Florida Housing Market Has Been “Overpromised”
The News Press reports from Florida. “Condo sales have slowed during the past few months. In September, 61 existing condos were sold, compared to 126 during the same month a year ago. The median price dropped, from $316,800 in September 2005 to $305,600 this year.”
“‘The residential market, I wouldn’t bet on that,’ Fort Myers-based real estate broker Ed Bonkowski said. ‘I don’t think you’re going to see that many people as full-time residents living down there. There are no services.’”
“Housing-market analyst Jack McCabe said his firm has seen a statewide drop of sales in condominium towers in 2006. Downtown Fort Myers is no exception, he said. ‘There is some concern about the viability of these projects in the future. There just aren’t that many people buying.’”
“Meanwhile, downtown’s developers are pressing ahead. As more condos come on the market, there’s no way to know how many owners will try to sell their units as soon as they’re built. Adam Palmer, a commercial real estate agent , said ‘the overall perception of the residential market as a whole certainly isn’t helping it’ with prices and sales down in recent months.”
The St Petersburg Times. “As Miles Development finishes one project and fleshes out another, its principals are adapting to St. Petersburg’s changing market as they prepare other developments. ‘St. Petersburg hasn’t been overbuilt,’ said COO Ken Doble. ‘But it has been overpromised.’”
“The same dynamics that affect individual home buyers are driving Miles’ decisions. Sellers think their land is worth more than it is and buyers are waiting for a drop in prices, so nothing happens. ‘There’s this disconnect,’ Doble said. ‘People are just sitting there looking at each other.’”
“J. Jason Perry, Miles’ VP of development, said Miles is actively shopping for more land downtown but is running into inflated prices. Some owners cling to dreams of instant wealth and tout their own project approvals as though they increase the land’s value. Perry said for Miles, it doesn’t work that way.”
“‘The zoning’s already flexible here so someone else’s approvals aren’t an asset,’ he said. Miles paid $25 per square foot for 1010 Central’s land but now turns down prices of $200 to $300. ‘That market came and went.’”
The Herald Tribune. “A massive drop in the number of permits for Southwest Florida home builders is providing the most disturbing evidence yet that Florida’s all-important housing industry will face tough times in the year ahead.”
“A Herald-Tribune analysis of U.S. Census data shows that home builders only got 426 permits in the unincorporated parts of Manatee, Sarasota and Charlotte counties during October. That is a whopping 66 percent decline from the 1,239 during the same month in 2005.”
“The driving force is the tremendous number of homes already built in the region. They were constructed under the apparent notion that the boom of 2004-05 would never stop. It has left Southwest Florida with, by some experts’ estimation, an oversupply of perhaps several thousand new homes.”
“Looking to take advantage of the sharp rise in real estate prices, investors plunged into the market for new construction, placing orders for homes in the hope that they would be able to resell them at a significant profit after receiving the title.”
“Builders themselves contributed to the madness by building ’spec’ homes ahead of demand.”
“‘The problem is that the level of speculative buying was much higher than people were thinking at the time,’ said Tom Danahy, the president of LWR Communities. ‘It drove volume and prices artificially high.’”
“In the summer of 2005, the bubble burst in Southwest Florida. Speculators started dumping their properties on the market, and inventories of unsold homes began to rise. By November, home builders noticed a slowdown in orders. They responded by dropping prices and stepping up advertisements for discounted product.”
“In the meantime, home builders and their suppliers have been cutting staff and expenses. ‘If sales are down 50 percent, you can pretty much bet that companies will reduce overhead by something similar,’ said Larry Kemick, an Ellenton-based home builder who has cut his staff from 14 to eight people during the past year. ‘I know for a fact that other companies in the area are cutting employment significantly.’ Suppliers say the same thing.”
“Gary Newell, the owner of Central Florida Truss in Bartow, said demand for trusses has fallen so sharply that he has had to cut staff by 60 percent.”
“Kemick thinks that the next few months will affect home builders differently. ‘A year is a long time. Some people will be just fine. For others, a year will be too long,’ he said.”
The Palm Beach Post. “Think you can get out of buying a condominium by walking away from your deal? Better think again.”
“The developer of two Boca Raton condos has a new tactic for dealing with skittish home buyers with balking on their mind: Sue them to force them to close. At least eight buyers at the Bocar condo and one buyer at the Eden condo have been hit with ’specific performance’ lawsuits by entities owned by developer Ceebraid-Signal of West Palm Beach.”
“Up until now, the usual remedy for developers with uncooperative buyers was to simply keep their deposits if they failed to close. These lawsuits ‘are unusual, but I think we’ll see more of these as time goes by,’ said Boca Raton attorney Gordon Dieterle, who represents Bocar buyer Vincent Troise.”
“Buyers who signed sales contracts months or even years ago have seen their unbuilt properties decline in value in the current condo market slump. That’s especially true for these two condo projects, which were completed well past the dates first promised.”
“So between the delays and market doldrums, some buyers now say they can’t afford to go through with their deals to purchase units. That’s the case with attorney Marvin Moss’ client, Marie Guillaume. In January, she signed a contract to buy a $379,000 Bocar condo, putting down $37,900 as a deposit. ‘The property is worth less than the contract price, and she’s willing to forfeit her deposit,’ Moss said.”
“Developers stuck with unsold inventory are reluctant to let live buyers off the hook. The lawsuits are a message to other Ceebraid buyers thinking of walking away, said attorney Cristofer Bennardo, who represents John Press, the Eden buyer being sued.”
“The message got through to at least one Bocar buyer. Troise has decided to close on the Bocar unit rather than spend thousands of dollars fighting the lawsuit in court, said Dieterle, his lawyer. Troise plans to rent the unit for a while and hope for a buyer next year, Dieterle added.”
‘They hosted swanky penthouse parties, owned a $2.3-million waterfront home and declared they would become the biggest developers in America. But now their company, Sky Development Group, is at the center of a huge real estate fraud investigation that started in Citrus County - and could span the globe.’
‘Detectives say they think Natalia and Victor Wolf slipped out of the country in October, leaving behind more than 100 victims and taking more than $20-million from fraudulent transactions.’
‘The insurance industry is paying attention to climate change and to increased storm activity, and that is translating into skyrocketing premiums from Hilton Head to Little River.’
‘Premiums for single-family residences along the Grand Strand have seen 100 percent increases and condominiums have seen up to 700 percent increases, according to research by Al Parish, an economist at Charleston Southern University.’
‘Parish blames that increase partly for a drop in housing prices in the area, especially condominiums. Rising insurance costs also have been blamed for part of the dramatic drop in home sales on Hilton Head Island. Sales were down 40 percent over last year and prices dropped 6 percent.’
Who is the sheriff - Barney Fife:
Peter and Gwen Mazzarino chose Sky Construction Group to build their dream retirement home in Crystal River.
The company, owned by Sky Development Group, offered a good product for a great price, so the Coral Springs couple took out a loan and gave the company a $28,500 down payment.
After no sign of construction for months, Peter Mazzarino, a 49-year-old locksmith, grew suspicious and called police. In September, North Miami Beach police Detective Ed Hill went with him to Sky’s headquarters, located in an upscale strip mall, for a meeting with Natalia Wolf.
“She was very professional, very reserved and carefully choosing her words,” Hill said. He found no evidence of illegal activity.
Looks like we have a long way to go:
Fraudulent deeds have become such a problem in Miami-Dade County that the clerk’s office now alerts property owners after the filing of a quit claim deed (used to transfer property when no sale takes place). The system has stopped dozens of schemes, Clerk Harvey Ruvin said.
“These people that are doing these schemes are extremely clever,” Ruvin said. “We always have to be alert that once we’ve solved the problem, they’ll find a way around it. It’s almost like coming up with pesticides and seeing the bugs get immunity.”
Ah, that where the expression ‘Beware of sheep in WOLF’s housing’ comes from. Wait a minute, perhaps it’s ‘clothing’…
Mona Alley has lost both of her legs. I don’t know if anybody knows her history. She was featured on the HBO documentary titled “Plastic Disasters”. She lost her legs as the result of “botched” plastic surgery. She is a diabetic and chose to have liposuction performed. Complications from the operation continued to escalate after the operation. Eventually it led to the loss of both of her legs.
I am not going to comment too much on this case or I will be accused of being too harsh. It is pretty sad to see that the Alley’s took their malpractice lawsuit money and decided to gamble heavily on Florida real estate. It is a good thing they didn’t put it away to handle all of the medical expenses that Mrs. Alley might need in the coming years. Human nature sucks!
“Kemick thinks that the next few months will affect home builders differently. ‘A year is a long time. Some people will be just fine. For others, a year will be too long,’ he said.”
So thats it - one year and all will be well…
Sure, as long as the median is down 30-40% this year, with the 600-1M market dropping almost directly to 350-600K.
Then yes, in a year, all will be fine.
Based on Ben’s quotes from the Herald article, I’d say some Florida residents will soon enter the acceptance phase. One solid reality based article informs and educates consumers and counters a lot of NAR advertising, disinformation, and spin.
My parents are moving into a new 55+ community. They expect their home to be built by next fall. I’m curious to see what happens to the prices of these new homes between now and then - and, should they go down, if my folks will still have to pay the higher price (they signed on to this development about 6 months ago.)
This is a good question . I would go to the builder and ask for the market price for the house . Rather than lose the sale I think the builder would be smart to lower the price for these people on deposit .
To me, because of the market conditions it would be fair to compromise . Think of it this way , how does the builder know that his buyers can even get funding on the higher sales prices .By the way, this was another reason why builder didn’t want to lower prices and started this incentive BS,(which is trying to have your cake and eat it also ).
I think it’s going to come out in the wash that the builders loan packages ,with their “special lenders” did not comply with disclosures or appraisal adjustments on their loan packages .
I think that there isn’t any question that there will be lawsuits in the future .
IMHO ,the builders/developers with their “special lenders ” sold and marketed to the speculators ,(sometimes in violation of their own CCR’s ),and now they are crying foul ,which is a joke .
ANYBODY who takes any incentive in FL is an idiot. Your setting your tax base with the price of the home you moron!! Get that price as low as possible, pay cash under the table if you can. Do anything possible to get that number recorded with the property appraiser as low as possible.
You do NOT want to overpay for a home. If they throw in a 30K car so you will take the home at price X, well price X is 30K too high. And you will get to pay property tax on the car!
Idiots.
While “idiot” may be a little strong, I agree with Mike’s post. One of the big problems with this recessionary home cycle is buyer’s incentives not included in contracts and ignored by appraisers despite obvious available evidence. Even though these incentives are prominently featured in newspapers every Friday and Saturday, appraisers, as if their heads are buried in sand, say they can only consider terms and incentives documented in purchase agreements.
If you’re buying in Florida, Mike’s advice is perceptive and on target, especially if you’re buying a primary residence subject to S.O.H. rate increase restrictions. My advice is to rent in Florida for at least a year or longer. Patience is a virtue. you’ll be rewarded now and in the future.
In January, she signed a contract to buy a $379,000 Bocar condo, putting down $37,900 as a deposit. ‘The property is worth less than the contract price, and she’s willing to forfeit her deposit,’ Moss said.
I don’t understand why someone would be willing to forfeit $37,900 because the property value has decreased - unless the sole reason for buying it was to resell in the near future for profit. If you’re buying it because you truly want to live there, why would you take a $38K hit to get out of the deal? Eventually, it’ll be worth more. (That may be a looooooooooooong eventually, but still…)
Because either
1) she’s a flipper. (likely)
or
2) she found another nicer home that costs LESS than her contract house.
or
3) she sees the writing on the wall, and knows that $38,000 is the best “loss” she’ll ever get out of this deal.
Example:
Buy preconstruction 3Br 2Ba home for $379,000
Put $38k down
Property “loses” value, and is now “worth” $279,000
Another property, that’s nicer than above, is selling for $300,000.
You can lose your $38k deposit, and buy the $300,000 NICER house and still end up paying less overall.
Quite simply put, buying the home puts her out of more money than $38,000.
Understand the mathematics of 50% reductions in new home sales. If the HBs could dispose of half their existing inventory of buildable land immediately they would at most only be back in the market at 1/3rd their previous levels. Truth is they won’t be able to dispose of their excess raw land in this market so they plain old won’t be buying at all. What little they can sell will be the closest in properties thus amrginalizing their remaining assets even more. With the writedowns and option expirations including cancellation costs the asset value of the companies themselves looks very high.
From the Herald article, “Craig Cranston, vice president of Bradenton-based Manasota Flooring, agreed: ‘Our average days of receiving money has gone way up.’”
You can bet a lot of building suppliers are having problems with lengthier cash covnversion cycles.
The article had many bearish comments like that for Florida’s economy. A 60% drop in building could crater the area economy. Construction throws off so much cash flow for local businesses.
What’s more, as you have noted in previous threads, the tourism side of Florida’s economy is also slowing — could there be a relationship between vacationing behavior and economic outlook?
There is a direct correlation between the economy and vacationing. People have simply run to the end of what they can borrow for “luxuary vacations.”
This is going to slam Florida a bit more as it translates into fewer qualified seasonal renters.
Florida is toast. They have quite simply priced themselves out of their niche in the global economy. Let’s put it this way, if Florida’s population really grew in 2006, I would be suprised.
Neil
In addition, what most Florida stakeholders fail to grasp is the problems associated with boom and bust growth cycles. With steady growth, members of the supply/service chain expand capacity rationally and in line with reliable demand. As a result, there are few economic surprises. The problem with boom and bust cycles is that members of the supply/service chain expand capacity accordingly with unreliable booming demand. As a result and when consumptions slows to below normal levels, the contraction in the supply/service chain is always extremely and suprisingly painful to its members.
Tourism appears WAY down. I went to http://www.vrbo.com (vacation rentals by owner) and looked up homes/condos in Sarasota. I found many that are still fully available for the high season (Jan-Mar).
Now that we no longer live in Sarasota, it will be nice to once again vacation there in the winter. As short-term renters!
From the Herald, “Barwick believes the housing industry will snap back quickly because of some favorable demographic trends … based on historical immigration, our inventories should be absorbed and we’ll get to a normal level by sometime next year.”
There is real danger in using the historic migration trend assumption to project future demand. After all, the real estate environment in Florida has changed significantly — buyers face higher prices, taxes, and insurance. Naturally, consumer behavior is adjusting and adapting accordingly; demand is slowing, supply is increasing, and migratory Northeners are half-backing. As a result of these behavioral adjustments, Florida’s housing market is where it is today. Under these unfavorable buyer conditions, how can anyone expect migratory patterns to return to historic levels?
Katrina marked the end of the frenzy in Florida . The insurance rates skyrocketed ,so cost of owning went up . Florida was a big speculation market anyway in 2004-2006 .
First time buyers and others have to make 1k more a month to even afford the 300 a month more in insurance on a average 300K house .That factor alone should lower prices by 50K average .
I don’t know if Florida is going to solve their insurance rate problems or not but in the meantime it’s just a killer to the cost of ownership of property .
Don’t forget about Save our Homes, which is dealing a deathblow to those who would like to move up out of starter homes/McMansions they no longer want. SOH is the final nail in the colfin, imho. It take a non-liquid asset (home) and makes it even less liquid. Its almost impossible to imagine, but if my friend sold me his house for what its worth today, and then immediatly paid of the morgage for me, my monthly carrying cossts would be higher then his (the taxes would be about 3.2X what they are today, which is already high).
That’s the nail that makes housing just unsellable down here, espeically in the 500K to 1M range.
I think one of the reason the builders make new buyers go to their “special lenders ” ,in order to get the incentives, is because they want their cake and eat it to with the low down loans as well as offering kickbacks .
I would like to know why the builders and RE industry think that they get to do this just because the market changed ?
If I was a lender ,I wouldn’t even make loans right now until the market gets stable and the fraud is stopped .
I don’t really care that the builders got caught holding the bag with inventory . The builders went into full swing 24 months ago based on greed profits and society should not pay for their errors .
Lower the price ,move the inventory ,and stop the games .
Miles paid $25 per square foot for 1010 Central’s land but now turns down prices of $200 to $300.
If in fact this is true, that’s a 1200% ROI. In “downtown” St. Pete (if you can call it that). Why do I think they’ve never received a bona fide offer of $300.00 a foot?
“Up until now, the usual remedy for developers with uncooperative buyers was to simply keep their deposits if they failed to close. These lawsuits ‘are unusual, but I think we’ll see more of these as time goes by,’ said Boca Raton attorney Gordon Dieterle, who represents Bocar buyer Vincent Troise.”
Can the builder legally sue the depositor to force purchase? I thought that the contract specified that forfeiting the deposit is enough to concel the contract.
This is really starting to get interesting. It was just a month or so back when it was discussed here about law suits. They may also be playing the odds. If confronted with a legal letter from an attorney a certain % will close and not seek legal help. This is America. Anyone can sue anyone for anything..
Most contracts give the seller the option of accepting the deposit as “liquidated damages” or returning the deposit and suing to force performance.
Correct.
This is a BIG mistake on the part of the builders, IMO. As if they don’t have enough to contend with already, now buyers on the fence need to be concerned with a falling market AND the prospect of being sued if they make the wrong decision.
Any builder that tries to force “specific performance” in this market is a fool IMHO . It all depends on what the purchase contract said the remedies were for the builder .
Small builders could really lose alot if the buyer doesn’t perform .
When you buy something way ahead of time ,like pre-construction ,you better protect yourself in case the market should change . You could even have factors like lenders not being willing to loan .
People were just signing these contracts months ago without any thought .
As word gets out about builders sueing buyers to close, it will make buyers even more apprehensive about buying. The risk of buying is slowly increasing in buyers minds. It’s no longer the risk free get rich scheme of the last few years.
That’s exactly what I was thinking. Nothing improves a builder’s business like getting the reputation as a company that loves to sue its customers. That should really help those word-of-mouth referrals.
This is getting better every day.
According to the Palm Beach Property Appraiser’s office, the Bocar condos are assessed at approximately $149,000 (or lower in some cases), well below the purchase price of $379,000.
Interesting problems some of the Florida “specuvesters” now face. Of course, had the market continued to go up and they in turn reaped nice profits, there wouldn’t be any complaining. This is why I think the builders might have some traction in court (not much, but maybe enough?).
I think Americans are the best marks on the planet. You can sell anything to these suckers and they will thank you for it.
Have you seen some of the fashions Europeans run around in? Don’t think that Americans have the monopoly on brain-dead consumerism. There is competition from every corner of this planet.
Right on, NYCityBoy. Anyone take a gander at Dubai? Now THAT is cosumerism on crack.
How about Trumps new Condo Towers in Mexico that cost in the millions .
No one will probably see this post, but I just want to say HAHAHA! I get it. Other nations out there have been busily figuring out how they can sell more lousy crap to Americans and express their contempt while doing so. It’s like the Nigerians and their bank scams, etc, same thing. Guess what? THE PARTY’S OVER!
Well, I saw it Palmetto. Agreed.
Has anyone seen the results of the 100 condos sold at auction in tampa? I’m wondering how low did they go?