The Housing Bubble

The Sun Herald reports from Florida. “Arthur Broslat of Re/Max Palm Realty in Port Charlotte said there is a sizable local inventory of ‘relatively new’ homes, especially in North Port, selling for 40 percent of what they went for three years ago.’ ‘I’m showing a three/two (bedroom/bathroom), 1,500-square-foot home in North Port that was selling for $250,000 in 2005,’ he said. ‘Now, you can get it for $130,000 to $150,000.’”

“Jason Painter of Program Realty LLC in Port Charlotte, who specializes in Cape Haze real estate, said home prices there ‘are off a good 35 percent.’”

“‘We are seeing a $300,000 house in August 2005 sell now for $200,000,’ he said. ‘It is,” he said , ‘a buyers’ market if there ever was one.’”

“In April 2006, all five of the nation’s largest homebuilders, Pulte, D.R. Horton, Lennar/US Homes, Centex, KB Homes, were building homes in Charlotte County and North Port.”

“‘You have builders who continued to build and now have quite an inventory,’ said Al Mitchell, president of the Punta Gorda-Port Charlotte-North Port Association of Realtors. ‘On my little street, I have four houses that are brand, spanking new. The builder has water and cut the grass. Nobody is buying them.’”

“In early January, there were 6,448 homes for sale on the local Realtor association’s MLS, including 2,694 under $200,000 and 87 under $100,000.”

“Meanwhile, the area’s condominium market is stagnate. ‘They just aren’t moving at all,’ Mitchell said.”

“Painter said the resale market for condominiums along Placida Road is nonexistent. He said investors often paid $300,000 for preconstruction condo units. One recently sold ‘for $190,000,’ he said.”

“Painter said when Town Homes of Cape Haze ‘originally came out, guys were talking about selling units for $500,000. Now the price is in the $250s — and not a single resale yet.’”

“Most new condos, he said, were purchased to generate rental income. ‘They’re getting $1,200 a month in rent, tops,’ Painter said. ‘It’s hard to keep a cash-flow property when you paid $500,000 and can only get $1,200 a month rent.’”

“Broslat said price cycles are more extreme for vacant land than other types of real estate. ‘We’ve had a drop on land prices, in standard lots, 80 percent — $50,000 lots are now $10,000 lots,’ Boslat said.”

“He cites Northwest Port Charlotte lots with access to the Gulf and/or the Myakka River as an example. In May, Broslat said, four such lots sold for $108,000 each. The same lots sold for $340,000 in 2005, he said.”

“It’s a similar story in South Gulf Cove, Painter said. ‘I saw one go for $72,000 — a dry lot. Now that same lot can be purchased for $10,000,’ he said.”

The Herald Tribune. “Another bank seized another apartment complex through foreclosure last week, driving home the fact that Southwest Florida’s condo conversion market is as dead as dead can get.”

“The Turnbury Park at Palm-Aire apartment complex is just the latest casualty of a once overheated market, which saw investors paying multimillion-dollar premiums for apartment complexes around the state in the belief that the units would be worth far more for sale as condos than for rent as apartments.”

“But when buyers failed to materialize and condo converters were unable to pay their debts, it became clear that apartment complexes would have to revert to their original purposes and that premiums paid would have to be written off as losses.”

“‘Tarragon Corp. bought a ton of apartment complexes at the height of the boom and recently resold five of them for what amounted to a 40 percent haircut,’ said Jack McCabe, a Deerfield Beach-based real estate consultant.”

“McCabe added that other condo converters are defaulting on projects all around the state. He said seven went down in South Florida in the past 90 days, and many more will follow.”

“For Coconut Grove-based condo converter Peter Wenzel, who has completed a dozen condo conversion projects in Florida over the past 25 years, the collapse of his Southern Manatee conversion came as a complete surprise.”

“His 354-unit Courtney Palms condo conversion project in Tampa sold out in nine months during the height of the boom. But the Turnbury Park conversion project went bad almost as soon as the partners closed on the complex in November 2005.”

“‘No one understands why we hit the wall so fast,’ Wenzel said. ‘We thought the Sarasota market would be the last to be affected by a downturn. It really took us by surprise.’”

“A lot of smart people were taken by surprise, agreed Stan Rutstein, a commercial agent who invested in a Bradenton conversion project during the boom.”

“‘The problem is that our market attracted a tremendous amount of weekly workers oriented toward construction. The minute these apartment complexes started to convert, these people got up and left. They didn’t want to go through the hassle, and there was no one to replace them,’ he said.”

“Southwest Florida is not economically diversified enough to sustain employment during a housing downturn, Rutstein said. ‘There is a high vacancy in conversions and in apartments because we are not attracting out-of-town people to come and work,’ he said.”

“Wenzel said…he is still smarting from the loss of a project that could have worked given more time.”

“‘Our price point of $210,000 for units and our arrangement with the golf course community made this a very attractive proposition,’ Wenzel said. ‘It would have provided a very nice second home for people up north. What happened to the market has left us all shaking our heads.’”

The St Petersburg Times. “Are we in a recession or just teetering on the edge? Economists are debating the point as conditions deteriorate. The little picture is a whole lot clearer. If you’ve lost your job or your income has fallen, the recession has arrived.”

“In the real estate business, the recession is more than a current problem; it’s a long-running nightmare. Vernon Taylor has tapped his home equity to keep the doors open at VET Realty in Lutz. After handling about $12-million in deals in 2006, the company saw business drop in half last year.”

“‘It’s a real struggle to pay the bills,’ Taylor said. A single part-timer has replaced his two full-time employees, and four of his 15 agents have dropped out of the business.”

“‘You can forget the ‘retire at 62′ stuff,’ he said. ‘It gets scary when you start dipping into things you spent so many years saving for.’”

“Business started going downhill in April, said Larry R. Holly, an independent insurance agent in St. Petersburg. ‘The whole industry is down,’ he said. ‘It’s the worst I’ve seen in 25 years.’”

“Stagnation in the real estate market is one reason. Where he was giving 20 to 25 quotes a week for new homeowners insurance a year ago - and selling about half of them - this year he’s lucky to be asked for two or three quotes a week and sell one or two policies.”

“Another sign that people are feeling the pinch is the growing number of Holly’s customers who fail to renew their auto insurance until they get a threatening letter from the state.”

“‘Then they make a payment, but let it lapse until they hear from the state again,’ he said. ‘It’s a never-ending scenario, but when money is tight, that’s where you cut.’”

The News Press. “Foreclosures and bankruptcies, unfinished homes and subdivisions, plummeting prices and lease rates, layoffs and market saturation were much in the news in Lee County and nationally, throughout the year.”

“On the residential side, 2007 was a time when a terrible threesome left their mark, according to Ron Carpenter, president of the Realtors Association of Greater Fort Myers and the Beach.”

“‘Home sales slowed to a crawl in 2007, due in part to real estate investors with more money than common sense, mortgage brokers and banks willing to give homebuyers more money than could possibly be paid back, and homebuyers who did not take the time to read the mortgage terms associated with the biggest financial deal of their life,’ he said.”

The Orlando Sentinel. “A new subdivision is stirring in west Orange County. Castle & Cooke Florida, the developer of Oakland Park, is building 10 homes in an exclusive project that overlooks the south shore of Lake Apopka. And none of the 10 homes has an owner or buyer in sight.”

“Several custom-home builders in that community are also busy erecting houses without buyers in hand.”

“With excess inventory of unsold new homes blamed in part for the nationwide slump in housing last year, it might seem strange that builders would be adding to the unsold inventory. But in growth-oriented Central Florida, it is still happening and even picking up speed, spec homes rising from bare ground.”

“Anthony Crocco, an analyst who tracks the new-home market throughout much of Florida, said Monday the days of building homes without a confirmed buyer are returning, for sound economic reasons, to this part of the state.”

“One reason that speculative home construction will increase in percentage terms in the coming months, he said, is that more buyers will demand a finished home, an ‘inventory home,’ rather than wait for one to be built from scratch.”

“When the real estate market was hot a few years ago, Crocco said, people could count on their existing home selling quickly, so they felt they could buy a new, unbuilt home and make the move fairly easily on a timetable of their choosing.”

“Now, however, sellers are uncertain of when, or if, they will be able to unload their existing home, so they are reluctant to buy an unbuilt home. They are waiting until their existing home sells, then moving quickly into a finished home pre-selected from the region’s new-home inventory.”

“So now the balance has tipped to the point that the construction side of the ledger must begin to creep back up or risk a more serious imbalance, Crocco said. ‘Some builders are having to take a bit of a risk,’ he said, by starting homes without buyers.”

The Palm Beach Post. “With the condo market deader than the Miami Heat’s playoff hopes, the apartment market is struggling, too.”

“Just ask Kyle Riva, president of Winter Park-based Epoch Properties. The developer recently landed a $150 million loan and began construction on Las Ventanas, a 494-apartment complex in Boynton Beach.”

“While Riva is optimistic about the apartment market’s long-term prospects, he worries that homeowners who can’t sell are flooding the market with houses and condos for lease. ‘That is having a negative effect on rental housing,’ Riva said. ‘The market is not the best right now.’”

“At least for landlords. Tenants, on the other hand, can find deals. The first tenants at Las Ventanas won’t start moving in until 2009, and Riva hopes the glut of homes for sale will shrink by then. Monthly rents will range from $1,300 for a one-bedroom unit to $3,000 for a three-story townhouse with garage.”

“If you want a ground’s eye view of local economic trends, you can cruise on down to Fast Eddie’s Pawn in Riviera Beach. ‘Last week, I took in five or six Rolexes,’ says proprietor Brian O’Brien.”

“Fast Eddie’s has been in Riviera for 21 years, so there’s plenty of local perspective. And since the economy started to tank, says O’Brien, ‘it has been a whole different level of customer.’”

“There are contractors, for instance, and insurance agents whose clients have stopped paying monthly premiums. And they are not bringing in junk - witness the wave of Rolexes.”