“Warnings Of More Softness To Come”: Florida
The Palm Beach Post reports from Florida. “From 2000 to 2005, the bookends of the boom, the median price of an existing home in Palm Beach County and the Treasure Coast shot up close to 200 percent. The result was that a number of first-time home buyers resorted to interest-only loans, no-down-payment loans, adjustable-rate mortgages and option ARMs to stretch their buying power.”
“Now those ARMs are beginning to reset, which means higher monthly payments.’As ARMs adjust higher, and as tax and insurance bills surge, more homeowners can’t afford to live in their houses,’ said Mike Larson, an analyst for Weiss Research.”
“However, don’t be so quick to point a finger at ARMs, says Jim Sahnger of Palm Beach Financial Network in Sewall’s Point. ‘The majority of those in trouble now aren’t buyers who took out ARMS,’ Sahnger said, ‘but rather those who bought investment homes they meant to flip and have been unable to do so. They never anticipated they’d be competing with the builder who’s selling homes for less than the mortgage they have on their house.’”
“In build-happy St. Lucie County, foreclosures in the third quarter of this year soared 68 percent compared with the third quarter of last year, 2.5 times the rate in Palm Beach County, records show.”
“Weary of waiting for condos to come out of the ground, 24 would-be buyers of Palladio Terrace have sued the project’s Miami developers for the return of their deposits.”
“This spring, with no building permit in sight, several buyers were ready to take their deposit money off the table. ‘We have had virtually no response except an offer to transfer our deposits to one of their properties in Miami,’ said Jack McGregor, one of the people suing Merco.”
“Both Meruelo and Merco CFO Tony Castro have said they are hoping that the season, with its influx of out-of-town buyers, will help Merco push past the sales threshold needed to meet key construction loan criteria.”
“In the meantime, money demands are stacking up. The company that sold the Flagler property to Merco is suing Meruelo over a $5 million bonus linked to the sale. Delinquent property taxes now total more than $700,000, according to Palm Beach County tax collection records.”
The Sun Sentinel. “Shares of Technical Olympic, based in Hollywood, dropped 35 percent. The shares had fallen 49 percent this year before Tuesday’s decline. Technical Olympic said it had received a demand for payment from Deutsche Bank Trust Company America related to financing it provided in connection with its Transeastern Joint Venture.”
“In a letter to Deutsche Bank dated Monday, Technical Olympic said the venture’s ‘problems” are a result of its highly leveraged capital structure and ‘adverse market conditions.’”
The Naples News. “More layoffs could be on the way at Bonita Springs-based WCI Communities Inc. CEO Jerry Starkey said work force costs would be reduced about 15 percent through the end of the year. ‘Times continue to be challenging with much lower aggregate demand resulting in lower growth,’ Starkey said, referring to the company’s sliding statistics.”
“The worst offender in the turn of WCI’s fortunes? Southwest Florida. ‘Southwest Florida … that’s the area (where) we see the biggest decline year to date,’ Starkey said. Sales in Southwest Florida are down about 60 percent for the year, while Tampa is down about 30 percent and the Panhandle about 7 percent.”
“Traffic through the sales centers, something the home-building industry looks at to predict future sales trends, was down 59.5 percent for the third quarter compared to a year ago. The weakest segment in sales and traffic was active adult communities in Southwest Florida.”
“The condo market in general is suffering, Starkey said. ‘We are seeing very low demand for buyers in the tower market so we did not start any new buildings this year,’ he said. Next year will likely be the same, unless market trends change.”
“Whether trends will change is hard to predict, said Jim Dietz, WCI’s COO. For the year, the company will have a negative cash flow of about $100 million. ‘That’s a bit of a change from prior periods and reflects continued slow sales and higher defaults,’ Dietz said.”
The News Press. “The 15 percent cut announced Tuesday amounts to about 570 workers based on the company’s listed roster of 3,800 employees. WCI spokesman Steve Zenker said the reduction is complete. The staff cuts, including payroll, incentive and benefit incentives, are expected to save the company $60 million annually.”
“A $14 million charge for walking away from land options for three projects. Most of that money came from options on land for the Sabal Bay golf course community in southern Collier County. ‘We walked away and left $11 to $12 million on the table because we didn’t think it would be prudent to market a golf course community at this time,’ Starkey said.”
The Herald Tribune. “Starkey said that for the next several quarters, WCI will focus on generating cash flow and reducing debt. Eight towers are expected to close in the fourth quarter of 2006, with another six expected to close in the first half of 2007.”
“‘We are carefully monitoring the tower closings, as collecting these tower receivables is a key driver of our cash flow and debt reduction during this slower demand period,’ Starkey said.”
The Orlando Sentinel. “Beazer Homes and Toll Brothers, major home builders both active in Central Florida, reported weaker financials on Tuesday with warnings of more softness to come.”
“CEO Ian McCarthy said that the company has taken steps to reduce overhead and capital spending as the company prepares for fewer closings in fiscal 2007. In September and October alone, the company pared about 1,000 jobs, or 25 percent of its work force, to brace for less work in the coming year.”
“In the Orlando area, the company recently laid off about 50 employees, about 40 percent of the staff, according to local employees affected by the job cuts. McCarthy said Beazer has not seen any evidence that a rebound is imminent in the nationwide new-home market, with excess inventory, orders falling, and contract cancellations rising.”
“Other builders with Central Florida operations have been trimming staffs in recent weeks in anticipation of a slower 2007, including Masterpiece Homes, a Volusia County-based builder, which cut 30 positions, or about a third of its work force.”
“Main Street USA, a bankrupt Kissimmee company whose majority owner has been arrested and jailed by the FBI, used appraisal fraud in selling condominiums in southwest Orlando to investors, attorneys said Tuesday in U.S. Bankruptcy Court in Orlando.” “Richard Epstein, lead attorney for a lender owed more than $13.5 million on The Villas at Waldengreen condos, said buyers ‘paid way too much. The unit values were fraudulently inflated. This, unfortunately, was a fraud.’”
“Attorney Frank Wolff, who is representing about 70 condo owners, said appraisals were put together falsely showing photographs of renovated apartments when the units being appraised had not been fixed up.”
“Chapter 11 trustee Lewis Freeman said the property isn’t even generating enough income to cover expenses and he urged the court to abandon the asset. Paul Singerman, Freeman’s legal adviser, said it’s doubtful the property could generate the amount projected by the appraisal.”
“Roy Kobert, also representing the lender, said the only way the property could generate $21 million ‘is if we get 176 more victims.’ More than 100 investors and condo buyers have money at risk. “”
‘Rizzo Realty Group said Orlando is a buyer’s market. The group, based in Chicago, said it’s a good investment because of the location and because 800 people move to the region, everyday.’
So that is 800 a day, 5600 a week, 24,000 a month, and 284,800 a year. Where is Mickey going to house that many people in one year.
Oh wait!! I did the Micky Mouse math.
Right, but how many people move OUT every day? This is a classic case of cherry-picking the stat that supports your position but ignoring the rest.
What’s the net?
Oh, school enrolment notes that that trend has reversed. Florida is probably net losing population after including deaths.
Neil
Out of those 800,
1. 300 are on rafts or inner tubes from Haiti
2. 250 are illegal aliens
3. 98 are retired old folks
2. 2 are just plain lost
Not to be political, but I will bet a dollar that housing and the stock market sell off big time with the change in congress. This will speed up the crash.
……………..And the rest are tourists who got shanghied by a band of Time-share swindlers.
Oh, the pain.
This is BS. I work in the finance world here in Palm Beach. I just got a stat yesterday that showed we had a net growth (PBC) of 137,000 from 2000-2005. I suspect we will be flat from 2006-2010 due to the housing issues. I wouldn’t rule out negative growth.
“negative growth” (???) You’ve been infected by Realtoritis. Just kidding.
Notorious, where do you work in finance? I am in PBG and am looking to move into financial services (I figure plenty of people are going to need financial planning advice during the imminent recession). Any tips would be helpful!
Notorious — your numbers come most close to what I observe, and I am a 60+ year resident of these parts, though farther north, in Orange County.
Notorious - Check out the upcoming Friday (11/20) S. Florida Business Journal for an article on the “phantom population, written by Ed Duggan. I unravel and reveal the grossly incorrect US Census Bureau Population Estimates since 2000 in Florida and many other US major population centers. Ghosts are moving to Florida in the form of speculative flippers. Do you believe in Casper? The Census Bureau does.
Only if you count snowbirds as new residents EVERY SINGLE YEAR that they move down for the winter.
798 back in march because my wife and I left that craphole of a state and returned to the nation our birth, the Great State of Texas, where prices are more under control.
Posted in the bits bucket:
‘their 18-year-old son, Andrew H. Baris, was shot on the family’s porch at the Arlington condos. ‘This is our home, our new home,’ said Mrs. Baris, as she paced in her son’s room at Tampa General Hospital. A random shooting is not the sort of publicity developers wanted for this redeveloping area, which also is home to the new Residences of Franklin Street, a 40-unit condo project. ‘It’s an emerging neighborhood, and I think that negative press is not good,’ said Russ Versaggi, a developer on the Arlington project. Recent media reports of a chill in the local real estate market is problem enough, he said. ‘If (buyers) think people are going to be shot, that’s just more fuel to the fire,’ he said.’
All over the country developers have been building/converting condos in ‘emerging neighborhoods.’
my favorite which I saw building is in (livemura.com) downtown Los Angeles on the border of where skid row used to start, now it starts a block or so away from a couple of new developments. Talk about emerging development. Come pay over $500k to live with the homeless people.
I so agree…you gotta be a friggin idiot to buy a condo in downtown LA…. even if some claim its “an arts district”
I so agree…you gotta be a friggin idiot to buy a condo in downtown LA…. even if some claim its “an arts district”
Pioneers take all the arrows
“Arts District” — Dilapidated buildings inhabited by crack addicts and whores.
“Gaslamp Quarter” — Same as Arts District, but more drunks.
Beat you. Miami, Flagler St. and 3rd ave. Highrise 500k with crackdealers 1/2 a block away!
Sometimes it works, sometimes it doesn’t.
Getting ahead of the gentrification wave moving out from Manhattan has been a winning real estate strategy for 30 years. It has worked in some other cities with viable centers too.
But it’s risky to be a pioneer.
New York is a city built around mass transit. Los Angeles is built around the automobile. I lived in L.A. while attending school and later worked downtown. All professionals leave promtply at sundown. There is very little nightlife in downtown, it will never be like New York.
the thing is you have to do it authentic. they are selling these prefab lofts to office dorks who wish they were beatniks. i looked at a place in the dot.com heyday that seemed to have an industrial counterweighted metal sliding door leading to the john. i went up to check it out and i swear to god it was a home depot hollow core sliding closet door with galvanized metal sheeting tacked to it and a fake “counterweight” hanging off the side.
it’s a little sad none of these fake beatnik bachelor pads will ever see a single nubile art groupie drinking coffee from a bowl and flipping through your etchings on a late wednesday morning wearing only your paint splattered work shirt. why? because you are at your bitch-desk getting out those TPS reports so you can keep up with the mortgage payments… ha ha. and the last painting you did was in college when you took an art class to try to meet girls.
then someone sold you this POS concrete box in the middle of crackheadtown by preying on all the romantic ideas you have of yourself as a free spririt, and the entire Wired Magazine bamboozle of the 90’s that had a generation of salary slaves believing they were somehow “artists.”
i believe that the gentrification pattern that characterized the 60s-90s (the artist pioneers repurposing a derelict industrial zone and giving way to galleries, cafes and tiny dogs) was a one time deal arising from the specific economic/social circumstances of the era. the artists of that era didn’t move there because the place was going to bubble up inb 20 years. they moved there because it was cheap, because it was skidrow, and becuase there was space. they weren’t doing an investment gamble.
developer built “lofts” have none of the quality or charm of legitimate industrial conversions, and more importantly, they make no sense for the lives of the people who buy them. i have a friend who wanted to go into business building modular walls for when these bachelor loft owners start having kids. this was in the year when an entire nightclub district here in SF was nearly shut down after noise complaints from people who bought nearby lofts. cheebus keerist! why did you buy a house next to a nightclub when you get up at 5 to go to work every day?
ok, sorry for being all over the map here.
well said…
your post gave me a chuckle. reminded me of days of being a starving artiste in the city. You are spot on in your description of pioneering artists in the ’60s -’90s compared to now.
Well said! I hope you write professionally, because if not, you are denying many people the pleasure of reading your insightful yet hilarious post.
Franklin Street? This is a slum area, skid row, always has been, always will be. What idiot would buy a place there? When I pass condos going up there, I can’t belive my eyes. The horrible developers who rip people off with this kind of crap should be in jail. But people who buy into it are equally guilty.
“The horrible developers who rip people off with this kind of crap should be in jail. But people who buy into it are equally guilty.”
Exactly right.
Before leaving the area in 2005, we watched a 10-story condo go up in downtown Sarasota just half a block from the city jail, which is across the street from the courthouse. Who the heck is gonna want to live there?
“Who the heck is gonna want to live there?”
Bill - a gun guy who practices a lot and wants a cheap price.
Yes, but this is also an historical district.
If memory serves (and lately that ain’t been happenin’ too good), Billy Graham got his start working Franklin Street as a street preacher while attending nearby Trinity College.
Franklin Street sports the YMCA, Salvation Army, and a number of other homes for derelicts and drunks. Nice place.
Last two years has seen very strong growth in Newark, NJ. There are 6 or 7 condo complexes directly adjacent to a very large subsidized housing project. Condos are 1800 sqft and go for high fours (not including granite, pergo or crown moulding upgrades).
Really have to wonder who is buying these and how are they paying? If things go really south in the economy or housing market, do you want to live adjacent to 10′ high fences laced with razor wire?
Pergo as an upgrade?! On Bizarro planet maybe.
According to the flipper shows on tv pergo is an upgrade. As in:
laminate flooring upgrade cost $1200, added value $7,500
lol
OK, I give. What is it you upgrade FROM, to get to Pergo?
Unless there has been a dramatic turnaround from my last business trip there five years ago, downtown Newark is profoundly depressing. The people I met with back then–who worked in an office building–had to get directions to a restaurant only a few blocks away, because they never before had deviated from their commuting path by even a couple of streets and did not know their way around.
I have seen the razor wire–it looked like the boundary of a prison yard.
“We didn’t think it would be prudent to market a golf course community at this time.” Wow. I can almost hear Dana Carvey.
“Weary of waiting for condos to come out of the ground, 24 would-be buyers of Palladio Terrace have sued the project’s Miami developers for the return of their deposits. This spring, with no building permit in sight, several buyers were ready to take their deposit money off the table. ‘We have had virtually no response except an offer to transfer our deposits to one of their properties in Miami,’ said Jack McGregor, one of the people suing Merco.”
Wow, these developers walking away from their obligations with their clients’ deposit money - I wonder how big an issue this is/will be nationwide?
Philosophical question: Does it really even matter if it’s fraud or just being over-optimistic and overextended? Common law says yes, there’s a difference, but common sense says that that’s kind of analagous to drawing a distinction between “crime” and “hate crime.” The result to the victim is the same.
“In the meantime, money demands are stacking up. The company that sold the Flagler property to Merco is suing Meruelo over a $5 million bonus linked to the sale. Delinquent property taxes now total more than $700,000, according to Palm Beach County tax collection records.”
Its not sounding like they have the cash to pay back the deposits… This could get ugly quick for the builders. Overbuilt where people don’t want to buy and then people affraid to put a deposit down on where they can still sell…
Neil
How long can you hold peoples deposits without producing ?Again ,I thought deposits were put in neutral escrow accounts .
I would love to see these one-sided contracts people were going for where they end up in the BK line trying to get their deposits back .
Also , I guess appraisers have to do a regular inspection of a property instead of just looking at fake pictures .
I don’t think there is any law that says a building contractor can only accept deposits into escrow accounts in FL (please correct if wrong), and during a booming housing market this is one more avenue of abuse; however, there may well be a law lurking in the future.
I almost signed a sales contract in Palm Beach County last year (my girlfriend, God bless her, dissuaded met at the last minute). One of the papers we signed was a request to place the deposit in an escrow fund. Why would anyone NOT sign such a document? Well, the sales agent did try to talk us out of it, of course…
In my own limited experience, you are best off putting your deposit with the title insurance company that will handling the closing. In Florida, at least, they are not allowed to earn interest on the money, so there is no conflict of interest.
Listening to the WCI and TOL calls I think it depends on the contracts you sign. I think 2 years may be typical. If they go beyond their estimated time period, you can sue for damages also (extra rent, moving expenses, etc.).
“I would love to see these one-sided contracts people were going for where they end up in the BK line trying to get their deposits back.”
‘Investors’ know better. I’m positive they took the contracts to a real estate attorney before signing them. Greed didn’t blind them in the least.
Housing stocks down bigtime today. Are investors scared about the election results? Why weren’t they scared by the “numbers” and the “fraud”? I guess they think Dems will keep taxes high therefore reducing the amount of money in the economy. Contraction.
Another possibility: The share prices were propped up for pre-election window dressing purposes. Now that the election is behind us, there is less need to keep the liquidity fan that keeps those share prices aloft turned on to full blast, and the force of gravity is having some effect.
As bad as this place is, it’s gotten worse…
Dems are now in full control of all 3 branches of government here in Mazzholeland (MA)
The new DEM governor, who was a virtually nobody a year ago, was elected by a constituency of Catholics; big labor unionists; low-income minorities; and women.
GIMME ‘MA GOVMINT CHECK!!!
Mazz is economic toast.
Let the exodus continue.
posted “Dems are now in full control of all 3 branches of government here”
Your lucky!
Yeah. The Republicans have been in charge of all three branches in FL, and look where it’s gotten us.
Despite my loyalty to my own political party, not have some strength behind the loyal opposition creates an imbalance in any state/government.
Mass is in trouble. No doubt. Florida is in trouble, no doubt. California is in trouble, no doubt. The markets that bubbled extreamly are in for pain. The only question is for how long and will the government extend the pain under the assumption they’re protecting people?
Neil
Neil’s right. You have to periodicly overturn the fruit cart to expose the roaches to the light of day and watch them scramble.
Don’t you love how we Californians are going to have to repay $84 billion in bonds over the next 30 years? All “without raising taxes”, of course.
Borrow from Peter to pay Paul.
Neither one is worth the ballot paper that their name is printed on. Both the republicans and democrats only care for is themselves. Politics is not about issues. it is about raising money for the campaign. Enough money goes into the campaign, and they have better chances of winning an election. The whole system is utterly corrupt.
I’m with you, pinch. But there is a solution. PBS/NOW had a great story on Clean Money elections. It can be done and is the wave of the future.
Mass passed the clean election law a couple of years ago, but the legislature although approved it, never approved the money. In effect the peolpe who applied to the clean election law had no funding, as the legislature was not compelled to fund it. Neat little trick huh?
Saw a bumper sticker that said, “Diapers and politicians need to be changed frequently, and for the same reason.”
Democrat or Republican, it doesn’t matter. They’re all corrupt. Fixing it will require a constitutional convention or a revolution, and I’d prefer the former.
This isn’t a demmie or repub thing. The housing bubble was created by the Green Party, as in the color of money. Plenty of collaboration with politicians of all stripes, as long as there are financial bennies for them.
Just curious–where do you live that women don’t work? Is there someplace in the US where Sharia law is in effect? As for Catholics–exactly when did they stop working? Is this some news item that I missed?
hd74man — would you please tell them that New Hampshire is the greatest place to be? Barring that, anyplace in the Northeast. Remind them about the Fall colors, the snow at Christmas, anything.
If any of this were true, why do we today not have term limits at all levels of government? Please, someone answer that.
said appraisals were put together falsely showing photographs of renovated apartments when the units being appraised had not been fixed up.”
The true underlying basis of real estate appraising is relative simple…you are either honest and do the job right, or you compromise to lie and deceive.
The lending biz knows the exact reality.
They chose to go with the liars and deceivers.
A shining example of a culture society in decline.
Right on Hd74man . To think that the good honest appraisal pros got pushed out for the amoral liars .
The lenders really supported this mania .
HW-
What was done to the appraisal profession by the loan industry is a travesty and moral outrage.
The circumstances for advancement is inverse to that in any other profession.
The greater the due deligence; experience; field knowledge; and application of all relevant standards you exhibited, the least you were retained or wanted.
If the auditors of the finance industry were treated as such, Wall Street would collapse in scandal.
But the chickens have come home to roost.
All will pay for what has transpired now.
Somebody seems to have forgotten the recent scandals of the “financial auditors” the last few years.
Just wait for it. The corporations and hedge funds have been monkeying around BIG time the last few years. Fannie Mae has passed yet another quarter without issuing a financial report. Yet no one seems to care. Why? Follow the money.
“Now those ARMs are beginning to reset, which means higher monthly payments.’As ARMs adjust higher, and as tax and insurance bills surge, more homeowners can’t afford to live in their houses,’ said Mike Larson, an analyst for Weiss Research.”
Have the folks at ACORN figured out the new predatory lending, where suicide loans are marketed to low-income buyers as “affordability loans?”
I am wondering how Fannie Mae (the GSE whose mission is affordable housing) plans to deal with the problem of widespread bankruptcy among low-income buyers who were sucked into this scam? Or are they just hoping for the best (a return to high rates of real home price inflation in the near future)?
http://acorn.org/index.php?id=2627
Wow! The Main Street USA owner was one major slimeball. He defrauded the FDIC/REIT investors, he defrauded the speculator buyers, and he defrauded the lenders. Is there anyone he did not screw?
Bubba in the pentientiary, but that will be remedied soon enough . . .
Sorry, couldn’t resist that one.
I expect that he will be on the receiving end with Bubba.
Bubba like exotic.
Bubba always in control.
Bubba no understand mortgage though.
You don’t know how tempted I am to create a new persona called “Bubba” to discribe what will happen to all of these crooks! However, I wouldn’t be able to maintain the charade. If someone else can…
e.g.,
Bubba like his new roomate.
He nice to pet
Hope he no snap like last roomate.
Maybe not as squissy. Bubba find out.
Bubba like noises roomates make.
Why do guards laugh at bubba though?
Why do guards call roomate “manipulative flipper?”
Roomate no flip so well.
Gaurds promise me a new roomate.
Neil
ROTFLMAO….too funny.
Neil,
you’re doing great–all hail Bubba
karim says at least 2 yrs to bottom………greenspan’s poppycock notwithstanding.
http://www.earthtimes.org/articles/show/news_press_release,18211.shtml
WCI Communities Inc. CEO Jerry Starkey said work force costs would be reduced about 15 percent through the end of the year.
And how much have the CEOs reduced their compensation? Zero, I bet.
That 15 percent is probably going to come out of laying off 50% of the employees. That is if you can call not sending pickup trucks out to street corners to pick up day laborers laying off.
They can’t fire the upper management, they know where the bodies are buried and they would rat each other out.
Smart CEO would have prevented the company from getting to this state,
for example, getting out of RE while the going was good.
‘In a letter to Deutsche Bank dated Monday, Technical Olympic said the venture’s ‘problems’ are a result of its highly leveraged capital structure and ‘adverse market conditions’
Leverage; fuels a boom, but the kiss of death going down. Tough thing to tell ones creditor.
Lot of housing “investors” are gonna be learning that one next year and beyond.
Leverage mitigates the economic force of gravity on the way up and amplifies the economic force of gravity on the way down.
Based on the Technical Olympic, WCI, and Beazer/Toll reports, anyone with exposure to Florida RE is getting hammered. Unsuspecting property owners, lenders, and governments are in for a rude awakening. The Grim Reaper of real estate expectations is here to collect.
We still come back to the old, old story. Yes, there are thousands of condo’s on the market just waiting for eager occupants. That’s really nice. It will be even nicer when the average Joe can make enough money to pay the mortgage. A $1 rise in minimum wage ain’t gonna do it.
Okay, let’s be realistic. Truth is, very few people actually make minimum wage so let’s say the average service worker (which the US worker is fast becoming) probably makes $10 to $12 per. hr. I think even WaLGreed pays about $10. However, with TRUE inflation running about 7% and with millions (literally) without health insurance and many maxed out credit junkies balancing on the edge of bankruptcy, one doesn’t have to use a calculator to know most of the lower paid workers cannot afford a $300,000 (to say nothing of $500,000 or $700,000) condo which DOES NOT include property taxes and home owners fees and insurance.
As anyone knows if they have lived in a condo, the odd unexpected $3,000 + incidentals comes up when the elevator motor crashes or a serious crack appears in the community pool or the roof springs a very bad leak and the roof has to be replaced or uninvited guests move in called termites. Most condo HOA’s do not have a spare $100,000 PLUS sitting in the bank account for such emergencies. Also, and this happened in the condo building I lived in, now and then an owner gets into trouble financially and cannot pay the HOA fee. That has to be covered by the other owners because you cannot get blood out of a turnip. A half empty condo building means 50% less condo fees and a nasty emergency can cause the 50% of occupants big financial headaches.
In the condo I owned in West Hollywood, the roof started to leak very badly and then the roofer discovered heavy duty termite infestation (more on that in a moment.) After the numbers were crunched, the HOA informed everyone that they needed to come up with another $3,000 each to cover costs and that was just for the roof. The bill for the termite problem came later. Many of the owners couldn’t do it straight away and that was before the new, now financially stretched new-style owners (those who bought at stupid prices) got their foot on this very slippery housing ladder. So, once the average service worker makes $40,000 a year and is married to someone making $40,000 a year and prices drop, this massive inventory of grossly over-priced properties might begin to thin out but they had better put something aside for incidentals.
Okay. Let’s look at past history and then into the crystal ball as history (as it always does) repeats itself. Back in the 1970’s, the condo craze took off. EVERYTHING was being being converted to condo’s and the builders were busy little bees buying up building material like there was no tomorrow. So, what’s wrong with that? Nothing, except that when a building frenzy takes place like the kind we have seen (this time much, much more than the 70’s) in the last 5 years, the GOOD building materials run out very quickly. What kind of materials? Well, lets take seasoned wood. Most buildings in the south west and in Florida are wood framed. After the tree is cut, the raw wood is put into kilns for drying to accelerate seasoning but the demand is so great that the job isn’t done properly. Eventually, most of the wood used in housing booms is freshly cut and “wet”. In non-boom years wood sits in the lumber yard and dries and weathers correctly. However, once builders run out of the good, well seasoned wood and start using the crappy new wood, after a fews, termites find a home in this inferior wood and set up big colonies. Ah, you say - what about termite treatment. Don’t let anyone fool you. Termites are clever little guys and they come back. Badly treated wood is their favorite meal. Sometimes they go unnoticed for ages until the roof leaks and the roofer discovers there are other “owners” in the condo building. Millions of them with extended families.
What does this mean? It means lots and lots of law suits down the road against builders who rushed to put up condos and houses using bad material. I remember seeing in 1985, a whole street in Oceanside, Ca. which had been built in the mid-70’s, abandoned because the foundations of EVERY HOUSE had cracked. I walked through one and the cracks were 6″ wide in some of them. BTW, the owners were out of luck. The builder was bankrupt. With fraudulent mortgages, fraudulent appraisals, bad construction, now is the time to dust off your law degree ’cause you can become very, very wealthy in just a few years.
Mike, interesting story about the shoddy construction of days past. For this bubble I have been wondering about that same thing as well. For example, Toll Bros. and DR Horton both have very large condo projects near where I rent. Both have been sheathed in OSB since this past summer. Now the rains are starting and I don’t see much progress being made on these units (not sure why they take so long). Summer temps around here average around the low 90s. What will be the long-term quality of these condos after this exposure to the different elements? Wouldn’t the wood eventually start to swell and warp, causing untold damages to stucco and other key components? When my time comes to buy I will be going old-school construction.
I argued this point yesterday with some guy from Dallas who I think is a builder.
Old school - right - like centuries old! Steel framing is good too with some of the cool high tech wall systems they have now. Personally wouldn’t be interested in paying 6 figures for a bunch of toothpicks with wallboard stapled to them and “stucco” sprayed on top of that.
txchick57:
I agree, if you’re going to buy stick built, better to go way back in time. My dad used to do occasional re-models for friends and family, and I would sometimes tag along as a youngster. Those older homes were pretty damn solid. You could almost tear apart a new house with your bare hands. I also really like the steel frames, and some of the new modulars. Marmol Radziner Architects in L.A. has some cool stuff, but it’s kind of expensive.
Steel stud framing has big problems as well if it is not properly detailed. Huge potential for thermal bridging as steel studs are excelletn conductors of heat. If vapor barriers are not continuously and properly installed, it allows warm humid air to enter buildings. When they hit cool steel studs, instant condensation. Add that behind stucco which tends to trap mosture, and a cheaper paper faced sheathing , and voila, an instant 5 course meal for mold.
Good post!
mold is a much bigger problem than termites. FL is one of the worst locations in the country for mold problems. Warm weather+water/moisture/humidity+ mold spores(everywhere and you can’t elimante them) + food source (wood=paper on wall board and wood studs, carpet, etc)= MOLD.
Crappy construction with terrible detailing and construction quality is a guarantee of a lot of mold problems. the stucco boxes are the worst as they tend to trap moisture inside where it can do the most damage. Lots of interior moisture is generated when cold interior air hits interior materials which then thermally bridge to warmer materials outside. Instant condensation.
Finnman — thanks — yet more useful information for when I build.
Weekly mortage applications show big and surprising rise.
http://money.cnn.com/2006/11/08/real_estate/mortgage_apps/index.htm?postversion=2006110810
I hate to see this, but it looks like the cheery talking of federal reserves and David Liar has some influence on the market. Coupled with the $40 million advertisements past weekend, it seems to move buyers on the sidelines into buying the empty houses. I think the buying activities will go up for a few more weeks, and see how things stand later in the year end.
However, looking at last year trend, the weekly mortgage PURCHASE applications still follow the same pattern — down 15%, and it has been in such trend for the last 1 month. In Sept, it was consistently down over 20%. This seems to coincide with the trend that Ben’s blog has seen less postings? More people go home shopping now instead of staying around here?
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This is last year 2005 MBAA survey comparison
WASHINGTON, D.C. (November 9, 2005) — The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending November 4. The Market Composite Index — a measure of mortgage loan application volume – was 661.3, an increase of 2.3 percent on a seasonally adjusted basis from 646.7, one week earlier. On an unadjusted basis, the Index increased 1.0 percent compared with the previous week but was down 9.2 percent compared with the same week one year earlier.
The seasonally-adjusted Purchase Index increased by 6.4 percent to 465.7 from 437.6 the previous week whereas the Refinance Index decreased by 3.4 percent to 1798.8 from 1862.8 one week earlier. Other seasonally adjusted index activity includes the Conventional Index, which increased 2.4 percent to 988.2 from 965.1 the previous week, and the Government Index, which increased 0.3 percent to 115.6 from 115.2 the previous week.
The spike probably has more to do with ARM resets and FB’s trying to get theier credit card debts under control.
X-mas rush kids. That’s all.
That was a WEEKLY rise. Have we been concentrating on weekly rises here? Not to my knowledge.
WCI is a company I have followed closely for about a year now, and, in disclosure, I have a lot of put options on it.
After sales decreases of 80% in their condo division in the second and third quarters of 2006, they outdid themselves by posting a NEGATIVE sales number for 3rd quarter condo sales. They had 4 more cancellations than sales.
The market’s response? The stock was up 5% yesterday. (but giving it all back today)
Nevertheless, this company is in a hole I can’t see them getting out of. Time will tell.
HGX has violated the uptrend from the summer lows. Looking good for the short side.
“Next year will likely be the same, unless market trends change.”
I just had to laugh at this. I think this could be a contender for captain obvious statement of the year.
“From 2000 to 2005, the bookends of the boom, the median price of an existing home in Palm Beach County and the Treasure Coast shot up close to 200 percent. The result was that a number of first-time home buyers resorted to interest-only loans, no-down-payment loans, adjustable-rate mortgages and option ARMs to stretch their buying power.”
Which came first, the chicken or the egg? Did these new mortgage products cause prices to jump, or did the jump in prices cause lenders to come up with the new mortgage products?
In case you were not aware, Real Estate is just fine.
http://www.sun-sentinel.com/news/opinion/letters/sfl-brmail765nov08,0,730469.story?coll=sfla-news-letters
Big Daddy — thanks — I had been losing sleep. Better now.