HBB Podcast
I’ll be doing a podcast soon with Jack McCabe, CEO of McCabe Research & Consulting in Florida. What questions would you like to ask Mr. McCabe?
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Are you podding with him in person?
I see you caught on, too.
Great minds think alike!
Slapping myself upside the head. When Ben described the type of place he was moving to in terms of the real estate market, he described Florida to a T, but I’m so used to thinking of him as an “Out West” type, that Florida never even entered my mind.
After years in AZ, that humidity will take some getting used to. Advice from the Palmster: drink lots of water, but be sure to replenish those minerals constantly.
“When Ben described the type of place he was moving to in terms of the real estate market, he described Florida to a T,…”
Suggesting he was going where he could snap up defaulted foreclosure homes at fire sale prices hardly narrowed down the possibilities.
Here’s the rub, you have to be able to turn around and re-sell those properties at a profit. Many places you can snap up defaulted foreclosures. Phoenix, for example. But in Phoenix, demand has fallen off a cliff.
Not so much in Florida, trust me on this. It’s as crazy here at it was the first time around.
Well…… Not really. The data says something entirely different.
Of course, this craziness is concentrated to certain markets, and South Florida, for example, has its own version of the Inland Empire. It expanded west into the Everglades and much of that expansion is downright depressing to look at.
I think the future of South Florida is what is always was, a sub tropical playground and a place for wealthy foreigners to stash their money. It’s no place for middle class people to live, though, and I expect a lot of that westward expansion to go ghost town, especially when the brackish water starts running from the taps.
west s fl is in the tank
tampa etc-plenty of inventory 2002 pricing
Palmetto says: “you have to be able to turn around and re-sell those properties at a profit…”
Ben indicated his strategy is to buy below market and rent for cash flow. It appears he has no interest in selling……at least not yet!
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Comment by Ben Jones
2014-06-24 16:18:18
The big difference between me an a flipper is I only drive prices down. When prices started going up, I stopped what I was doing. I refuse to participate in bubbles.
I’ve told you before, any money you’ve made came out of some greater fools loan. The money we make is a result of ruthlessly hitting the asset managers for the lenders for a better price. I have to make a lot of offers, counter-offers, walk away, try again. Then the job of doing the upgrades comes in.
These houses don’t qualify for loans, so I’m not competing with the retail buyer. We take empty busted up houses, make them safe and comfortable and put a family in them. And we drive the comps down.
So, if I were in Ben’s position, in Florida, with the backing to purchase for cash and rent, this would be my strategy:
I’d be hitting the middle to lower end retirement areas. Northport, Ft. Myers, Cape Coral, Port Richey and New Port Richey, Sun City Center, Jensen Beach, etc. There’s pockets all over the state. A lot of less affluent retirees do have some sort of reliable fixed income, and would be very grateful for a cheap, reliable rent in a clean, moderately safe place. The Port Richeys are considered a bit rough, but there’s plenty of people on a fixed income who would be happy to rent a concrete block shack cheap in certain. Older veterans, too.
You don’t get the wear and tear that you do with families, and they do tend to pay rent on time. And it would lower the comps for future waves of retirees who are not going to be as affluent as the ones today. It would be real public service. The only trouble that one can run into here is if the person gets sick and goes into the hospital, then it can get rough with the rent.
I don’t know, I don’t have any inside info. That’s why I asked.
Yes, O.K. Oxy, but your perceptive ability is keen.
Here’s a hint as to what this guy is about (from his website):
“Real Estate Investors Newsletter”
“Mr. McCabe is authoring a monthly newsletter, “Real Real Estate and How to Profit” designed for individual investors. The newsletter, available by subscription, features topics and content that include; expertise on passive and active residential and commercial real estate investments; future changes and investment opportunities in builder, real estate and bank stocks; investing in residential and commercial mortgage notes; opportunities and how to profit in property tax liens and other real estate investment opportunities. Learn how to build wealth from real estate market changes with a globally recognized analyst and consultant to international investment banks, private equity firms, hedge funds, universities, attorneys, and state legislators.
Send an email to jack@mccaberesearch.com to learn more.”
Good luck with your interview, Ben, but I think you are entering a lion’s den.
McCabe is not a cheerleader. He calls markets as he sees them and was instrumental in calling the housing bubble. It will be interesting to see what he says about Florida now!
So here are a few questions for Jack McCabe:
1) Is Ben Jones sitting in the same room with you right now?
2) Florida is a recourse state for home financing. Do you believe Florida is better or worse for having recourse financing?
3) Does Florida’s homestead (liability shield) law for home owners a benefit or liability for the market? ie; does the resident benefit? Does the law attract scammers and fraudsters to locate in Florida and keep their asset in high value housing where creditors cannot touch it?
Thank you Ben.
Combo, Jack’s OK. He’s adjusted his views to deal with the realities of the Florida market.
On another note, the answer to the question of where in the world is Ben Jones! Bingo! Welcome to Florida, Ben!
I do have a question for Jack, does Florida’s fragile ecosystem factor into advice to clients? This article popped up on the google news aggregator this morning. I am not a warmist by any means, but I thought it was interesting. Even without the issue of global warming, shorelines have a way of shifting, changing shape, eroding in some areas and building up in others and it looks as if that’s happening in Miami, for example. I think it’s happening in Tampa, too, in the Bayshore area.
http://www.theguardian.com/world/2014/jul/11/miami-drowning-climate-change-deniers-sea-levels-rising
So again, just dealing with the issue of flooding and erosion in Florida, without getting into some global warming argument, what factors should people be wary of? I see some bumps ahead. I wouldn’t like to own property on Alton Rd., for example.
And my understanding is that the Florida’s irrigation system is draining ground water faster than it is replenished, causing the sea to infiltrate the groundwater pockets with salt. Is south Florida turning brackish and would that affect housing?
Also I wonder if Jack could address Florida’s transition from a relatively low cost of living state to a higher cost of living state? What are the implications? What does this mean for future retirees who once found the state a haven and will probably have to re-think their plans?
This came to mind when I read an opinion piece on how the average person could prepare themselves for the future financially. One piece of advice given was to move to a state with property tax caps. The premise was that, in order to avoid sales and income taxes, a person can always choose to buy less and make less. But if they “own” a piece of property, they’re vulnerable to increases in property taxes.
Given that Florida has no income tax, but is highly dependent on property taxes, I shifted my point of view after I read that piece. I used to think Florida’s lack of income tax was an advantage, because property taxes didn’t used to be so onerous. But it seems there’s changes happening.
It also depends on the house that you buy. For decades retirees bought tiny homes or trailers in the boonies. Even if the tax rate was high, the tax was low because the house value was low. So it was worth the property tax to offset the lack of income tax on the pension. Now if these empty nesters want to “downsize” to a 2400 sq ft mansion on the canal, then they will have to accept onerous property taxes.
Are Realtors (TM) liars?
Are houses investments?
Should I buy now?
Questions for Jack:
If interest rates go up, how quickly will house prices fall in response, if at all?
In the past, the trend was to allow prices to fall so that lower-middle class could afford to buy. But the recent trend we have seen is local governments basically giving the lower-middle class subsidies, so that they can still buy while maintaining the house price investment of those who already have a mortgage. (we saw subsidies for Homowner the teacher in San Fran, and a down-payment programs in rural MD.) What are Jack’s thoughts on this? Will this continue, and will it prevent house prices from craaaatering?
How well does listing price represent the market value? We got an enquiring housing analyst here who needs to know.
What does Jack think of various rent vs. buy calculators? Does the 2.5x income rule hold even at low interest rates?
Does Jack expect the low-end ($120K) housing in Florida to craaater, or is this a new normal? Almost any two-income household can afford $120K if you adhere to a 3x income rule.
What does Jack think of zombie homes and foreclosures? Will they drop the prices of the general house population? (Personally, I say no. I still think that zombies will need so much repair as to ultimately cost market price anyway.)
I’ll answer it for him.
Housing prices have resumed falling regardless of rate direction.
She wasn’t asking you HA!
I’m sure your answer is meaningless to Oxy as it is to most of us, because it is always the same, regardless of the market conditions.
McCabe answers questions based on analysis. Big difference.
And you already know the answer too J._Fraud. Prices are falling.
“governments giving the lower middle class subsidies”
SF Homeowner and her spouse are both teachers with 10+ yrs experience. I strongly doubt their HH income is under 200k. Even in SF, that’s not lower middle class.
We also received subsidies because my wife is a teacher. She was eligible bc we were not married at the time and she was still under $75k back then. House will be paid off (except the subsidy loan) next yr, bc the amt of interest we pay is now too small to give us anything worth deducting.
You’re just making my point stronger. They are giving subsidies even to people above lower middle class.
Great if any of those examples are to be believed.
So now you don’t believe housing “assistance” programs for state/local employees?
You’re ducking and weaving again Liberace
What would a small 1% or 2% rise in interest rates do to housing prices?
What would happen to housing prices if the government stop purchasing every mortgage and made banks assume the risks of these loans?
How bankrupt are the major cities in Florida due to promises to public sector unions? How much higher will the public sector unions forces property taxes until these cities actually declare bankruptcy? Would you recommend buying property in these places?
I would ask Jack how long until it takes for an abandoned house in Central Florida to start growing mold. I would also ask if it is common place for most banks to keep the air conditioning running or do they just let the mold grow and try to sell anyway.
This abandoned house syndrome is just plain evil. We’ve got TWO of them right across the street from us, in limbo now for almost two years.
They both look like crap, too.
Meanwhile, the concrete block shacks in the nabe that are on the market have outrageous asking prices for what they are. What a hose job.
There’s a house down the street that hasn’t been lived in for as long as I’ve been in this nabe. (I moved into the Arizona Slim Ranch in 2004.)
However, a recent ray of hope: Big dead tree in the front yard was cut down. Is the place going on the market soon? I sure hope so!
To add to the cash-strapped retiree theme: how will increasingly popular reverse mortgages affect the FL market?
With such a disproportionately high number of retirees, I would think reverse mortgages would be a legitimate constraint on supply (RMers don’t/can’t move) and also affect the quality of future supply (RMers probably don’t prioritize maintenance). How would he suggest investors play this phenomenon?
Why? They’re going to die at the same rate regardless of whether the house is in hoc or not.
Yes, but they’re less likely to downsize for cash in the interim, and are less likely to move to a retirement/care home until absolutely necessary. And when a whole generation kicks off relatively en masse, the banks will be left with a slew poorly maintained old people houses in retiree neighborhoods.
Whereas kids who inherit houses might fix them up before selling, will the bank? Will it be the foreclosure crisis all over again, where banks leave these houses empty and off the market?
I’m not trying to answer these questions, but I think they’re worth asking, especially considering “Florida has the greatest proportion of people who are at least 65, 17.3 percent.”
Its still not a supply constraint which you implied in your original post. In 15 years, all these people will be dead and in the ground leaving a massive excess supply.
I believe that homeowners with RM’s are required to maintain the property up to certain standards, and this requirement is enforced via inspections by whoever is servicing the RM.
A dear friend RM-ed her place in 2006. Lost it to foreclosure three years later.
IMHO, she was not of sound mind when she signed the RM papers. Not that Wells Fargo cared.
(1.) What is the name of a real estate lawyer in the Orlando area who is reasonable and real estate knowledgeable ?
(2.) What suburb of Orlando represents the best value (with water and easy airport access) ?
(3.) Is it better to purchase or rent in that area ?
Price range up to 400m.
you meant 400k I suppose. Or are you a trust?
It was posted in the jobs section so they paid for the ad. Is it a scam?
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Why all the capitalization? Can’t they find any OTHER way to make their point?
After reading HBB for almost a decade my question is very simple. Is there anything this Guy can really tell us that the most frequent posters have not already posted, analyzed or commented on. I think this guy can only reinforce what we already know from this site and each other.
Silicon Valley oligarch wants to hive off from Pelosi’s dysfunctional California People’s Republic.
http://nypost.com/2014/07/16/rich-guy-wants-to-divide-calif-so-silicon-valley-can-govern-itself/
Seems like McCabe’s specialty is FL real estate. I’d be interested in:
How fast he think foreclosures would need to be completed in order to truly affect the market in the near-term (if foreclosures are trickling out, it’s the same as there being barely any)–does he see any politicians as having the guts to make such a change in the law to allow such a thing?
Given that today’s vacancy rate for housing in FL is artificially lowered due to the massive numbers of “zombie foreclosures” going through the system, at what point does he see the release of the “zombie foreclosures” into the market having an adverse affect on the market?
I seem to recall that there was a HUGE number of condos in Miami being built during the bubble. Is there any negative overhang from these condos? What happened to them? Were they converted to rentals? If so, does he anticipate a massive condo-conversion craze in the coming few years?