?) house to maybe $250-$350K. She said if they found just what they wanted, they wouldn’t worry too much about whether the present house is actually sold before buying the next one. I told her this was a very serious mistake that a lot of people around the country had been innocently making, just recently. She said they could rent out the old house and it would cover their costs. I said fine, but your equity will be evaporating. She went into a non-sequitur about some NYC apt whose value increased 20-fold. I said that was exactly the problem. In the end, we agreed to disagree, and I just repeated my warning about not buying the bigger house till the old is sold.
Paul — good story. Thanks.
OT………but from Australia……interest rates up .25% as of today
http://www.rba.gov.au/
Never been a better time to buy a house…….(sarcasm off)
That must really hurt FBs in your neck of the woods, particularly those hoping for a bailout.
From the Orlando story, “Hussain has been charged with mail fraud, accused of telling investors that their money was insured by the Federal Deposit Insurance Corp., which wasn’t true, according to the criminal complaint filed against him.”
More evidence of the moral hazard argument related to risk taking behavior. Here we have a group of investors who were duped into thinking their investments were FDIC insured. If Hussain had not claimed the investments were FDIC insured, do you think investors would willingly give him their money?
I’ve heard of a recent scam where people go into towns near mountains and buy up substantial amounts of property. Then they start a rumor that someone’s going to develop one of the local mountains into a ski resort. Naturally, prices skyrocket and the grifters dump their now price-inflated properties on the local hicks, who are busy buying up their own town in anticipation of riches. Then the resort project is canceled and everyone else is screwed. My friend’s cousin bought in, now he’s a FB.
Oh yes , the “market makers “. Seems like everyone was advertising their area as the next great investment /baby boomer perfect location spot . I wish somebody who posts here could comment on some of these seminars that were pushing these investment locations .
“The median sale price of a Martin County home was $339,900 last year, $182,550 more than a family of four earning the median annual income of $52,450 could afford, according to Florida Housing Finance Corp.”
It amazes me how few people see a problem with this (current company excused). I recon it should be possible to come up with pretty good figures on just how many defaults and foreclosures there will be over the next 2 years, given the facts at hand. The press announces each increase like “surprise!” when this was easy to spot at a distance.