“As It Turns Out, Many Were Speculators”: Florida
The New York Times reports on Florida. “In 2002, when the St. Joe Company, one of Florida’s largest real estate developers, began selling parcels in a new neighborhood here, it was inundated by potential buyers. Four years later, you can hear a pin drop at the gated community of WaterSound Beach. Most of the lots sit empty, and even Thanksgiving weekend brought only a handful of visitors.”
“When it sold the lots, St. Joe had a requirement that buyers break ground on their houses within three years. Homeowners who did not meet the ‘build-out deadline’ had two options: to begin paying a penalty, as much as $2,500 a month, or to sell the land back to St. Joe at the original price.”
“As it turns out, many of the landowners were speculators who had no intention of building. ‘People got caught day-trading lots,’ said Marc Levy, who owns a house near WaterColor. Those who did not want to sell their lots at a loss, but had no plans to build, were stuck.The market was so bad that ’some of them would have been happy to sell back to St. Joe at the original price,’ Mr. Belote observed.”
“But St. Joe ‘wasn’t interested in buying back people’s lots,’ said company VP Jerry Ray. So last May, St. Joe issued a statement that caught many of the owners by surprise: They would have an extra two years in which to begin building their houses.”
“Some people who have already built houses in the St. Joe communities are unhappy about the extension, claiming that the company changed the rules in the middle of the game. Pat Spafford bought a lot in WaterSound Beach at the end of 2002, began building within the three-year window and moved in with his family late last month.”
“But the lot alongside his is empty. So instead of living in a finished community, he said, he could end up living next to a construction site. Spafford said he was ‘not too happy’ about the extension. ‘The speculators,’ he said, ‘put pressure on St. Joe.’”
The News Journal. “Will 2007 be the year of a soft landing for the Pensacola Bay Area’s turbulent economy? ‘What we are seeing at this time is a very significant downturn in the real estate market,’ said Al Muller, president and co-owner of Metro Market Trends.”
“‘The downturn is affecting all segments,’ he continued. ‘New homes, resales, commercial and condos are being affected differently. We’re seeing a lot less transaction taking place, and, for the first time, we’re seeing some small declines in median prices.’”
“‘Those sectors will fall but they won’t fall back to where they were before they started the run-up,’ (analyst) Rick Harper said. ‘We’re going to be left with increased amounts of real estate wealth, compared to three years, ago.’”
“‘I’ve never seen as much of a change in the business economy in my time of living as I’ve seen in this year,’ said Sandy Sansing, a new- and used-car dealer in Pensacola. ‘New-car sales are off 16 percent in Escambia-Santa Rosa counties, used-car sales are off 19 percent from 2005. October was far worse, and November was worse than October ‘06.’”
“Local bank have also experienced a sharp drop in the number of home-equity loans, and that is largely a result of falling home values,’ said Christina Doss, VP for SunTrust Bank in Pensacola. Harper notes that home-equity loans, based on rapidly rising real estate values, was one of the key economic factors fueling the growing national economy.”
“But now that housing prices are falling, and insurance and property taxes rising, Harper and Doss agree that consumers are much more cautious about taking on debt based on the value of their homes.”
The Bradenton Herald. “While at first, skyrocketing price tags on homes priced many might-be home buyers out of the market, condo conversions also took a chunk out of the number of units available for rent.”
“Now, many investors who got caught with homes they can’t sell have turned to renting their properties. ‘We’re flooded with homes that have been taken out of the sales pool,’ said Sharone Martinelli, Wagner Realty’s relocation director.”
“Much like those who listed their homes as the real estate market settled, some people who have turned to leasing their properties instead set unrealistic expectations in 2006. ‘Anything priced over $1,500 a month is very, very hard to rent,’ said Ron Cornette, Wagner Realty’s marketing director.”
“Historically, investors have been able to get about 1 percent of the home’s value as a monthly rent. Now, Cornette said, the homeowners are lucky to get a half percent. For instance, a $300,000 property that might have fetched $3,000 a month in rent is now lucky to get $1,500 a month.”
“‘Owners are better off taking $1,500 a month this year than not seeing any income from their property whatsoever,’ Cornette said.”
“A young couple could buy something for $2,000 a month and although it might not be the same size as what they could rent for the same price, they would be investing in their future, Cornette said. That didn’t stop the number of rentals from soaring at Wagner and throughout the county as many waited for prices to fall to levels within their price range.”
“The early arrival of cold weather in the North has brought some of the seasonal visitors back a little early. While some purchased second homes during the housing boom, many are content to rent. ‘We’re getting our seasonals rented, while our annual rentals are slow unless they are priced below $1,500,’ Martinelli said.”
‘Ramon Gonzalez drives four hours to his job as a paramedic with Collier County Emergency Medical Services. ‘We have a number of employees who are commuting,’ Collier EMS Chief Jeff Page said. ‘Of the 28 employees we’ve recently hired, almost all of them live outside of the county.’
‘For almost 10 years, Todd Kolbe was the mastermind of an effort to defraud banks of millions of dollars by inflating the value of Southwest Florida real estate. Kolbe is now going to prison for 30 months in South Dakota. Punishments are being doled out at a time when the ramifications of other potential manipulations of Southwest Florida real estate prices are just beginning to be felt.’
‘Standing alongside builders and politicians at a hotel on Biscayne Bay two years ago, Rene Rodriguez, nationally esteemed director of the Miami-Dade Housing Agency, praised the unique county tax created in 1983 to pay for the ‘dreams of homeownership’ for thousands of families. Over the next two years, he was paid tens of thousands of dollars from at least seven developers who had received construction money from the Housing Agency when Rodriguez was director.’
‘Those involved in the housing market need to remember that the Florida Building Code is the minimum standard by which all renovations and new construction must be built in the state. It is a violation not to pull a permit where one is required’
‘My neighbors, Jeni and Allen Moore, purchased their first home for them and their boys. Weeks after moving in last summer, the new roof failed, and the living room ceiling fell in. The couple discovered that they had unknowingly purchased four sets of Florida Building Code violations. In addition, they learned that the home warranty they had purchased does not cover repairs when the original work was not properly permitted.’
“…‘We have a number of employees who are commuting,’…”
Four hours is not a commute, my friend. Four hours is a once a month long weekend trip. That is simply ridiculous.
And we wonder why gasoline is $3/gallon. People like him make me wish it were double that.
were the hell is he comming from cuba by canoe. Seriouslly nobody is comutting 4 hours to collier county. Its really not possible.
”[Rodriguez] got so much power,” said Marti, the longtime housing administrator. “I don’t know how the county allowed that to happen.”
They don’t know how the county allowed that to happen?
I don’t like to reply to my own comments, but the Miami Herald article is a mind-boggling dissection of corruption in the local public housing sector. This Marti fellow ought to read the article, since it tells him exactly how it happened. I am surprised the South Florida taxpayers are not marching in the streets, because this is part of where their taxes are going, to feather many nests.
This is a common place story (corruption) in the Miami Herald and I give Kudos to the Herald for their great investigative journalism. Moving here from California my wife and I find it simply amazing at how messed up this entire area is (Miami-Dade & Broward). The more surprising thing is how the locals all just take it in stride. I work with a Harvard educated gal (Cuban-American local) who says it is like this everywhere and really believes Miami is a great area. As a temporary resident (getting the hell out of here next summer) I whole heartedly agree with Tom Tancredo’s statements about Miami being like a third world country. I’ve lived in South America (2 years) and know first hand… this place is run much more like our neighbors to the south, than anywere else I have lived in the U.S. In a word, it is almost unbeliveable.
‘’[Rodriguez] got so much power,’’ said Marti, the longtime housing administrator. “I don’t know how the county allowed that to happen.’’
It’s simple. Miami is a cesspool of Third World corruption. Elected officials and those in positions of authority are on the make and on the take. Things like this are “allowed to happen” because too many people in high places are profiting from such sleaze.
They don’t know how the county allowed that to happen?
They’re talking about the place that keeps electing Alcee Hastings (impeached judge) to the U.S. House of Representatives. How did this happen? Give me a break. You dumb ass’s get what you deserve.
“But while lauding the county’s ‘’surtax” fund — the first of its kind in Florida — he was quietly steering millions of dollars from the coveted program to a small circle of developers who have yet to produce the projects they promised.
All the while, Rodriguez was paving the way for a lucrative future of his own.”
Maybe I am just cynical but whenever I hear one of these “help the poor” deals put out by the politicians I just start wondering who is really getting the money. When it comes to subsidized housing it always seems to be just a way to subsidize builders and their friends.
Unfortunately true in some areas, although the Homes For Hillsborough program seems to be working well over here, at least as far as I can see. Also the Farm Bureau used to do a nice job in rural/agricultural areas of Florida. As far as this Rodriguez fellow goes, I wish people like him could be locked up and the key thrown away.
“But now that housing prices are falling, and insurance and property taxes rising, Harper and Doss agree that consumers are much more cautious about taking on debt based on the value of their homes.”
You hear that crunching sound my friends? That is the Grim Reaper chewing on Florida’s toasted economy.
“You hear that crunching sound my friends? That is the Grim Reaper chewing on Florida’s toasted economy.”
Really? Maybe someone ought to tell Florida’s new Speaker of the House. He’s not worried. $400,000 for office renovations and hiring legislative aides at $100,000 a year.
‘We’re going to be left with increased amounts of real estate wealth, compared to three years, ago.’
Translation: One or two years ago, you’re screwed, but if you bought three years ago, you are AOK, cuz you have more “real estate wealth”.
I think even that may be optimistic.
I don’t even ask people how much equity they have anymore. I just ask how much they owe.
When it sold the lots, St. Joe had a requirement that buyers break ground on their houses within three years. Homeowners who did not meet the ‘build-out deadline’ had two options: to begin paying a penalty, as much as $2,500 a month, or to sell the land back to St. Joe at the original price.”
Wouldn’t it be funny if STJ was forced by their own contract to buy back their overpriced lots?
Minor quibble: The ticker for St. Joe Paper is JOE. STJ is St. Jude Medical.
“…Homeowners who did not meet the ‘build-out deadline’ had two options: to begin paying a penalty, as much as $2,500 a month, or to sell the land back to St. Joe at the original price.”
Hehehe! Rolled on the floor with that one. Sellers had so much market power during this bubble’s runup they could place ridiculous contingencies on themselves like buy back at original prices. Of course now that land is worth less than yesteryear, everyone gets a 2 year extension to build. ROTFL some more.
Add my LMAO to that.
Can anyone answer this question:
Are Home Equity Line draw downs going down because of less applications submitted, or more realistic appraisals causing the banks to deny the requests?
Simply put they are tapped out. We get calls all the time for refi’s or heloc’s that we turn down as when we pull their records we see 5 refi’s in the last 1.5 yrs. Each refi has a $100 fee attached in the public records
Oh yeah……..as many as 5!
“Historically, investors have been able to get about 1 percent of the home’s value as a monthly rent. Now, Cornette said, the homeowners are lucky to get a half percent….”
Glad to see realtors finally familiarizing themselves with a reality based housing ratio, price to rent. Can’t wait to see the experession on their faces when they look up the price to income ratio.
That pesky law of supply and demand can be a real b!tch.
Funny how so many Realtors’™ advice in the current market is to hold off and rent out any property that can’t sell. Those evil, bitter renters who are all unstable transient urchins who can’t see the benefits of homeowership [sic] and are throwing money away on rent. If only we could find more of them so we could keep this housing bubble going by charging something close to our carrying costs.
Just for the record, there is such a thing as a good landlord. Ours has been charging us a little under 1% of the purchase price of his condo for 12 years. He only raised the rent once. Over the years we have developed a nice relationship. Good landlords value their tenants.
A few more years and you will have bought it for him. You really are lucky to meet a guy nice enough to let you buy a condo for him. LMAO with your landlord
That’s because he bought it over a decade ago. Anyone who buys property now and rents it out is making the tenants richer and himself poorer.
Quit looking in the rear view mirror.
I know, we should have bought a place 10 yrs. ago. But there were no bubble blogs then.
It’s true we bought the place for him, but that’s the way investment property is supposed to work over the long term.
““Historically, investors have been able to get about 1 percent of the home’s value as a monthly rent. Now, Cornette said, the homeowners are lucky to get a half percent. For instance, a $300,000 property that might have fetched $3,000 a month in rent is now lucky to get $1,500 a month.”
What kind of bullsh!t misleading statement is this?
That $300,000 home at one time not so long ago WAS $150,000, and the $1,500 rent was, and still is, appropriate.
This reporter is making it sound as if rents have softened, ignoring the real culprit.
Spot on winjr. The house I own could rent for about $1,600/month. The county says it is worth $325,000 and Zillow says $400,000. Prices have a ways to drop before they come back to normal valuations. I think we will be lucky to come out with a Japanese like deflation. I think it will take a lot longer than most on this board predict for prices to revert back to traditional valuations. I’m guessing 7 to 12 years… There is going to be a lot of pain felt in the economy as a result.
That is a terrifying fact. Everybody was saying we could be in trouble if the housing crash spilled over into other sectors of the economy. It has and it’s getting worse. And we just at the front edge of the ARM resets.
I used to hope I was right about this bubble. Now I hope I’m wrong. Those who say that this isn’t about a housing bubble, it’s about a global credit bubble. If they’re right then housing is just on piece of an increasingly ugly puzzle.
I’m one of “those” who say this is a credit (actually liquidity) bubble. Excess liquidity drives down borrowing rates, creating a credit bubble. Look at the 0% financing that was available on automobiles, and what that did to demand. Cheap money drove up housing prices in much of the world. Now money is pouring back into equities, as the Dow hits new all-time highs.
And yes, it’s going to be ugly when the liquidity dries up. The only question is when.
Well, I sold my Wachovia stock on Friday and now my two biggest holdings are MO and PFE.
In recessions, people still to eat, drink, smoke and take pills. I’m ready.
You should think twice about MO with a new wave of Democrats taking power. They want universal health care, and MO is a good target to pay for it (The blame-someone-else party can’t blame their own constituents for poor health habits — its someone else’s fault).
Which parts of the US have the most fat people - those who vote Democrat or those who vote Republican? Which parts have the most smokers?
Been to San Francisco lately?
“‘Owners are better off taking $1,500 a month this year than not seeing any income from their property whatsoever,’ Cornette said.”
Thus my name. We bubble sitters need to do our part to help the FBs and adopt-a-landlord
“As it turns out, many of the landowners were speculators who had no intention of building. ‘People got caught day-trading lots,’ said Marc Levy, who owns a house near WaterColor. Those who did not want to sell their lots at a loss, but had no plans to build, were stuck.”
Got stucco? I suggest burying statues of St. Joe if you can’t unload your day-traded lots…
Well in their case maybe they could try sign a pact with the devil. I shocks I forgot. They already did that for the house. Central banking really ressembles to something satanic most of the time. Liars, cheaters and wealth destroyers. Yeah Alan and Ben fit the description. That’s what think about the FED and all central banks. These people stink.
Why a duck?
Why not a chicken?
Well, at least David L wasn’t lying when he said Florida was going to be the next California.
anyone calculate the value of the wood on st. joe’s land? like many have pointed out, may be a lumber play someday.
St. Joe is a lumber company that went into real estate. The problem is that during this downturn, lumber prices are plumeting. So the value of the land for lumber is little to nothing right now.
Neil
I’m sure they cut off most of the nice timber before they sold the land. That is a very common practice.
Their stock is still priced as if they’ll eventually make a mint from the sale of land to builders. There’s a lot of faith built into that forward P/E.
That’s funny, usually you want to buy timber companies when their P/E is 40 and sell when their P/E is 4. Its P/E right now is 61. But as the above guy said, they’re more into RE than cutting down trees nowadays.
Not any longer. St. Joe closed their development arm. Locked de do’s.
They were speculators? Not wealthy boomers that are moving to Florida? I’m shocked!
the wealthy boomer has recently been added to the endangered species list in FL. If you should sight one, please don’t disturb it.
“The early arrival of cold weather in the North has brought some of the seasonal visitors back a little early.”
First, it’s crazy warm up North considering it’s mid-December. Second, I haven’t seen too many out-of-state tags this year (Dear Michigan, Ohio and New York, the brakes on my car are very thankful!).
Exactly, Muggy. I can’t believe the spin sometimes. The only “up North” that’s taking it on the chin weather wise is the Pacific Northwest, and they don’t migrate to Florida.
The most frustrating drivers to be behind are Canadian snowbirds, although to be fair, that may be because they obey speed limits and traffic signals, signal their lane changes, and drive defensively, and we Floridians tend not to do those things.
My experience with FL roads is that people actually do the speed limit… on average. Unfortunately this is achieved by half the traffic going 20 miles under the limit, and the other half doing 20 over.
LMAO because it’s entirely true. Also, I don’t know how I forgot Illinois; might as well throw Ontario in there too.
I’d have to say the most frustrating drivers are The Hats. You find yourself behind a Buick Century, or something similar, moving at 44 MPH in the passing lane with their left blinker on. All you can see is a hat in the driver’s seat, and a pile of blue hair riding shotgun. Then there’s the patented Florida act-think-signal driving protocol. I’ve always tried to treat elderly people with respect, but the ones in Florida try my patience.
(Dear Michigan, Ohio and New York, the brakes on my car are very thankful!)
I’m quite surprised you left out Illinois in that list.
Atlanta traffic reports refer to the “Midwest rush hour” on I-75. Tons of people with Midwestern (usually IL) plates heading south on Fridays, and north on weekends. Spending a whole week or multiple thereof in Florida, with Saturday-Saturday rental periods.
Where are the bank examiners in Florida? Why aren’t these loans being reserved? Corruption? Any bank examiners reading this have insights?
Russ, here’s a piece that ran in the Real Estate Journal back in September, before the CRE guidance became official. It’s fairly clear that a nationwide examination crackdown has been ongoing:
http://tinyurl.com/y6exrk
My guess is that reserves are being adjusted as we speak — they’ve just not yet become public knowledge. The slowing of CRE growth (as reflected in 3Q GDP and elsewhere) would be consistent with that.
(P.S. Gotta love Google — All I could remember from the article was “golf course” and “Susan Bies”, and presto — there it is!)
Sometimes one can blame the weather for delaying sales but it doesn’t explain a whole year of buyers backing off .
The more I think about how the real estate industry ignored their ‘Code of Ethics ” regarding the PR on this housing boom it makes me mad . And they are still doing it .
http://www.realtor.org/mempo/web.nsf/pages/code .
Damn .I dont know why the page isn’t taking , the NAR might of cut it off.
Realtor™ code of ethics… “this page cannot be found”… should this surprise anyone?
I was reading it last night when I finally found it ,but now it’s gone .
Ok, just type “NAR code of ethics” in the search box and it will bring you to the site .
Hey Ben, while you weren’t specifically mentioned as being Time Magazine’s Person of the Year, in my book with the information your blog provides, YOU got my vote for Person of the Year (see http://www.cnn.com/2006/US/12/16/time.you.tm/index.html ). Take care and keep up your excellent work on keeping us informed.
“It’s about the many wresting power from the few and helping one another for nothing and how that will not only change the world, but also change the way the world changes.”
” “Owners are better off taking $1,500 a month this year than not seeing any income from their property whatsoever,” Cornette said. However, some homeowners’ expectations are what is holding people back from renting them. A young couple could buy something for $2,000 a month and although it might not be the same size as what they could rent for the same price, they would be investing in their future, Cornette said.”
Cornette is still telling people that they should by a house as an investment while admitting that its rental value far lags the sales value. Incredible.
It’s funny here in Charlottesville Virginia…While the market has slowed & there’s a very large inventory (of sellers who missed the ride); the Charlottesville Assoc of realtors has found that the Charlottesville real estate market is headed for a record breaking year. On a side note, Angus Beavers, a luxury Park City realtor, has said the same; however the average sale price in Park City of almost 3 times what it is in Virginia. One comment you will here from many Charlottesville realtors is this: We’ve never ever seen more deals fall through! It’s the law of supply & demand.
The deals are falling through because the people moving down from the NE or up from Florida can’t sell their existing home. Financing may be beginning to become an issue as well, but I think it is mostly the former right now.
Angus Beavers is her name? eeshh.
After reading the ENTIRE NYTimes article, I found this nugget, which Ben did not include:
‘But after Hurricane Dennis hit the Panhandle in July 2005, most of the planned flips turned to flops.“People got caught day-trading lots,” said Marc Levy, who operates a flooring company in New Orleans and owns a house in Rosemary Beach, a community near WaterColor.’
This is amazing. The NYTimes is blaming a 2005 hurricane for the fact that people were no longer able to sell their lots to the next greater fool. I’m sure the the people atthe NYTimes think that NYC prices are immune from such a bust as a result of NYC’s not being in the likely path of hurricanes. “It’s different here!”
Hurrican Ivan obliterated the Panhandle in 2004 but it did NOT dissuade the flippers. If anything it did the opposite, giving people an excuse to tear down the old stuff and build new beachfront condos higher than ever.
That’s right, and there were stories of “investors” heading down to NO after Katrina to try to find bargain property to buy. Nothing deters an “investor” — certainly not hurricanes. Only running out of fools and credit ends their game.
Two things:
1) New Year’s Prediction: Jt Joe will again become a paper mill company.
2) The New Olreans housing market has tanked. There is no rush to rebuild. Many are afraid to come back. Most think it will happen again. I live in N Lousiana. I’m staying put.
Roidy
1500/mo is a real breakpoint here in West Palm Beach. As soon as you start to climb north of that number, the price/rent ratios start to get really crazy. I am about 1/3 the cost of ownership here with a 2K rent. If your looking to go to 3K, you will get to about 1/4, and so on. Until you hit really high end (north of 2mil) the ratio gets more and more skewed. And there is a TON of rental inventory in the 1700-3K range out there.
We all know why… Because rent is real money, and real money you have to come up with every month (no HELOC/pay option bulls**t), and 2K a month is a real stretch for most of the people who live in this area. To pay 2K a month, your take home should be about 6K a month, which is net about 10K (please check my math). That’s 100-120K/year, using a good, conservative estimate? Well, that’s over double the median HH income in this area, so yeah, anything over 2K a month is going to be hard to rent out doofus!
On the postiive side, I just moved into my new place this weekend. Last sold for about a bit over 550K (over a year ago), rent just under 2K/month. HOA of 300/mo, taxes about 9K per year.
Ahh, the wonders of renting from a FB.
You betcha. Right now I’m on my way to a rental agency in Morro Bay, since my AZ lending business is too scary to pursue any more. Might as well live in CA — Everybody Wants To, right? Here on the central coast it does seem monthly rent is typically 0.003 of the amount that would be asked if the house were for sale. HA ha FBs.
Yes. Crazy, isn’t it? I’m renting in PBC blocks from the intercoastal. I pay $1300 a month rent for a home purchased a year ago for 400k. The landlords came over the other day and, with sad expressions, said that they were going to sell in the spring.
It’s quite sad, actually. They’re both in their 70’s with health problems, and this house is their only source of retirement income. They bought it after buying and flipping three other SFH’s in the runup, using all the profit to sink into the newer, bigger “income” property.
JOE has been on my shorting watch list but the price action has been troubling. Anyone have thoughts for the future?
St Joe is going to be a paper company again. Residential real estate is not going anywhere for a long time. I remember the sale pitch. “If you believe in demographics…” that got St Joe started on this path.
BTW, rentaling a non-selling property won’t cut it even if if the rent services the basic debt (assuming that it rents at all). When the property is finally sold, it will need a lot of money to get it back into shape. No good, the owners should capitulate now before it is too late.
Roidy
any thoughts on Miami? When driving through Down Town I am amazed at the number of condos rising up and wonder how it is that so many can afford them?? Even if you sell your home with an equity of a few hundred thousands, your taxes alone based on 2.4% of the purchase value would wipe you out..
I am a great fan of Ben’s blog and I see the rest of Florida in a different way than Miami. Believe me I l ove to be convinced otherwise. In the building I rent in North Bay Village, there are over 70 units for sale and even though hardly anything sells , the sellers have recently almost unanimously ( condo meeting??>>) opted to increase their prices by a good 20%..
any thoughts on Miami? When driving through Down Town I am amazed at the number of condos rising up and wonder how it is that so many can afford them?? Even if you sell your home with an equity of a few hundred thousands, your taxes alone based on 2.4% of the purchase value would wipe you out..
I am a great fan of Ben’s blog and I see the rest of Florida in a different way than Miami. Believe me I l ove to be convinced otherwise. In the building I rent in North Bay Village, there are over 70 units for sale and even though hardly anything sells , the sellers have recently almost unanimously ( condo meeting??>>) opted to increase their prices by a good 20%..