Supply Is Running Away From Demand
The Orlando Sentinel reports from Florida. “Room 350 of the Orange County Courthouse once buzzed with people trying to outbid one another for foreclosed homes so they could turn around and make a sale for a sizable and nearly instantaneous return on their investment. On Tuesday morning…more than a dozen potential investors showed up at the courthouse for the daily auction. All of them left empty-handed.”
“The homes up for auction are so over-leveraged that it doesn’t make financial sense for anyone but the lending bank to take them. The homeowners who were forced into foreclosure owe more on the homes than the property is worth in today’s sinking market.”
“‘This is the beginning of a pretty bad 12 to 24 months,’ said Kraig Braeuning of Bay Hill Financial Group, who attended Tuesday’s auction. ‘It’s going to be pretty brutal.’”
“It’s been that way for the past three months, said deputy clerk of court and auctioneer Jim Moxley. And the volume of properties up for auction has nearly tripled, he said. ‘When I first started [two years ago]…there was competitive bidding,’ he said. ‘That’s come to a halt.”
“‘I don’t want to say things are bright because anybody out there living in the real estate market will throw bricks at me if I do,’ said University of Florida economist David Denslow. ‘This will be a year to a year and a half to work itself out.’”
The Palm Beach Post from Florida. “In Palm Beach County, 1,142 homeowners lost their bid for the American dream - or their investment flip - compared with 370 foreclosures in the same month a year ago, the Palm Beach County clerk’s office said Tuesday.”
“It was worse in St. Lucie County, where a total of 429 homeowners got foreclosure notices last month, nearly five times as many in July of 2006, according to the clerk’s office.”
“The foreclosure crisis also is being felt in the once-robust Treasure Coast housing markets. In St. Lucie County, the sound of hammers was the constant price of living in this part of paradise during the boom years.”
“The 429 homeowners in St. Lucie County who slid into foreclosure in July translate to a startling 377 percent increase over last July, when the 90 homeowners faced this fate. ‘We’re swamped,’ said Angela Roselli, who works in the St. Lucie County clerk’s office. ‘I’m surprised there are still any people living in this county.’”
The News Journal from Florida. “One of the most ambitious real estate developments in the history of Santa Rosa County has been put on hold because of money problems. Work has stopped at the massive Jubilee development in Pace, and more than $3.8 million in liens has been filed against the project developer.”
“Sandy McCranie, president of the Santa Rosa County Board of Realtors, said she’s not surprised by Jubilee’s setback.”
“‘It’s a buyer’s market, and the market is saturated with houses right now,’ McCranie said. ‘For someone to go in and build a big project like that, it would take years for them to sell out. We all kind of suspected that this was going to happen.’”
The Sun News from South Carolina. “Home prices on the Grand Strand are now showing declines for the first time, according to July sales statistics from the MLS.”
“The price declines signal to Rod Smith, director of general brokerage at Coldwell Banker Chicora, that what he’s seeing in the market is having an effect. Sellers are finally getting the message that they have to cut prices to sell.”
“Sales compared to last year have continued to plummet, with home sales dropping 35 percent in July and condo sales dropping 29 percent.”
“The good news is that stability in the market wouldn’t happen until this price correction showed up, said Tom Maeser, president of the Fortune Academy of Real Estate.”
“Condo prices did not show year-over-year drops in July, but Maeser says those numbers are skewed by preconstruction condos, sold at 2005 prices, that are closing now. Plus, more higher-end condos are being added to the mix, so the overall prices do not give an accurate sense of appreciation.”
“‘If I were to go into [condo] communities and look at prices, I’m pretty positive we’d see a decrease [in price],’ Maeser said.”
The Daily Report from Georgia. “The opening sentence of Haddow & Co.’s mid-year 2007 condominium market overview sends a blunt warning about Atlanta’s Intown market: It’s clearly entered the danger zone.”
“‘[We’re] definitely trying to send a message and want people to try to pay attention to what’s going on,’ said David Haddow, president of Haddow & Co., a real estate consulting firm. He said ’supply is running away from demand.’”
“At a time when the pace of development needs to slow, a record 3,050 units in 35 projects were started in the first half of this year, according to the report. This comes at a time when sales volume has decreased considerably and inventory continues to build.”
“In the current development cycle, which began in 1997, about 409 projects with a total of 32,454 units have been completed or started. Of this, 137 projects with a total of 13,366 units still have unsold units. Only 44.5 percent, or 5,949, of the active condos have been sold or are under contract, the report states.”
“During mid-year 2006, the ratio of unsold units to annual unit sales was 1.37, or 5,457 to 3,981. As of mid-year 2007, the ratio was 3.31, or 7,417 unsold units to 2,239 annual unit sales.”
“Roger C. Tutterow, an economics professor at Mercer University, said…over the next couple of years, inventory will remain elevated, but ‘anyone that’s willing to take a longer term perspective of this should be in good shape provided that we don’t continue to bring as much product forward.’”
“Tutterow said the continued migration Intown will help to absorb the existing condo supply. ‘The migration Intown is real. After decades of talking about people moving back Intown, it’s actually coming true,’ Tutterow said.”
The Community Press from Kentucky. “Despite constant warnings from township officials, many Sycamore residents continue to leave their properties in a state of disrepair. Zoning Administrator Greg Bickford said nuisance properties have increased recently, leading to more citations and fines by township trustees.”
“‘It’s on the rise and it’s only getting worse,’ he said.”
“Bickford said reasons for the rise in nuisance properties are likely just that people don’t take care of their homes, are living somewhere they can’t afford or that a home has been foreclosed and left to rot.”
“Sycamore Township Planning and Zoning Inspector Paul Kremer noted the recent number of foreclosures in particular have been ‘through the roof.’”
The News Sentinel from Tennessee. “Times are good if you’re buying a house in Knoxville, unless you have to sell one first, of course.”
“That’s the impression one gets after crunching numbers and talking to local real estate gurus. While East Tennessee has largely avoided the all-out slump of housing markets like Florida and Michigan, there’s no doubt that the national slow-down is starting to pinch sellers in Big Orange Country.”
“‘What I’m finding is there’s a lot of houses on the market right now, so it’s a buyer’s paradise,’ said Brenda Albert, of Rocky Top Realty. ‘And they’re being more deliberate and more selective because they do have so much to choose from.’”
“For evidence of the trend, look no further than the Knoxville Area Association of Realtors second-quarter report, which found home and condo sales in a 32-county region were down nearly 14 percent compared to the same period a year ago.”
“And that’s not the only harbinger. The average market time for homes sold in June was 90 days, the largest June number in the nine years of data on the association’s Web site.”
“And for readers who take comfort in knowing that others are worse off, consider the numbers out of Florida, where home sales were down 30 percent and median prices were down 5 percent in June.”
“That’s not necessarily good news for Tennessee, since many of the ‘half-backs’ looking to skedaddle out of Florida may first have to sell their Sunshine State home.”
“Existing homes aren’t the only ones being hit. Victor Jernigan, president of Blue Ribbon Homes, said his company has seen traffic drop ‘precipitously’ in the last 60 days because people are afraid the market is still going down, although he said that fear is misplaced.”
“‘We are seeing slower sales in every price range,’ said Jernigan. ‘It’s not just bigger homes or smaller homes. It’s in every price range because of credit standards.’”
‘I don’t want to say things are bright because anybody out there living in the real estate market will throw bricks at me if I do,’ said University of Florida economist David Denslow.’
Wow, that’s a big turnaround!
‘FIESTA KEY, FL-Locally based development group MM70 LLC has secured $75 million in senior and mezzanine financing for Fiesta Key, a 150-unit townhome development.’
‘Karson says obtaining the financing was a challenge due to the oversupply of housing that currently exists in South Florida. ‘The biggest challenge was the overall state of the debt markets in South Florida right now,’ he says. ‘Ultimately, the lender was able to disassociate this project with others in South Florida.’
It’s a good thing that they were able to convince themselves that the market next door doesn’t really matter! Boy I guess real estate really HIGHLY local. Good thing because this would be moronic otherwise.
He’s still being overly optimistic.
‘This will be a year to a year and a half to work itself out.’
The only way this mess can be turned around in a year and a half is if things suddenly went back to the way they were in 2005. That’s not going to happen and this is going to take a lot longer than a year and a half to work its self out.
Well, although I agree, there is actually one other option. This mess could be fixed in a year and a half if prices dropped another 40% right now, as in, today.
If that happened the market would move again; people would swoop in (and be able to use conforming loans) and taxes would not be a huge problem anymore (as SOH was really designed for housing prices to be about 1/2 of what they were at the peak).
All these solutions/options, what people don’t realize is that the prices just need to drop, and drop quickly, to fix this market. Having Fannie/Freddie buy biger and bigger loans? Just going to prolong the bubble. Anything you do to prevent foreclosure is going to prolong the pain for everyone. Just keep the fed rate where it is for another 12-18 months, let the excess price bleed down and get this market back to normal.
Frankly, the game is already up, without the crazy lending, this market is folding in half. If the lenders don’t go back to the psycho loans (very, very unlikely, given their now fresh experience at dropping buckets of money out the back of the bank truck; not very likely to get any of it back) there is no way this market is sustainable.
It the market dropped 40% today then trillions of dollars of equity in comps would evaporate, sending the country - the world - into a massive depression. It’s best for everyone having the decline drag out over several years.
More …
Prices need to be discovered by the market. If this discovery is a sudden event - a crash - then chaos ensues because nobody has a clue as to what price level price equilibrim will ensue. Fear will prevail and commerce will come to a halt.
But if the price decline is a processs (as opposed to an event) lasting for several years then the economic pain will be long and drawn out and thus tolerable by market participants as a whole.
‘If that happened the market would move again; people would swoop in (and be able to use conforming loans)’
- If the qualification process was to bring in a cash deposit and actually qualify for a fully amortized loan rate … the market will filter itself and sales would almost stop until either wages increase or prices drop. It would almost certainly eliminate the zero down flippers.
There is a new blog covering the South east Florida real estate market if anyone is interested.
http://southfloridahousingbubble.blogspot.com
Thanks.
I think that prices will begin to drop pretty rapidly as we head into 2008. Not only will tightening lending standards force it, but also the comps upon which lending is based will drop like a rock as houses in almost any neighborhood go into foreclosure and many of the lenders get them off the books by their financial year-end. Further, I’d think that appraisers, reading more and more about lawsuits, will be getting more backbone. Dimedropped probably can clue us in about that.
No way a year and a half. This will take a good 7 to 10 years to unfold. We are already at 2 years and things are just starting to heat up.
Even if prices drop, the problem is affording the insurance and taxes. Especially if they move to the super exemption which can have you paying more in taxes in less than 3 years.
Florida as a whole has to revamp its entire economy in order to survive. It has always been too laid back.
First yes prices need to be cut. Will that happen? Somewhat..but not as low as they need to go since too many went into the ATM/REfi. This is not allowing home prices to go as low as they should.
Second, a correction in the system of taxes..the super exemption is not it..
Third..better control over the increases in insurance..a 3-10% increase ok..not so great.. but to increase 50% every 2 years..INSANE..
Fourth…introduction of major Fortune 500 companies into the economy that can employee people at every salary range…This attraction can only be done if affordable housing is available..and great tax breaks are offered
Florida has alot of work to do if it wants to not be known as state to stay away from…
Also heard, as predicted, Florida want to move into the Casinos as a answer to its economic woes..Good luck as Atlanta is already on the move with that…
Home insurance is gonna be a huge problem for all homeowners living along the gulf and atlantic coasts in the coming years. Here in Brazoria County, Texas, we’re seeing several insurance companies stop offering coverage altogether due to the on-going threat of tropical storms and hurricanes. But, like most of the problems our country has right now, there is a simple solution. We contact every city hall within 50 miles of the coast from Brownsville, TX to Richmond, Virginia and invite them to join in a co-op insurance fund. We re-direct the billions of dollars in profits currently going to Warren Buffet to keep premiums down for the rest of us.
As a former employee of major national insurance companies over 19 years, I was told that claims cannot exceed 65% of total premiums, because the remaining 35% is for expenses (labor intensive business, at least it was in the 1970’s, 1980’s and 1990’s) and profits. Once claims exceeded 65%, then the combined loss ratio exceeds 100%. Insurance, posting their loss ratios, generally will not talk about their investment income. In the late 1970’s with a high interest rate(21%?), the insurance companies underwriting standards in CA were thrown out the window. The argument that I heard was that the business needed to be booked so that the income could be invested in Treasurys and bonds offering a higher percentage rate.
And like the current real estate market, this was short term and the insurance underwriting standards returned to normal.
Just wanted you to know, when things get out of wack, they will and do return to normal.
Buffet has billions in assets, but he doesn’t siphon billions in cash from the companies he owns. If you made a coop insurance company managed by local governments the cash would likely disappear. Just look at Social Security. The cash is GONE.
I agree. The premiums would be collected but when the first big disaster hit the losses would be “discovered.”
A non-profit organization would be set up to administer the plan. We would get honorable, compassionate citizens to run the organization - people like you, Bill, and you, climber.
“First yes prices need to be cut. Will that happen? Somewhat..but not as low as they need to go since too many went into the ATM/REfi. This is not allowing home prices to go as low as they should.”
annette,
Prices will come down to affordable levels. Why? To many foreclosures are going to be coming into the market.
I remember a good friend buying a home in socal circa 93 in a previously 300-350k neighborhood for,get this,112k.
Something else to think about that i know happened a lot in socal. A neighbor of a foreclosure can’t take the 100k to 200k equity hit. The neighbor just mails the keys to the bank and leaves. You don’t hear much about this because there was no interweb in 93 for the masses. You think the msm is going to report on something like this ??? Heck no,that would look reallllly bad.
Just keep in mind this is the very beginning of this whole ordeal…
Chris
Ben,
Fiesta Key is one of the few remaining campgrounds for the RV folks. It really is a shame that these morons were able to get financing to build more unneeded “luxury” housing.
Didn’t the bank read about the troubles with converting Holiday Isle to a luxury property?
Maybe it doesn’t matter, what little charm still exists will be wiped out when the new bridge is finished.
I read an article on Mrs. Clinton’s bailout stuff and it doesn’t sound that concrete. One of the problems is separating the people that she wants to help from the speculators.
It also mentioned the issue of Barney Frank wanting to do something for consumers (probably at the expense of the banks) while Dodd on the Senate side not wanting to. The bankers have a lot of political clout and it’s pretty sure that they want to be bailed out and could care less about the consumer.
One area where I could see some help in terms of a bailout is getting rid of the harsh measures in the bankruptcy act that passed a few years ago. I think that was a bankers’ bonanza.
As I’ve said before, it’s amazing watching the bubble unwind in real-time. Stock market bubbles unwind much faster as you can just hit the sell at market button. You can in real estate too I guess but very few people do that.
And if you read Clinton’s proposal, she talks about things like getting rid of prepayment penalties. Sounds like a good idea to me.
I don’t know why anyone (other than banks) would be against that.
It seems to me that some regulation of the loan industry is in order, given what we’ve seen these last few years.
I agree on prepayment penalties. As many have already mentioned, prices are a big issue unless there’s a magic way to increase incomes which I don’t see. I think that individuals and banks need to take a hit so that they learn not to do this stuff again. At least not for a few generations. But banks have so much lobbying power that they will resist a hit until they get hit with the market. They probably like the idea of saddling Fannie and Freddie with all of the toxic waste. I’m curious if someone could describe how it would work out given the huge numbers.
All getting rid of prepayment penalties does is drive up interest rates required to earn the same return on the investment. Ms. Clinton’s proposal will (a) not help people already in mortgages; and (b) make mortgages less affordable due to higher rates to compensate for the removal of prepayment penalties going forward thereby speeding along the bubble.
Unless she proposes to “after the fact” make prepayment penalties illegal in existing mortgage contracts, her proposal will have exactly the opposite effect that she desires.
Wooohoooo!
“…her proposal will have exactly the opposite effect that she desires.”
…consistent with almost any government program that interferes with the market.
the government has already interfered with the market– by allowing no more than 6mo P&I as the prepayment penalty amount. Imagine if that weren’t in place!
It’s not black and white. There is a certain reasonableness to the limitations you put on lenders. A 1-year prepay is not predatory, but a 3-year prepay that is the same penalty amount at day 1 as day 1094 might be. A prepayment penalty that kicks in if you pay down principal faster is awful.
Granted, a lot of this talk is post-horse-flee-barn-door-slam. The reason for the prepay is because it’s valuable to ratings in the secondary market that securitized the loans. The reason people entered into prepayment clauses is because they were uneducated and/or short-sighted and/or had a broker that could drop the rate with a PPP and jack it back up on YSP.
There is no secondary market now, and uneducated people can’t get loans. However, there’s nothing wrong with laws that ensure folks at least understand the paper they are signing and the meanings of the terms, because this will come up again 10-15 years from now I promise.
“…there’s nothing wrong with laws that ensure folks at least understand the paper they are signing and the meanings of the terms,”
I agree with that because it is the requirement of full disclosure, rather than interference with pricing.
prepayment penalty is there for a reason– initial teaser rate Plus commissions.
If you take it away, there goes the teaser rate!
I dont think they can ban it retroactively !
Hopefully, but didn’t Pres. Clinton do something with taxes, retroactively? Maybe my memory is bad, but I thought there was a related bit of speculation in the media about Michael Eisner’s “really lucky” timing on the exercise of his stock options at the end of the previous tax year, or something like that.
I wish developers wouldn’t lose heart. How can they forget that they aren’t making any more land? I say keep builiding. That will guarantee that prices will be lower in the years to come for the smart members of this blog. We all need to see more inventory of good quality houses at rock-bottom prices. I do hope flippers soon come out of their hiding places, they need to give a hand to the sad developers.
“We all need to see more inventory of good quality houses at rock-bottom prices.”
It’s starting. Minto has delayed and delayed and delayed the opening of their new development in Royal Palm Beach. They sent me an e-mail that said they wouldn’t be opening the new development for a while but I’m welcome to buy in one of the existing develpments. I spit out my coffee!
In other news, Olympia which defines middle high end is starting in the $330’s down from the mid $500’s. You can buy a house in a livable neighborhood for well under $200K. This is still only the start in my opinion though.
Bad Andy,
I was talking with one of the guys this a.m. here at work. His wife has been in North Port real estate for 20+ years. Her exact comments were…”I have never had a slowdown like this year,ever”.
He also mentioned a 2500 sqft place,pool,cage,new in 05,never lived in, it has been on the market since Jan. for 169k. Not a single viewing,bid,NOTHING. Even the snowbirds aren’t even looking.
Like i said in the other thread…It’s a gonna get a reallllly ugly here in Florida.
Chris
I was thinking New England would be worse since it was last time,but FL is incredable
FL in the early 90’s kept creeping up……..it’s different this time !
Florida just doesn’t get it that the snowbirds haven’t been coming since Wilma in 05.
They learned from the great insurance company ripoffs/phone disconnected/Sorry your not covered/..blah blah..not to come back..I haven’t seen out of town plates for 2 years in the winter…and the traffic that use to be there is just locals now…funny no one has done a statistics study yet on how little they have returned…
Like i said in the other thread…It’s a gonna get a reallllly ugly here in Florida.
It already is ugly and it is getting worse. A high end furniture store located in Tampa on Dale Mabry was consumed by fire last night. The investigation is underway as to the cause.
There are still some dunderheads around, and they are members of my family.
My elderly mom rents a condo in Lauderdale for a month every winter-same place, same landlady. My brother sent in the renewal contract and check, not due til late Sept. just to get it off his desk. When I asked if tried to negotiate, he blew me off–”hey, it’s the place she likes and nothing’s getting any cheaper”.
Go easy on your brother spike66. Elderly folks don’t manage disruptions very well.
I’d bet the landlady knows elderly renters pretty well in this regard and, as a result, is less inclined to cut the rate the longer someone’s used the property and the older they are.
Assuming you could get a lower rate, how much would be saved? $100 for a month? Small price to pay NOT to have a hassle with your mom (or your brother) I’d say.
My landlords in East Hillsborough will be raising my rent. Not a whole lot I can do about it. Even with the raise in rent, it is still low compared to other similar properties in the area and a heck of a lot nicer than most of the others I’ve seen. One bedrooms are in very short supply here.
That said, I’m in the beginning stages of a hunt for a very cheap small block house I can buy for cash. May not find it this year or even the next, but that doesn’t mean I can’t start looking.
Go palmetto, you can do it. Get yourself a nice small block house and pay cash like you said. Some of those old block houses are great.
“‘We are seeing slower sales in every price range,’ said Jernigan. ‘It’s not just bigger homes or smaller homes. It’s in every price range because of credit standards.’”
It is EZ credit that created this monster bubble, and credit standards that will take it away. I believe we are going to start seeing sharp price declines after the new year, but I may still be thinking ahead of myself.
I don’t think it will take that long. August closings are going to be DISGUSTINGLY low with the tightening of the lending standards and shutting down of the remaining brokerages. July-Sept foreclosures will continue the pattern we’ve been seeing of doubling each quarter.
Last week’s headline for PHX was that foreclosures were up 3 fold. WHAT??? 1000 all of last year and 3000 for the first half of this year! That is not 3 fold.
If they went quarter by quarter it would be something like this
1Q06 50 (prices still rising here)
2Q06 150 (prices peak)
3Q96 300 (prices flat)
4Q06 600 (prices off maybe 2% from peak)
1Q07 1000 (prices starting to dip 5% or so, sub-prime collapse, but Alt-A and $0 down still going strong to people with good credit)
2Q07 2000 (prices off a good 10%, sales down more than half from peak)
3Q07: Alt-A and 3rd party brokers shut down. $0 down a thing of the past. Appraisals standards are Tightened!!! I predict something close to 4000 foreclosures.
I’m sorry, but I don’t see how we’re getting past November without real estate sales stopping for all but DRASTICALLY reduced prices.
Last chance to make money in real estate? Not according to this article. There are still Fools out there.
http://money.cnn.com/2007/08/06/magazines/fsb/real_estate.fsb/index.htm?postversion=2007080706
Piccolo retorts, “There is no better time to buy, because real estate is on sale. You can never go wrong with real estate in the U.S. of A.’ He admits, though, that he has not bought any property lately.
My kind of guy. BTW, I have some Enron stocks that you can buy.
A few months ago, a dollar blew into my front yard. And that’s how I made money in real estate this year.
LOL! This is now my favorite RE quote ever. I’ll be sure to attribute it to you when I use it at cocktail parties over the next 18 months to 8 years.
You and QT are too funny. Gotta remember those lines…
You know you can leverage that dollar and buy 2 condos in Naples, FL.
Then you’re on your way to instant millionairehood.
First time I’ve smiled all day. Thanks for that.
Co-founder and CEO Jim Piccolo claims that revenues will top $80 million in 2007, up tenfold since 2005, when the company was founded and the real estate market peaked. Piccolo makes money not only from tuitions but also from commissions on the properties his students buy and from the fees he charges for accounting, finance, and property-management services.
“Never trust a man named after a woodwind instrument.” — F. Horn
Despite these risky deals, Nouveau Riche’s enrollment keeps booming and Piccolo’s pockets keep filling, which lets him plan big for the future. The company bought 24 acres on top of a black-lava mountain north of Phoenix. In 2008, Piccolo intends to break ground on a new campus with modern steel and glass classrooms and four luxury dorms, each with its own pool and barbecue pit. The pools will be linked by a man-made river; students will be able to float from dorm to dorm, riding the river on inner tubes. “It’ll be very theme-y,” he says. “We’re going to build a Disneyworld for investors and entrepreneurs.”
This individual and his business could not be any more of a joke.
Wait - there’s more!
He started in network marketing.
Q:
What do you get when you cross Amway with a RE Scaminar?
A:
Nouveau Riche University!
What you’re seeing is a scam artist who has, as they often do, fallen prey to his own scam. At some point in these scams, the scammer starts to believe his own scam: there really is a pig in the poke, it must be true! And when that happens, you end up with stuff like “Disneyworld for investors and entrepreneurs.”
The section on the ‘deal’ they lined up for their ’students’ in Fenton MI left me speechless.
Bought sight unseen - Condos that they can’t rent for even close to cost, in an area with a stricken economy based upon a stricken industry, with a falling population, as well as an absolutely oversaturated RE market.
Every single one of those factors should be a loud warning bell not to waste their money.
These morons are going to lose everything. I guess one is born every minute.
Off topic:
When the NAR announced sales would only drop 1% more this year… I blew a fuse. The idiotic comments have become too much. New series on my blog, Iron Auger. I’m looking for suggestions of candidates as well as guest “Iron Augers.” This series is *not* to be taken seriously. Just click on my name.
This is going to be bad. Really bad. Florida is going to Depression (note, I still don’t believe the nation will).
Got popcorn?
Neil
Just take whatever the NAR says as having a 10,000% margin of error, you will feel much better.
When they say “Prices can only go up”, it really means that “Prices may go up, may go down, or may go sideways, however, we only collect commisions on sales so hurry up and buy!!”.
Yes, FL is definately going to go into a depression. I don’t really know about the rest of the nation, but FL has truly “scr*wed the pooch” on this one, and we are going to be one of the most dramatically impacted areas in the country.
I don’t think the economy of Florida will significantly underperform the rest of the country over the next 5 years. I can think of several states to which I would give a greater chance of that happening than Florida.
Michigan comes to mind.
Colorado, too.
Paul,
Florida’s economy, especially the government, is far too dependent on construction. So sadly, Florida and Michigan are in a race to the bottom of this economy.
Got popcorn?
Neil
I say California and Massachusetts will both suffer greater changes in unemployment and per capita wealth than Florida over the next 5 years.
Living in MA, I do hope your prediction comes true and sanity is restored.
I agree with you, Paul. Mainly because I’ve lived in Fla since 1979 and seen Florida go through a number of different cycles, although nothing quite like this. Yes, I know about 1929, but very few, if any, are left from that meltdown. However, many long term Floridians are a tough breed. They’ve heard it all and seen it all. Many are used to making due with very little. I know, I’ve done it. Of course, we’ve never seen insurance and taxes like this, but that will change as prices deflate. We’ve been squeezed by the power companies in the past, too, and when people started switching to solar and sweating more, down came the prices.
I live in both places during different times of the year and my bet is on Michigan winning the race to the bottom. They don’t have a clue regarding what do to. Their answer is to do more of what hasn’t worked for the last 40 years. If you think that Florida has problems, take a trip to Detroit. If I want to visit a city while I’m in Michigan, I go to Chicago or Toronto. With real estate both are imploding; the primary difference is that Fl. is imploding because there was a ridiculous run-up in real estate valuations; in Michigan, its imploding WITHOUT the run up in prices. When I lived in Texas in the ’80’s we used to joke about the last one in Michigan needed to turn out the lights. If you don’t live on a shoreline of one of the Great Lakes, the lights are already out.
I just want to clarify that I was replying to and referring to potential general economic conditions in Florida vs. other states rather than housing in particular. Florida will continue to have a lot of what people are looking for - beaches, warm weather (if a bit too hot at times), proximity, and - significantly - a culture where political correctness doesn’t run completely amok. In Florida you’re generally not considered a criminal for being armed, a barabarian for supporting the death penalty, nor will firemen ever be forced to march in gay rights’ parades.
So, better than Michigan on other points than the economy too?
Florida’s economy, especially the government, is far too dependent on construction.
Florida is more dependent on tourisim than construction. I do not see any signs of a depressed economy in Florida. I do see a very depressed RE market due to affordability reasons. There are also some businesses such as furniture stores, mortgage brokers, realitors, etc. that are struggling and may go out of business. Next year will be the year that defines how deep the RE downturn will be in terms of it’s impact to Florida, but so far this year has been fine.
I wondered when something was going to happen in Myrtle. My ‘rent’s live down there and the building going on down there has just been insane. I have a feeling it’s going to get really ugly down there.
Just hope my Dad makes it through ok. He rebuilds alternators and starters and a lot of his business comes from construction companies and mom and pop boat repair places down there.
I could see your Dad maybe doing OK. Perhaps the reduction in total number of vehicles requiring service might be offset by the increased likelihood of the owner wanting rebuilt instead of new. If he’s in a good enough financial position to consistently undercut the competition on price while delivering top quality, I’d actually feel pretty good about his situation. I could see boat/commercial business falling off hard while automotive business picks up. Best of luck to him…
Many people I talk to say they are moving out of Florida or are in the process of moving out (putting up homes for sale, looking for jobs elsewhere).
I have the same experience, however many of my friends acknowldege they missed the boat and can’t sell. They are now stuck.
And I have a friend who just retired and moved TO Florida. He bought the house there in Spring 2006. I wonder how long it will take him to figure out he made a mistake.
When the first Hurricane comes.
“Of the 12 properties up for auction Tuesday, a guy in shorts and sneakers and others paid to represent the banks bought all 12 back without a single opposing bid.”
When are the banks going to sell the properties and take the loss? By waiting, they’ve already reached the point where non-conforming loans have disappeared. Do they want to wait until China exercises the “nuclear” option and interest rates reach early 1980s levels, and THEN try to sell? Or are they waiting for a buyout?
Time to get serious and sell, guys.
waiting for the bailout….
I would think that lenders have a particularly strong interest in selling REOs before the end of their financial year, or most certainly by the end of the second financial year in which a property is REO. Auditors’ management notes or footnotes should be increasingly CYA by the time the latter’s statements are issued.
Unless the fix is in. They may know that son of RTC is coming.
OT - just got back from lunch. Brought up the current state of the markets (RE, stocks). There were two people who completely disregarded my opinions:
1) “Yeah, real estate was going down for a while, but now it’s coming back.” (My thought: Huh? Based on what statistics/facts?…)
2) “The stock market took a little dip, but it’s going back up now. And it always goes up. The people who are worried are just panicking for nothing. And it’s the ones who panic that bring the market down. They’re so pessimistic.” (My reply - because I know the pessimist jab was directed at me - “I’m not a pessimist, I’m a realist.”)
J6P: still deep in denial.
Getting something for nothing has been the timeless holy grail. Why work when all that you need are connections and insider knowledge?
You speak for J6P?
I speak for no one. Just saying what some of the regular folk out there are still thinking. Maybe J6P is the wrong term (guess that really means lower class - although I equate it to John Q. Public).
The Orlando Sentinel reports from Florida. “Room 350 of the Orange County Courthouse once buzzed with people trying to outbid one another for foreclosed homes so they could turn around and make a sale for a sizable and nearly instantaneous return on their investment. On Tuesday morning…more than a dozen potential investors showed up at the courthouse for the daily auction. All of them left empty-handed.”
“The homes up for auction are so over-leveraged that it doesn’t make financial sense for anyone but the lending bank to take them. The homeowners who were forced into foreclosure owe more on the homes than the property is worth in today’s sinking market.”
This quote makes absolutely no sense to me. What does “leveraging” have to do with anything. Unless I don’t understand how these foreclosure auctions work. The buyers are buying the house not the loan. What difference does it make how leveraged the original owner was?
Am I missing something?
It means too much money is owed and the lenders buy the property for the amount of the outstanding loans which is way above the market value.
Yes. The bank is bidding the loan amount, hoping to sell and get all their money back later (or at least postpone admitting the loss).
If you have a $400K mortgage, and the bank lets someone else have it for $250K, they have to admit a $150K loss (plus their foreclosure costs) RIGHT NOW.
If they take the house for $400K, all they have to admit as loss right now is the interest payment that is due right now, because they maintain the fiction that the house is worth $400K.
As I said, how long will the fiction continue? And are these bank repos considered comps?
Soon, insurers will raise rates or refuse to write property and liability insurance for REPOs. That’s when we’ll see a rush for the exits.
Banks aren’t required to have and don’t really need insurance on these places - they need Joe the Foreclosure Service Man, the entrepreneur-to-be who provides maintenance and security.
Maybe that’s who they need, but it’s Joe the FireBug Man that they probably really want. At least as long as the insurance coverage is still there…
The feds don’t require coverage, but the companies that insure banks do. REPOs are a major source of claims for bank insurers. Right up there with slips & falls in the lobby and lawsuits vs. D&Os. I used to work for a bank insurer, and we specifically excluded claims from REPOs, so our clients had to get separate coverage in high-risk markets, unless they were willing to self-insure (which they weren’t).
“so our clients had to get separate coverage in high-risk markets, unless they were willing to self-insure (which they weren’t). ”
But that’s the point. There is no requirement for owners of property to have insurance. Your clients did; some financial institutions don’t, and above certain prices more banks would forego coverage (in favor of Joe the Foreclosure Service Man.)
f they take the house for $400K, all they have to admit as loss right now is the interest payment that is due right now, because they maintain the fiction that the house is worth $400K.
I’m not even sure they take the missing interest as a loss. It just never shows up as income. So their “loss” is nothing more than the cost of managing the foreclosure procedure and maintaining the property (if they do even that).
If they don’t have to take the interest due as a loss then why can’t bank owners lend themselves/friends infinite money at 0%?
Is there some law that states minimum interest rates? Are the banks required to borrow money for the loan from the central bank and only allowed to make money on the spread?
They can lend at zero % but they are lending your money most of the time and I suspect you still want 3-5% on your deposits even if the bank loans it out for 0%.
Many of the home builders are up 10 to 30% today. Short squeeze?
Perhaps this would be a good opportunity to re-short the stocks?
This market makes no sense.
Dan : You are right about a short squeeze. You just have to remember that you’ve market makers hold the rule book.
Remember Techs in 2000 didn’t go straight down. The bounced a few times.
I’m not re-entering yet. If you’d gone long WCI in past few days, you’d have made a fortune. Long term the stock is a pig.
“‘I don’t want to say things are bright because anybody out there living in the real estate market will throw bricks at me if I do,’ said University of Florida economist David Denslow. ‘This will be a year to a year and a half to work itself out.’”
It looks like his cheerleading has come to a halt. Perhaps the thought of having bricks thrown at him knocked some sense into his head to inform the consumer the truth and to stop the spin and BS that we often hear from the NAR.
Even if prices drop, the problem is affording the insurance and taxes. Especially if they move to the super exemption which can have you paying more in taxes in less than 3 years.
If prices drop in Florida, the cost of taxes and insurance will also drop. The law that Florida residents will vote on in January will save the average homeowner $200 a year. As I have mentioned in the past, the consumer has the power to make the change, Simply boycott the insurance companies gouging the consumer. The consumer in Florida can start by sending their car insurance to other insurance companies other than say Allstate or State Farm as an example.
IF prices in Florida drop? Are you kidding me? My brother-in-law just offered $220,000 on a place in Venice, Fl. that was going for over $400,000. I still think he should have waited until this next spring when that place might go for $120,000 or less. For the next two to three years it is cheaper by far to rent.