The Housing Bubble

The Sun Sentinel reports from Florida. “A typical used home in Broward and Palm Beach counties now sells for less than $295,000, a price not seen here since spring 2004, according to the most recent data from the Florida Association of Realtors. Distressed properties fetch far less than that. Many existing condominium units, meanwhile, are going for under $140,000, nearly 40 percent less than two years ago. Age-restricted communities are seeing growing interest in one-bedroom condos selling for less than $50,000, real estate agents say.”

“Rebecca DiLenge’s only concern was in not buying. She and two roommates were renting an apartment in Pembroke Pines for $1,700 a month. But with home prices falling, DiLenge figured she could buy a home for as much as she was paying in rent. She was drawn to a two-bedroom condo in Weston listed for $165,000. She got it for $129,000.”

“‘Ideally, I wanted to wait a little longer before I decided to buy a home,’ said DiLenge, 25, a personal vacation planner for Carnival Cruise Lines. ‘But with prices so low now, it would have been foolish.’”

“Frank Ginder and his wife Susan Bleda, paid $170,000 for a one-bedroom Midtown condo originally priced at $279,900. Ginder and Bleda, who rent out their home in Wellington, planned to get a mortgage for the condo, but their California lender, IndyMac, failed this summer. Faced with the prospect of losing the Midtown deal or paying cash, Ginder and Bleda chose the latter.”

“‘To me, this couldn’t be a better time to buy real estate, if you believe in an area and the product and the builder,’ Ginder said. ‘Real estate has always been a good long-term investment.’”

The Herald Tribune. “When it comes to financial collapse, Sarasota real estate investor R. Craig Adams has few peers. Adams, who specialized in building waterfront mega-mansions during the boom, has defaulted on nine loans totaling $11.9 million since May. His former wife, Holly Adams, who divorced Adams in 2007, filed for Chapter 7 federal bankruptcy protection in January, listing $22.4 million in debts and only $3.9 million in assets.”

“Holly Adams said the bankruptcy was needed because her name appeared on most of the loans that her husband secured during his long real estate investment career. But that does not mean she knew a lot about her husband’s transactions. ‘I was a stay-at-home mom,’ Holly Adams said. ‘He said, ‘Sign here, sign here,’ and I signed.’”

“In (a) deal that involved sales to and from associates, long-time Adams business associate, Charles Scott Abel, bought a condominium unit on Siesta Key for $380,000 in June 2001 and financed the deal with $380,000 in loans from Bank of America. Abel sold the condo to Adams in April 2002 for $425,000 and Adams received $390,000 in loans from Impac Funding and AmSouth Bank.”

“Adams refinanced his initial loan in 2005 with $588,750 in loans from Opteum Financial Services and BB&T Bank, ultimately selling the condo to his sister’s brother-in-law, David Andrew Strickland, in June 2006 for $694,000. Strickland’s wife, Julie, said the deal was the worst investment decision she and her husband have ever made.”

“‘Craig is a hell of a salesman,’ Julie Strickland said. ‘The way he presented it, it was the greatest condo deal of all time. It was oceanfront property we could buy and pay for by renting it out. But this property has been our downfall. Our credit is ruined.’”

“Washington Mutual seized the condo in April after winning a $552,841 foreclosure judgment.”

“‘Craig’s biggest mistake was that he started doing big $5 million spec houses,’ said Richard Dear, a Siesta Key real estate investor who bought several properties from Adams over the years. ‘That’s when he ran into trouble.’”

“A curious thing happened in early September. After a long time in the darkness, the Southwest Florida real estate market finally began to show signs of life. But the housing crisis triggered a financial crisis, a credit meltdown and an overall economic tailspin that transformed the playing field in a matter of days and weeks.”

“For the Sarasota-Bradenton real estate market, the optimism evaporated. ‘We had people in here looking to buy. There had been a lot of activity. But as soon as the economy tanked, it was like somebody turned the water off,’ said Sherwin Taradash, a Michael Saunders & Co. agent based in Lakewood Ranch.”

“‘Trend lines and rules of thumb do well under normal circumstances, but now we have so many complex variables at work in the marketplace,’ said Jack McCabe, a Fort Lauderdale-based real estate analyst who correctly predicted the housing downturn before it began. ‘No one really knows where this thing is going.’”

The Beacon Online. “Volusia County’s unemployment rate is higher than national and state averages, and home-loan defaults are rising locally. Economic Development Director Rick Michael briefed the County Council on the local economy, noting Volusia has just over 258,000 people employed or able to work, and about 18,000 of them do not have jobs.”

“Perhaps to no one’s surprise, home construction has fallen to about half of the almost $145 million value for the July-September period of 2007. The slowdown in home building is related to the steep increase in foreclosures. The Clerk of the Court’s Office shows there were 4,195 foreclosures in Volusia County in 2007, and the number of homes repossessed in the first nine months of 2008 totals 5,679. ”

“Of those 5,679, only 739 have been sold, leaving a glut of houses on the market and driving the prices of many of them lower. ‘It’s a serious concern to us. It represents about 8 percent of our housing stock,’ Michael said.”

“County Manager James Dinneen recalled stories from Ohio and other Northern states, describing ‘people freezing to death in the streets of cities.’ ‘We’re getting to the point where, if all else fails, you turn to the county,’ he said. ‘How do we avoid the train wreck we know is coming?’”

‘Alluding to the barrage of gloomy economic news, Dinneen added he needs the council’s help to prepare a contingency plan in case ‘the bottom falls out.’”

The Palm Beach Post. “An analysis of the nation’s market for new homes from Metrostudy: ‘There are hundreds of housing markets, and each is on a different trajectory,’ said Brad Hunter, Metrostudy’s chief economist and national director of consulting. ‘Some markets never experienced a price boom, and are therefore having a less severe bust, but they are all suffering badly.’”

“Hunter’s comments came as the Commerce Department reported that construction of new homes and apartments fell 4.5 percent in October, the fourth straight monthly decline. Construction sank to an annual rate of 791,000 units from an upwardly revised September rate of 828,000 units. The results were the lowest on government records dating back to January 1959. Previously, the slowest pace had been in January 1991.”

“‘Naples/Fort Myers starts in subdivisions are off 92 percent from the peak, as of the end of the third quarter of 2008. Phoenix new-home construction is off 75 percent from the peak, while Atlanta is off 84 percent,’ Hunter said.”

“Austin (off 49 percent) and Raleigh (off 57 percent) never had a price bubble, and it is remarkable that they are down as far as they are, Hunter said. ‘Finished, vacant inventories are actually coming down, but they remain too high in most markets,’ he said. ‘The markets that have the most serious problems are Central Florida, with 8.9 months of finished, vacant home inventory, South Florida, with 8.3 months, Atlanta, with 8.1 months, and Coastal Los Angeles and Naples/Ft. Myers, each with 8 months.’”

“These readings are all far in excess of the ‘equilibrium’ level of 1.5 to 2.5 months that is typical in a normal market, Hunter said.”

“A Delray Beach man on trial for mortgage fraud used his position as a real estate closing agent to help others land more than $5 million in fraudulent loans, a federal prosecutor told jurors Monday in Fort Lauderdale federal court.”

“Howard Gaines smoothed the way for a Coral Springs con man to use straw buyers and forged documents to purchase dozens of Broward County properties, prosecutor Jeffrey Kay said in opening statements. That man, Anthony Dehaney, pleaded guilty last month to mortgage fraud charges and is expected to testify for the government at Gaines’ trial.”

“Federal authorities have touted the case as part of a crackdown on mortgage fraud. Since September 2007, federal prosecutors have charged more than 110 individuals in cases involving nearly $200 million in loans, according to the U.S. Attorney’s Office.”

The News Press. “The median price of an existing Lee County single-family home sold with the help of a Realtor was $147,800, down 39 percent from $243,800 in the third quarter of 2007. Sales increased 73 percent from 1,273 to 2,198 in the same period. At the peak of the real estate boom in the county, the median single-family home sold for $322,300, more than twice what it is now.”

“The trend of higher sales volume continued in October, said Steve Koffman, a real estate broker in Cape Coral. For example, off-water homes in Cape Coral sold for a median price of $105,000, down 5 percent from September, he said. Meanwhile, the number of off-water Cape homes sold was 337 in October, the highest monthly rate since 2004 except for September’s 349.”

“Some investors are buying up homes to rent them but many buyers are ‘people who can afford a house at $85,000 who couldn’t before,’ Koffman said.”

“People with good credit usually have no trouble getting financing but risk-sensitive bankers are turning down those with credit problems, he said. ‘If you’ve got questionable credit, you’re not going to get a loan, you’re just not.’”

The Orlando Sentinel. “Beleaguered developer Kevin Azzouz has sold his lavish lakefront mansion in Windermere for $8.25 million, according to a warranty deed recorded last week in Orange County. Azzouz bought the 22,000-square-foot, three-story home for $5.1 million in 1997, when he was riding high as a former dot-com millionaire looking to be a big-time land developer in west Orange County. The Orange County property appraiser estimates the cost of the building new would be $10.6 million.”

“Azzouz, who had ambitious plans to breathe new life into the MetroWest mixed-use development in west Orlando, is now scrambling to salvage what he can of the project, which has been slowed by the slump in condominium sales and the sour economy. Azzouz faces lawsuits, liens and foreclosures totaling more than $70 million connected to his half-built Veranda Park project in MetroWest. He did not return calls seeking comment.”

The Miami New Times. “When times get tough, the wealthy serve pigs-in-a-blanket at cocktail parties. Actually, those little bite-size wieners were the only hint of scaling back at a recent hoity-toity elbow-rubbing event at the Mar-a-Lago estate in Palm Beach. ”

“Members of the Hialeah-based Developers and Builders Alliance recently gathered at the estate to discuss fantasy architecture and how to get richer. Under enormous crystal chandeliers, they talked beachfront property in Costa Rica, shopping malls in Cairo, and, of course, how it’s just the right time to invest in South Florida.”

“‘All you have to do is observe the lifestyle we have here,’ Brickell-based developer Evangeline Gouletas gushed. ‘International buyers have been to the great cities of the world. You can’t buy land like this anywhere else.’”

“Gouletas has heard the economy is sagging. She chortled while recounting the tale of a housekeeper who bought a $5 million unit and then asked for her deposit back. If only Gouletas had a zillion dollars to bargain-shop in this ’soft’ real estate market!”

“Real estate consultant Michael Cannon, also of Miami, pooh-poohed all of those headlines about the weak housing market. ‘I’m guessing that only 25 percent of foreclosure filings actually end up in foreclosure sales.’”