The Housing Bubble

The News Journal reports from Florida. “Seven years ago, just before the housing bubble burst, when someone bought a house in Volusia or Flagler counties, there was a good chance they were planning on living in it. Today, investors, not families, are buying most of the existing homes. Of more than 7,600 homes sold in Volusia so far this year, less than 17 percent of them have come with homestead exemptions.”

“‘It’s the classic American story right now,’ said Maryke Guild, a real-estate agent who runs a small family brokerage in Daytona Beach. ‘It’s prime investment property,’ she said. ‘In three, four years’ time, when the market has been resaturated, those guys are going to sell at a profit, there’s no doubt.’”

“‘Existing home sales, at least in Florida, is now a meaningless indicator to track. Banks are merely off-loading losses from their balance sheets onto non-bank syndicates. About the only thing we are observing is speculation and shifting owner-occupied housing to an increase in detached rental housing stock.’ Mark Soskin, an associate professor of economics at the University of Central Florida, wrote in an email to The News-Journal.”

The Orlando Sentinel. “The slice of Orlando-area commercial real estate that drew the most foreign investment during the third quarter was condominium conversions. Half of the investment dollars that have purchased Orlando-area apartments converted to condominiums came from foreign buyers, according to a report to be released by the Bergstrom Center for Real Estate Studies at the University of Florida.”

From Miami Today. “For nearly two years now home prices have trended upward, and in October they continued their two-digit increases, the Miami Association of Realtors and local MLS system reported. But some market watchers are questioning the pace. Among them is Howard Levine, senior vice president of residential lending at Sabadell United Bank, who called the ‘rapid appreciation in value’ an ‘unsustainable incremental increase in pricing. As a lender we’re a little worried about that.’”

“‘The double-digit growth in traditional real estate sales is a sign of continued strength in Miami’s real estate market,’ said Fernando I. Martinez, 2013 Miami Association of Realtors residential president. ‘Moreover, the significant growth in cash sales shows that Miami is the destination of choice for international buyers.’”

The Atlantic Cities. “Five years after the South Florida real estate market collapsed, Miami is once again going nuts for condos. Developers are putting up 35 buildings as you read this, and another 83 are waiting in the wings, according to a report in today’s Wall Street Journal. The city also ranks third in the nation for permits issued for multi-family developments .”

“Miami developers are demanding that buyers put down at least 50 percent before closing. That’s a lot of up-front money, and the Journal says it’s coming from ‘foreign investors who typically pay cash.’ The story doesn’t tell us much more about exactly who all these foreign investors are, which is probably because one of the most persistent yet difficult-to-prove stories about Miami right now is that its condo-building renaissance is fueled by international criminals laundering money.”

“Back in August, Brian Bandell of the South Florida Business Journal attempted to prove that this is exactly what’s happening. In the course of his investigation, he found that 90 percent of Miami condo buyers in 2012 were non-Americans, 73 percent of condo resales were cash transactions, and many of these deals were held by limited liability companies, the sort that protect owners in the case of actions against the condo. Bandell writes that LLCs ‘create an easy way to launder money.’”

“Bandell built his case around a Spanish drug lord named Alvaro Lopez Tardon. Arrested in Miami in 2011, Tardon is accused of laundering roughly $26 million in cocaine proceeds by buying exotic cars and Miami condos. But of course, non-criminal wealthy people from around the world are fond of avoiding paying taxes, too.”

From Gossip Extra. “Mexican superstar singer Luis Miguel lost a bundle playing the Bal Harbour real estate game this year. A little: nearly $100,000 in four months!”

“Miami-Dade County property records show the singer bought a two-bedroom, two-bathroom condo pre-construction at the new St. Regis Resort in June. According to the records, the 43-year-old El Sol paid $1.95 million. He sold it in October when it was finished to a Philadelphia woman for $1.87 million.”

“What gives? Isn’t real estate on the rebound? ‘It was an investment property,’ said Realtor Julian Johnston, who represented Miguel. ‘He never intended to use it because he just got a bigger yacht and that’s where he stays when he comes to Miami.’”

The Sun Sentinel. “Katie Jaffe bought a two-bedroom Tamarac villa in 2004. More than a year later, her mother, convinced that the housing boom was ending, told her to sell. Jaffe didn’t listen. The $172,000 home lost about half its value in the ensuing bust, leaving Jaffe with a property she couldn’t unload. ‘It’s been a noose around my neck,’ Jaffe said.”

“The 37-year-old mother of two, who has since remarried and moved to Coral Springs, ended up renting her Tamarac villa but hated being a landlord and still lost about $200 each month. But after nine years, she finally found a buyer this fall and closed on the deal last week. The buyer paid $140,000, requiring her to kick in only $3,400 to close the deal. Jaffe was ecstatic as she left Friday’s closing. ‘I told my parents, ‘It’s over! It’s over!’ Jaffe said. ‘It’s such relief. I’m so happy to get rid of that part of my life.’”

The Chicago Tribune. “Q: I bought a home in Florida in 2005 and paid $181,000. I put $18,000 down. I was immediately offered a second mortgage to pay for some remodeling I wanted to do, so I took it. I refinanced and put another $10,000 down, leaving me pretty broke. When the real estate market collapsed in South Florida, my home value fell to about $90,000. During the recession, my job was cut to two days per week.”

“I have returned to work full time, but it’s not looking good for me. I’ve been told I am in a flood zone and owe $198,000 on a home that’s worth $100,000. I am fighting to save my home. Recently, my lender refused my temporary payment plan and I have to start over again. What advice would you give me? I am thinking of just giving up.”

“A: We continue to hear stories like yours from our readers and wonder when the effects of the Great Recession will stop hurting homeowners. The government encouraged loan modification programs that ultimately seemed to be more window dressing than real help for homeowners.”

“We don’t have great advice for you, but rather some guidance. You have to take a bird’s eye view of your situation and make a decision based on what you see. From our vantage point, you’ve told us that you have been in financial trouble now for a number of years. Your home debt is double what your home is worth and it doesn’t look like that ratio is changing any time soon. Due to recent increases in the flood insurance premiums (with the worst yet to come), your costs have probably skyrocketed.”

“Your obvious options are to work as hard as you can to get your loan expenses reduced along with your other living expenses and hope that in a couple of years your income is in balance with your expenses. Perhaps by then home values might have increased and come closer to what you have into the home. On the other hand, if you know the home’s value won’t rise enough over the next 10 years to cover what you have into the home, and if your loan and housing expenses will continue to be way higher than you should have, the financial burden may just be too great.”

“In that case, you might be better off finding less expensive housing that will allow you to reduce your financial burden. While your credit history and credit score will be hurt for some time to come, that option may be better.”