‘The Coming Implosion Of The Florida Condo Market’
Some reports on the Florida housing bubble. “Thanks to the influx of big, national homebuilders, short-term market inventory is filled to overflowing. At current move-in rates, Indian River County has a 14.5-month supply of new housing in the pipeline, a figure that Metrostudy calls ‘alarmingly high.’”
“St. Lucie County, with higher sales volumes, could face a similar glut, as its new-home communities account for nearly half of the projected supply in the six-county region stretching from Indian River to Miami-Dade.”
“The pressure to build remains relentless. Lenders expect developers to keep selling houses. Meanwhile, public officials are reluctant to say no to new projects that fit into the comprehensive plan.”
“The inventory of single-family existing homes available for purchase in the Orlando area continued its upward march in April, reaching 16,036 in anticipation of the summer selling season. Last year only 2,947 homes were listed in the area’s MLS.”
The New York Times. “Miami is in the midst of a major building explosion, one that will almost certainly bring thousands of new residents into the downtown area. Johnny L. Winton, a member of the City Commission, (said) that some 90,000 housing units were in various stages of construction citywide.”
“Mr. Winton talked about making the intersection of Biscayne Boulevard and Interstate 395 ‘the epicenter for art, entertainment, culture, jobs and living,’ a place ‘where everybody wants to be. We want to create density, to give people alternatives to getting in the car and going somewhere,’ he added. ‘This isn’t a single-family residential neighborhood area.’”
“Critics say, truly successful downtowns grow organically over time and cannot simply be created overnight.”
“Developers say the demand is there. Many of the condominiums under construction are expected to be bought up by foreigners as investments or second homes in the sun. ‘We have plenty of buyers,’ said Tibor Hollo, who is developing two towers on Brickell Avenue, which he said was the last available waterfront parcel. Since his first building opened for sale in February, Mr. Hollo said, 167 of the 787 units have sold, each at more than $1 million.”
“Dana Nottingham, of the Miami Downtown Development Authority, said: ‘In a boom market, development always outpaces planning. This place will be completely transformed.’”
And a reader sent in this tip from the Wall Street Journal, titled ‘Shaky Florida Condos.’ “There’s an interesting note out of JMP Securities documenting the coming implosion of the Florida condo market. The declines cited are startling. JMP estimates that condo sales in Florida were down 23% year-over-year in March, and homebuilder WCI Communities reported high-rise tower orders were down 71% year-over-year in the first quarter.”
“The analyst notes that this is bearish for WCI Communities and Toll Brothers. ‘From our own observations as well as conversations with local brokers and sales people, it is apparent that the Florida new condo market, and in particular Miami, is in a lot of trouble,’ JMP analysts wrote.”
Thanks to the readers who contributed to this post.
Lions and tigers and bears. Oh, buy! Lions and tigers and bears. Oh, buy!
That’s always been the catch: each of those new condos is supposed to end up with a warm body actually inhabiting them.
Mathematically and demographically, it doesn’t seem to add up. Well, at least not at the prices being asked.
Mathematically and demographically, it doesn’t seem to add up.
To paraphrase SF Jack: Two Palm Beach Condos for everyone?
Here’s at least one tenant in need of a new place:
http://www.ksl.com/?nid=148&sid=268346
I bet most flippers never bother to think such things could happen
A case of coors light every day for 8 years? That makes me want a Guinness.
Would you grow tired of the same stuff day after day? He must have made pretty good money, for him to be able to spend around $12-13 a day for eight years…. lets see: 12*365*8=35040… Enough for a new car, or a used BMW!!!!
Six pack of beer—-$5.00
70,000 cans of beer for recycling——$800.00
No wife to complain about your drinking habits——
PRICELESS!
And he still had room for more - the door was still visible! My friends in Chicago (of Polish descent) think this guy was a light weight.
I am wondering what effect KATRINA and RITA had on the housing demand in Florida . It seems to me that those disasters would of caused some people to think twice about buying that vacation condo in Florida or even retiring in Florida .
Bear Stearns has an analysis May 2006 that suggests that Katrina has prolonged the boom cycle. See page 18 of “Investment Strategy: Approaching A Bubble Point in the Inflection Cycle” (caution PDF file)
http://tinyurl.com/l7tve
Aside a nice read on historical bubble markets and the formation of a new bubble for those of us who like to ride bubbles.
thanks for the link hoz
(“Critics say, truly successful downtowns grow organically over time and cannot simply be created overnight.” “Developers say the demand is there. )
Aye, there’s the rub. After 50 years of suburban sprawl, the demand for viable urban neighborhoods, modest thought it is, vastly exceeds the supply, sending housing prices in the surviving cities skyward.
So the development industry decides to just create so new ones. I guess we’ll see if they can pull it off.
That’s what they said to Haussmann in Paris when he razed 60% of the buildings and widened the streets, built parks and created uniform building sizes to encourage growth. I’m not truly comparing Miami to Paris, but urban planning (even from the 1860s) has had the goals of organic growth, but sometimes needs a push from the outside, since “organic growith” sometimes looks like mold spores rather than a corn field.
Very true, 150 years ago in Boston they were arguing over the widsom of bringing in landfill to build land and a planned urban neighborhood over the fetid swamp of Back Bay. The project went ahead and was a stunning success in the end.
That said… many of today’s brand-new planned neighborhoods can look a bit too “Sim City” - you know? Not quite real, not quite a place you’d want to hang out at.
“Miami is in the midst of a major building explosion, one that will almost certainly bring thousands of new residents into the downtown area. Johnny L. Winton, a member of the City Commission, (said) that some 90,000 housing units were in various stages of construction citywide.”
**************************************************************************
I seem to recall that roughly 10,000 new condos were absorbed in Miami over a 10 year period. There is no way that 90,000 additional housing units can be absorbed. What will happen to these construction projects? Some will be abandoned unfinished, I suspect, but a large number will be finished. Then what? Clearly the prices will plummet but will even that clear the market? This will be fascinating to watch over the next year.
In 2 years, I will be able to live in a nice Florida condo for very very cheap! No joke, when I can pick up one of these on the cheap, for lets say 60K or 70K, I am there! I notice on zip that a lot of older condos are listed for around only 60K.
And your wallet, man. And that watch.
Ha-Ha! I love the JMP Securities note. Just in time, guys. TOL trading at about $28, down from a high of $59. Great call warning investors that maybe, just maybe, there’s a supply glut building in FL condos. No wonder they get the big bucks on Wall Street!
can you link that story?
I know the (seriously over-paid) guys/gals over at Goldman-Sachs et. all would object, but in school, I had an econ. professor compare stock-brokers to teacher. “Those who can do, those who can’t teach/trade”. He always like to point out that a stockbroker is simple someone who makes a living judging other people’s work, and who couldn’t actually do the job themselves.
Sort of OT, but a poster at my blog on a recent thread had this to say, and while it’s not a surprise to many of us here, this guy should have about negative credibility by the fall.
“Nikki,
You’ll enjoy the Sunday, May 21 issue of Parade magazine. It’s all about real estate. You’ll particularly enjoy this quote attempting to explain why cities that had a housing boom are now seeing a cooling off in prices:
Says David Lereah, chief economist of the National Association of Realtors: “They are taking a year to cool, and they will come right back in 2007. The demand is not going away. The prices just got ahead of themselves.”"
By “this guy” I mean, of course, Liareah, in case that wasn’t clear–I’m not talking about the blogger!
Is anyone collecting the Lereah quotes in one place? ie, dated. It will make for good reading…
David from bubblemeter has a blog called “David Lereah Watch”, found here. Doesn’t seem to up at Parade’s website yet…but this quote is a keeper for sure. Do you think he really believes his BS? I kind of do, because if he were just parroting the party line, that’s one thing–”soft landing” cooling” and the like..but to make a claim such as this that has no apparent basis in fact is just mind-boggling. I want to see it in context, so I can see how Parade treats that comment.
David Liereah has a gun to his head. Who is holding it? All those Realtors out there who always claim NOW is the best time to buy. Because, if you don’t buy NOW, they don’t eat, pay bills, drive hummers and BMWs and their Mercedes luxury cars…. Because by buying! You help compensate them and pay them for that huge sacrifice and all that time it took them to become a realtor.
Keep in mind that David Lereah is himself invested in real estate (he’s into flipping condos), and has a financial interest in misleading potential buyers and investors. The man has no incentive to tell the truth. This conflict of interest would not be tolerated in many professions.
Sorry, link is here I hope this works this time.
Tom–
That is exactly my point. When the majority of an industry’s wages are generated by commissions, no sales = no salary. Therefore every single public comment made is solely to promote sales–there is zero objectivity. I said this in my blog, but remember a few weeks ago when the Exxon CEO told us that the only way to reduce the price of gasoline is to use less of it, and then the market would come back to balance? It’s hard to believe Big Oil is more honest than the NAR–can you imagine a realtor saying that? “We know affordability is at an all time low, so if everyone just hangs back and let inventories build, the price pressure will come off.” Hah–and then hell froze over.
Lereah has no confict of interest. His interest in the fortunes of the RE market is the same as his employer’s.
Nikki-That was too fawking funny!
I hear David lives in a townhouse full of beer cans.
Just curious for the Al Gore crowd that believes in the coming global warming raising sea levels….how high is Miami above sea level? Will it become the next Venice?
Global warming aside, the world is in a state of noticeable flux and I for one as a scientist find this an exciting time to be alive.
There is no credible dispute that global warming is happening (only whether that warming is anthropogenic). I’m not informed enough to say categorically that humans are the cause, but every measure of atmosphere and water temperatures has been consistently higher. It is an exciting time to be alive if you live inland, but if you live less than a meter above sea level, it’s a dangerous time to be alive as well.
A little girl blows away dandelion fluff as an announcer says, “Carbon dioxide: they call it pollution; we call it life,” in an advertisement targeting global warming “alarmists,” especially Al Gore
May 19
http://tinyurl.com/eupu3
Carbon dioxide is a waste product for human just like piss and $hit are.
Whoa, wait a minute. “I’m not informed enough to say categorically that humans are the cause, but every measure of atmosphere and water temperatures has been consistently higher.”
That is saying, “I’m not informed enough to say categorically that humans are the cause, but every measure of [pick your favorite cause, just about any cause] has been consistently higher [lower].
No proven cause and effect, but plenty of strong innuendo. Suppose we used the term “poverty?” Work for you? Heck, why not “salmonella?” That is snooker language, IMO. You wouldn’t be a lawyer, would you?
There is quite a bit of debate about this. It seems natural that water levels would rise, but the actual effect really is not known. There are several different things that could actually lower water levels with raised temps.: water is the only element that actually shrinks when converting from a solid to a liquid, increased temps would cause increased evaporation, and the effects on tidal pulls (particularly nearer the equator) are uncertain at this time. But either way, most of Miami is 5′-15′ above sea-level, and would require bigger changes than even Al Gore is talking about.
Just don’t buy a first-floor condo! Maybe a creative condo association, down the road, will figure out how to make an aquarium out of the ground level.
The median temperature of the earth has fluxed quite a bit in the seveal billion years it has been around. Some of it stems from the natural chemical cycles of the planet’s organics (fish, plants, alge, critters) and some of it comes from the primary power supply for our world. That’s right, good old Sol. Seems our star has an adjustable output rate based on variations in the fusion reaction that runs it.
When the sun decides to turn up the heat, there is little we monkeys get to do about it.
Global warming may be happening. If it is, it will be very tough to pin a primary cause on mankind’s behavior, given that the natural factors have produced such wide swings in the past.
I for one look forward to a more tropical San Diego.
One facet of liberal hubris is the presumption that man’s industrial activities are the main driving factor behind climate change. Reinforcing this view is very beneficial to academic researchers whose grant funding is heavily dependent on the perception that climate change is the biggest problem facing the world for the next century.
As you point out, pre-industrial climate fluctuations swamp out the post-industrial changes that we have thus far noted in the last few seconds of the geological time record to date. It is likely that human industrial CO2 emissions have some impact on the climate, but whether these matter relative to natural climate fluctuations
seems highly suspect. By comparison, the setting and rising of the sun each day in my part of the planet results in a temperature fluctuation of 30 degrees or so over a 12 hour period — much larger and more dramatic than any projected trend which the climate change alarmists have measured.
Sorry, GetStucco - I enjoy your real estate postings, but you’re off-base on this one. The evidence for anthropogenic effects on global warming are compelling, and shouldn’t surprise anyone. When one big volcano can affect global temperatures for a couple of years (by cooling things off), why is it hard to imagine that the millions of tons of CO2 our industrial society dumps into the atmosphere will also have an affect? As for academic researchers getting rich off their global warming predictions, the only academics that I’ve heard of who are making any money off this are the handful who have been bought and paid for by the big energy companies who try their hardest to debunk the evidence….
I hear the terrorists are using global warming to allow oil corporations to promote gay marriage.
There, that should get me pretty much all the votes from the fearmongerers on both sides, right?
You forgot about Nuking the gay whales! LOL
I have posted a few times about global warming on my blog. I am a scientist (microbiologist) and can tell you that global warming is real. The changes in CO2 that we are seeing are way off the scale seen in the last 600,000 years. Trying to deny this fact is just putting your head in the sand.
That wasn’t the primary argument here. It was the innuendo and outright assertation that humans have caused it. I’m trying to work out what all this has to do with what I should expect to pay for a house three years from now.
“assertion”
bad bad bad. miami is the only true place that people will invest in. the rest of south florida is in trouble. there are tons of condos all up the coast with no buyers. many condo conversions are going back to apartments. it it supply and demand and the law of averages. most people dont know this but 25% of miami residents live below the poverty line. over half the residents of south florida only make 50,000 or less. the prices went so high, it priced everyone out the market. plus with higher taxes, insurance and cost of living. the market it over. i truly feel the tipping point was hurricane wilma. it changed the market, maybe forever and here is why.
1. low income housing had major damage: those who thought about buying in the low end or redeveloped areas now see the value of homes are no good when they cant survive a cat 1 hurricane.
2. interest rates: the more they rise, the less people can afford to move in.
3. location location location: the next time someone tells me that there are homes for 200.000 in south florida, i will punch them in the mouth. 200.000 homes in the worst neighborhoods. i told one person lets swap homes, i live in boca and you live in liberty city.
4. taxes and insurance: insurance rates are out of control and every time you buy a home, your taxes can double or triple. them flippers better sell quickly or that 300.000 condo will have pay a minimum 6.000 in taxes. oh my! plus, if you east of I 95, you have to pay the highest rate of insurance (citizens), because no other insurance company will insure you.
5. god forbid a cat 4 or 5 hurricane. all bets are off. those new condos will look like honey combs. it will take at lest 5 years just to have basic needs available. (remember hurricane andrew)
i have one suggestion. ask these flippers and carpetbaggers to come to country walk or south miami dade. them communities are just now beginning to rebuild after 15 years.
can we say: pop!
(“The inventory of single-family existing homes available for purchase in the Orlando area continued its upward march in April, reaching 16,036 in anticipation of the summer selling season. Last year only 2,947 homes were listed in the area’s MLS.”)
thinks about that.
It’s this simple . There is almost a 15 year supply of condos coming to market. That is not 15 MONTHS folfs, but 15 YEARS.
For the entire decade of the 90’s there were about 9500 condos sold. Between the current inventory and supply there are almost 150000 units.
How many of these are financed by I/O’s? Assume even 10 % and that is 15000 units..
AFTER the prices collapse and these things are selling for well south of 100k, Fla may be a good place to retire again.
Former
Federal Reserve Chairman
Alan Greenspan said Thursday that Americans’ consumption could taper off somewhat now that the U.S. housing market’s “extraordinary boom” has ended.
New Fed Chief: “The housing market is cooling in an orderly fashion.”
Old Fed Chief to New Fed Chief: “The housing boom is over.”
Did anyone watch Morning Call on CNBC this morning between 8 and 9 am? They had the auther of the book “Sell Now!” on the air and he slammed the San Diego and Phoenix Markets pretty good. I was quite proud!
8 and 9 PST btw…
Did you write the book?!
I just finished the book. Highly recommended. He predicts house price reversion to 1997 levels adjusted for inflation. 60% decrease for San Diego and Santa Barbara. I didn’t see anything in his analysis that would cause my bullshit meter to go off. He attributes the bubble to: reckless bank lending standards, and the propensity of buyers to gamble with “house money” (in casinospeak, not REspeak). Buyers who overpay, overstretch, are status seekers who want the biggest house and best neighborhood for the payment. It’s the same impulse that causes people to stretch to the limit for the biggest SUV, but in the case of RE the masses have bought in to the “always goes up” so they don’t believe they are risking by taking on huge debt, they believe they are doing the smart move. The book is definitely a “must read.”
I wish I wrote the book. It has all the same arguements I made in my MBA thesis paper….
Speaking of which, what has been the cumulative rate of inflation in the last ten years? I need to have the rule of thumb worked out when I start house-hunting next summer…
go to http://www.westegg.com/inflation/
Just FYI, this one local real estate brokerage firm just updated its graphic of greater West Palm Beach sales/inventory for sale for April. You can’t make the numbers out perfectly, and they don’t provide the raw spreadsheet behind the chart on their web site. But it looks to me like a 45% YOY decline in sales and a 140% or so increase in inventory. By the way, the peak snowbird season is basically over now in Southern FL, so I imagine sales have nowhere to go but down.
http://www.ipre.com/trendg/images/palsld.PNG
my neighbor is a mortgage broker in Palm Beach and stated that sales were under 1,200 for April, so this chart matches that at 1,188 or whatever the small print reports. Wow inventory over 20k. So much for spring recovery and snowbirds buying homes.
hmmm.. maybe my math is wrong but 20000/1188= OUCH… 16.8 month supply.
Yeah, where is that quote about a new permanent plateau?
We are in a similar situation in Sarasota, possibly even worse. There is about a 19 month supply of inventory now and growing daily……
“The analyst notes that this is bearish for WCI Communities and Toll Brothers. ‘From our own observations as well as conversations with local brokers and sales people, it is apparent that the Florida new condo market, and in particular Miami, is in a lot of trouble,’ JMP analysts wrote.”
It amazes me every time how Toll stock avoids plummeting despite the steady drumbeat of bad news… So much for your stock market efficiency!
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=tol&sid=4922&freq=9&time=1dy&siteid=mktw
Anecdotally, I just rented and moved into a Miami Beach condo. It is mostly empty (I count the units with lights each night when I walk my dogs), my estimate is 72% (max = 22 lights of 123 units). Up and down Collins Ave is the same thing, huge new and converted condo buildings much more empty than you’re reading about. I’d estimate 75% empty on Miami Beach. And these were bought sight unseen, the design of my place is terrible, I can’t see how someone who bought this didn’t freak out during the initial inspection. I’m paying $2900, the carry for the owner is about $7200. And there’s cranes as far as the eye can see building more even though there’s no one who lives in these.
Hee hee. Talk about bad design. At La Boheme in North Park (San Diego) there are a COUPLE DOZEN units with a beautiful view of not one, but TWO giant billboards not 20 feet from their balcony.
My question when you read about all of these construction projects is: “Who the hell is lending them all of this money?”
We see this over and over again: “Record inventory levels, but builders keep developing.” This is truly a sight to see.
buying season ends in FL in 2 weeks
hot an stinky till november
Hot Yes, stinky No. You must have FL confused with NJ, NY or CA. We get the continuous warm fresh air ocean breezes. Muggy as hell in Aug/Sep.
hey, enough … without jersey there’s no sopranos.
WCI Communities (WCI)is my all time favorite short stock pick. Go to their web site and look at the page with the map showing where all of their communities are. It’s exactly a map of all the big bubble areas. Add in their specialty, high rise luxury condos in FLORIDA, including Naples, the worst market in the country I read, and you have a true disaster in the making. So what is management doing to prepare? They are taking their cash and BUYING BACK STOCK! Soon the disaster will truly be staring them in the face and all the cash will be gone. Yikes..what can they be thinking.
I have been accumulating put options as it continues to slide. I almost feel quilty…this one is too obvious. In fact, that’s the only thing that worries me…lol.
This is a true story. My neighbor’s friend invested in 3 high end new townhomes in Jupiter several months ago with a $120k deposit. She planned on flipping the contract before it was completed or sell immediately. Well the townhomes are ready and she doesnt qualify for the mortgage. She cannot find a buyer at the price she paid amd has decided to walk away from her life savings of $120k. In additon this neighbor has several friends in the mortgage industry within FL at various firms. Each one of them has stated the mortgage industry is extremely slow. There are very few homes selling in the So Fl tri county area and refis have dissapeared. They are concerned for their long term job stability.
Never buy a house or condo without a clause that its subject to being able to qualify for your chosen loan with a interest rate cap IMHO. Boy what a lesson for this condo flipper .
None of the pre-construction developer contracts I’ve seen allow for financing contingencies or any other contingency for that matter. Most also have the buyer paying all of the developer’s closing costs.
I also had a friend visit who recently got into fixing up old homes and selling them in So FLa. Shes doing ok. Began discussing the outlook for the housing market. She was open to some price reductions, who can deny them at this point. However she had just attended a real estate seminar. These are advertised down here weekly. A week or two ago Carlton Sheets was on a marathon seminar run through Dade, Broward & Palm Beach. Theres a few hundred newly pumped up investors out there. Greater Fools.
LOL Carlton Sheets… He is almost as funny as the McCorkles…..
Florida condos for all boomers!
(“The inventory of single-family existing homes available for purchase in the Orlando area continued its upward march in April, reaching 16,036 in anticipation of the summer selling season. Last year only 2,947 homes were listed in the area’s MLS.”)
thinks about that.
————————————————————————
This is amazing! Is the summer season considered the high season for RE in Orlando? The last time I was in Orlando in the summer it was too hot for house shopping.
I think you’ll find that Orlando (including coastal areas) high season for housing is late winter and early spring. High season for coastal condos is mid-fall to early spring; the secondary season matches SFRs but is much slower.
Vicki Graham is so out of here she’s got half her stuff packed. “I have one foot out the door,” she said.
Graham is moving to Alabama.
Graham and her family would been been gone by May 31, but Graham’s buyer backed out last month — on the day of the appraisal — leaving her standing at the altar of commerce.
Now Graham’s home is back on the market. And once again, she’s keeping the place tidy for those crucial weekend open houses.
But her eye is still firmly set on getting out of town. “We’re going to Alabama,” she said. “The schools, the taxes, the money, and I don’t want another hurricane season.”
Recent reports show public school enrollment is declining throughout South Florida. In Palm Beach County, for instance, forecasters expect a drop of about 500 student for the coming school year.
“Something is definitely going on,” said William Strong, a professor of economics at Florida Atlantic University in Boca Raton. “Where are kids going, and why?”
Graham knows why. She’s had it with the crime, crowds and endless increases in everyday costs. Today it’s home insurance, tomorrow it’s taxes. Suddenly, South Florida isn’t looking like such a great place to raise a family after all.
But in Alabama, things seem different. “The girls look like girls. The boys look like boys,” Graham said. “We went to an open house up there. They had a sign: ‘The last person closest to 4 p.m., lock up when you leave.’ Here, they would have taken the appliances out.”
The decline of the middle class in Palm Beach County is a creeping syndrome. I chart the trend’s beginning when the shopping malls started doing away with reasonably-priced stores and started carting in Cartier. Soon the family restaurants gave way to places that never serve salad with an entree.
And now we’re at the point where housing is out of touch for many families — unless you like driving an hour or so to your job.
Yes, there are plenty of new homes being built and sold. But when homes sell for $300,000, $400,000 or more (and many of those are townhouses!) you can bet sellers aren’t marketing them to Orlando-area families. They’re selling to the only people who can afford them: Rich, retiring Baby Boomers.
And these folks don’t have children who need to enroll in public schools.
“People with children are selling, and people without children are buying,” Strong said.
I know many people, who, like Graham, have had enough. Tennessee. North Carolina. Alabama.
The same states, for the same reasons, are the new paradise for South Floridians.
Graham says she’s making some adjustments to her forced, extended stay in Palm Beach County.
Her immaculate 4 bedroom/2.5 bath home plus pool in Boynton Beach’s Nautica Sound is priced at $469,000 —- but she’s throwing in $3,000 for closing costs.
If she can’t sell the house in time for the coming school year, she’s already made plans to put her daughter in private school.
Wonder why enrollment is declining in public schools?
Suddenly, it doesn’t look like such a mystery anymore.
State Farm plans huge increases; Allstate wants to dump thousands
By Kathy Bushouse
South Florida Sun-Sentinel
May 13, 2006
Depending on which of Florida’s two largest property insurers covers your house or condominium, you’ll soon either face a wallop to your wallet, or will have to find a new insurance company.
State Farm plans massive price increases, while Allstate intends to jettison 174,000 policyholders.
Florida’s biggest home insurer, State Farm Florida Insurance Co., asked state insurance officials Friday for its largest-ever increase in annual premiums — one that will more than double the rates paid by many of State Farm Florida’s customers in South Florida and in parts of the central and western areas of the state.
The company made two requests, one for an average 58.8 percent rate increase statewide plus a 12.7 percent statewide boost for its 1 million policyholders, State Farm spokesman Chris Neal said. Subject to state approval, the increases would take effect Aug. 15, which is in the middle of hurricane season that starts June 1.
In South Florida, many State Farm Florida customers are facing rate increases of at least 80 percent for their homeowners’ coverage. Policyholders living east of Interstate 95 actually could see their rates fall because they buy windstorm insurance from state-backed Citizens Property Insurance Corp. Those living west of the interstate face larger premium increases because State Farm Florida insures their homes against hurricane damage.
State Farm’s request is “certainly one of the largest rate increases we’ve seen for a company of considerable size,” said Insurance Commissioner Kevin McCarty.
Meanwhile, rival Allstate Floridian Insurance Corp., the state’s third biggest home insurer, said it would shed 174,000 of its about 468,000 home, condo and mobile home policies statewide, starting in November. Of those being dropped, 120,000 will be offered new home or condo policies with start-up insurer Royal Palm Insurance Co. of Ormond Beach.
No similar arrangement was made to help Allstate Floridian’s mobile home customers find new policies. They likely will end up in state-backed Citizens Property Insurance Corp., the insurer of last resort.
State Farm also is dropping some policies. The company won’t renew more than 1,500 condominium association policies, and will shift the wind insurance portion of 39,000 homeowner policies to Citizens, Neal said.
The insurers’ moves come only one week after the Florida Legislature passed a series of measures designed to lure private insurers back to the state, prompting state Sen. Ron Klein, D-Boca Raton, to request an emergency special session on insurance.
Klein urged Gov. Jeb Bush to veto the property insurance bill and call a special legislative session to craft new legislation to protect homeowners from “random cancellations and massive rate increases.”
Bush or legislative leaders would have to call a special session, and representatives for Bush or for the House and Senate leaders could not be reached for comment Friday night.
State Farm is blaming spiraling reinsurance costs for its request for a 58.8 percent increase. Reinsurance is essentially insurance for insurance companies to help pay claims after a catastrophe, and State Farm’s Florida division buys the coverage because it is a separate entity from its Illinois-based parent company, Neal said.
“It’s just necessary that we have reinsurance,” Neal said. ” … If we could go a season without a storm, I have a feeling those costs could come down greatly.”
The other proposed increase would cover the cost of doing business, Neal said.
State Farm’s decision to not renew the condo association could free up some money for the insurer to issue new home policies, but not necessarily in South Florida, he said. State Farm has not sold new homeowner policies in South Florida since the mid-1990s.
At Allstate Floridian, the company decided it needed to cut even more policies from its roster, after making a similar decision last year to jettison 95,000 policies, company spokeswoman Deb Clouser said.
Of the policies Allstate Floridian is dropping, 120,000 homeowner and condo policies will be offered replacement coverage through Royal Palm Insurance, a company started earlier this year by insurance executive and former state Sen. Locke Burt.
Customers who accept a new policy with Royal Palm will be able to keep working with their existing Allstate agent and will be eligible for discounts on both policies, Clouser said.
Though it’s a new company that just received its license from the state on March 31, Royal Palm has about $65 million in capital, said Burt, Royal Palm’s president. Allstate Floridian’s former customers will be the first clients for Royal Palm.
Royal Palm will have the opportunity to take a maximum of 15,077 policies from Allstate Floridian in Broward County, 10,706 policies in Palm Beach County and 9,453 policies in Miami-Dade County, Burt said.
What’s unclear is how much former Allstate Floridian policyholders will pay for coverage from Royal Palm. That will depend on several factors, including age of the home and materials used to build it, Burt said.
McCarty said he is confident Royal Palm had the money and the management structure to take on a significant chunk of Allstate Floridian’s policyholders. It is rare for a start-up insurance company to come into the state with $65 million in capital, which is how much Royal Palm will start with, McCarty said.
As for State Farm’s significant proposed increases, McCarty said he’s seen other companies come in with similarly high requests based on reinsurance costs. Reinsurance isn’t regulated by the state, and “the prices have just been outrageous in the reinsurance market,” he said.
The uncertainty in the state’s property insurance market worries Floridians like Joan McDermott of Hollywood.
McDermott is an Allstate Floridian customer who kept her policy after last year’s round of non-renewal notices. She wonders whether she’ll still have coverage come November, and how much she’ll pay for it.
“I just hope we have a quiet year,” McDermott said. “Because everybody’s going to be anxious.”
Can’t speak with any degree of authority on the Miami market but here in Pensacola, we have condos on the beach under contract at 1.7 million, the SAME units are listed for 1.1 million in the completed sections of this project. The buyers under contract for 1.7 mill are raising hell with the builder but he ain’t budging so I am told. They could walk away but it would cost them their 10% binder plus they have a letter of credit from a bank for an additional 10% which means the cost to walk would be 340k. Also, 2/2 units in the building are listed for up to 950k, a sale took place last week at 595k. I remember the blood on the streets when the condo market on Perdido Key crashed in 86-87. It is going to be quite interesting to see what plays out on Pensacola Beach. There is a huge glut of properties there too from the flippers.
Most of my work is estate/lititgation work. I got away from the mortgage end of appraising several years ago, it was and is still slimely in many regards so I played no part in what is panning out on the beach.
A lot of bankers are probably shaking in their boots right now as they have mega money tied up in these projects that are not selling and/or they’ve loaned money to flippers who can’t stroke the note if they have to strap on the mortgage and start making payments. There is NO WAY the units would cash flow given their current prices vs the rental market.
Also, the insurance scene is unfathonable. I own a significant amount of commercial property (all paid for thankfully), and the quotes I am getting are double and triple the pre-Ivan prices. I am seriously considering self insuring on some buildings except for the liability portion.
FLreappraiser
these are certainly some of the highest stakes yet in the unfolding drama. $340k to walk. i sit here absolutely STUNNED.
$340 to walk versus $600 to close. Definately time to have a lawyer look over your contract with a fine toothed comb and see everything that the seller could do to you for noncompliance. “Specific Enforcement” could be two very ugly words.
Better to walk away with only $340K tatooing the BEHIND, than $600K and growing. Some of those flippers made that much. So no sympathy for the FLOPPERS taking it in the shorts. That is way too funny.
Glad the builder is holding the floppers A$$es to the fire. Otherwise, they would be eating it. And probably are. THat’s why they are trying to hedge their loss by spreading the pain.
let me fast forward 18 months and read some obituaries
Bob and Liz Morrissey, retirees, 254 Lakeside Ave, Pasadena lost $625,000 in Central Valley speculation
Matt Barnum, P.E. coach, 4200 McConnell Ave, Mar Vista lost $433,500 on 3 Las Vegas condos
Judy Schaeffer & Lisa Ang, 6208 Mission Way, San Diego quit their jobs to invest in Downtown San Diego condos. The final damage after the 5th foreclosure: $860,000
my point? lots and lots of ordinary people who live ordinary lives on ordinary streets will be out sums of money you and i can’t even fathom.
Easy come, easy go.
Yes and thanks to the new “means test” bankruptcy legislation passed last October they actually get to repay the money over their lifetime. No walkers this time. Funny how that timing worked out isn’t it.
Orlando- the real number of homes on the market from all sources is more like 50-60,000. MLS in MSA is 33,000 and going up everyday. The builders are still dropping specs on the gorund daily in all sectors. Build or die.
Taxing developers green for cheap homes looks red to mayor
By Brittany Wallman
South Florida Sun-Sentinel
May 20, 2006
FORT LAUDERDALE · Mega-developers and the city’s mayor are shooting down a proposed affordable housing law, calling it unfair, communistic and doomed to failure. People could afford a place to live, the mayor said, if they were willing to work harder.
Mayor Jim Naugle, a conservative and brash politician serving his final term, said people mistakenly think they’re entitled to an affordable single-family house on a 40-hour work routine. They need to work more hours, and even then settle for a condo or townhouse, Naugle said.
“I’m supposed to subsidize some schlock sitting on the sofa and drinking a beer, who won’t work more than 40 hours a week?” he asked. “I deny that there is a problem. You can buy condos all day for $160,000.”
Naugle’s comments may be contested by the working-class citizens who’ve told the city they want a home but can’t afford it. But his ideas might hit home in other circles, where a city proposal to make developers slash prices or pay a fee was met with skepticism.
“We ought to let the free market work,” said Bill Scherer, a lawyer-developer on the city’s Downtown Development Authority.
The proposal asks developers to give up big money — $1.5 million on a 100-condo complex, for example — for the theoretical good of the community. The city’s law, as drafted, would make residential developers pay for affordable housing, either by providing it within their housing complexes, or paying fees into a trust fund to subsidize housing for the middle class. Families making up to $69,720 — which is 20 percent more than the area’s median family income — would be eligible for a government boost.
New York has rent control. The federal government has Section 8 housing aid. So, this isn’t the first time government has gotten involved in the real estate market to help people afford a place to live.
South Florida’s cities only recently decided housing prices had reached crisis level highs, and Fort Lauderdale is one of the first to seriously attempt passing a law to do something about it. The city is under pressure from Broward County to pass a law; otherwise, the county says it won’t allow another wave of construction of thousands of condos downtown.
“The concept of this ordinance is from each according to his ability, to each according to need, which is the Communist Manifesto,” said Naugle, who calls the proposed law a “luxury housing tax.”
“One person is working two or three jobs to get ahead and one person isn’t. Should we tax the person that’s working hard to get ahead, to pay for the one who isn’t?” he said.
Jim Carras, head of the private, nonprofit Broward Housing Partnership, countered the mayor’s Karl Marx rhetoric with a paraphrase from President Truman.
“`A decent place to live is the right of every American.’ We have maybe stepped away from how we fund it,but even the most conservative Republicans in Congress and the state legislature see a role for government,” said Carras.
Housing prices in Broward continue to shock some buyers. The median home price in Broward County in March — the price at which half the homes sell for more and half the homes sell for less — was $368,100 for a house and $202,600 for a condo.
Still, according to a recent study by Strategic Planning Group Inc., that means most condos are within financial reach of most buyers, though it might not be the size or location a buyer is seeking.
A debate about Fort Lauderdale’s proposed law might have been expected, considering what’s at stake.
“Gas is unaffordable. Now, do gas station owners need to go out and supply affordable gas?” said Doug Eagon, president of Stiles Corp., which built many of downtown’s big towers.
Developers said they would pass the costs to other buyers, leading to increased housing prices overall.
Major developers on the Downtown Development Authority originally supported the concept of an affordable housing regulation. But they don’t like the results. They want it rewritten to offer incentives to developers, and to spread the cost across the general public, by using tax dollars, for example.
The building industry is officially opposed. Brandon Biederman, director of government affairs for the Builders Association of South Florida, told the city that construction costs are going up, making the additional fees an even worse proposition.
A recent version of the law was soundly rejected by city commissioners last month and sent back for more public discussion and revamping.
City planning director Marc LaFerrier said he’s working on a new proposal, and it will likely be back in public debate June 6, at the City Commission’s conference meeting in the afternoon.
Jim A:
The kicker is the developer teamed up with a high horsepower lawyer. I haven’t seen one of their contracts but I suspect you’d need 6 figures if you were going to start contesting the contract. If I named the name of the lawyer, some of you would likely recognize it.
FLreappraiser