The Housing Bubble

The News Press reports from Florida. “Housing starts in Southwest Florida spiked sharply in the second quarter, according to Metrostudy. Land Solutions CEO Randy Thibaut, who specializes in brokering the large-scale land transactions necessary to create residential communities, said the second-quarter numbers are encouraging but that it’s important to watch for possible obstacles to future increases. ‘We do have some slowdowns in the sales centers,’ he said. “We do have some standing inventory that’s building. My biggest concern is oversupply.’”

“Thibaut also said it’s important to remember that the current pace of new-home construction is still a shadow of what it was before the housing boom collapsed in late 2005. ‘By year’s end we’re only going to get around 8,500 single-family permits for Lee, Charlotte and Collier counties,’ he said. ‘That’s far from the 45,000 we had at the peak (2005); it’s far from the 10,000 we had in the year 2000.’”

From First Coast News. “There’s something growing all over Jacksonville. Permit data shows 248 building permits were issued in July 2014 in Duval County, according to the Northeast Florida Builder’s Association. That is up from the months of July dating back to 2008. ICI Homes North Florida Division President, Don Wilford, said demand is growing so fast, there’s a labor shortage, which he said also means there are jobs available for skilled workers. ‘There’s about 50 jobs that are created and maintained every time you build a house,’ he said. ‘Providing that worker can go from the next house to the next house.’”

From Action News Jax. “The Jacksonville City Council will hold a third meeting Monday on a plan to take control of abandoned homes. City leaders estimate there are about 30,000 abandoned homes in Duval County. Bill Gulliford, Jacksonville City Council said, ‘This is a neighborhood thing. This is not just about abandoned homes. This is a way to turn neighborhoods around too. Abandoned residential units in neighborhoods are a big problem, including vacant lots.’”

The St Petersburg Tribune. “Homeowners from across the state packed state Rep. Carl Zimmermann’s district office Wednesday to call on Gov. Rick Scott to fix a law they say is causing thousands of Floridians to lose their homes. Those gathered in his office had come from as far away as Palm Beach County. Many bought their condos during the real estate bubble a decade ago, when developers were rapidly converting apartment complexes into condominium buildings.”

“Now, they said, investors are buying condos in bulk and nabbing seats on boards of directors for condo associations, then obtaining 80 percent majorities on those boards, Zimmermann said. By a provision that passed in 2007, the 80 percent majority allows boards to vote to approve conversions. Individual condominium owners are then forced to turn over their deeds to the bulk owner, he said, who could potentially offer to buy it for less money than is owed on the mortgage.”

“Palm Harbor resident Stephanie Krasowski said that’s what’s happening to her and her neighbors at Madison Oaks, where she bought her condo in 2007. She said she bought her condo for $169,000, putting down 20 percent and financing the balance. Her condo board was later taken over by a bulk owner, which she said offered to buy her condo for $82,000. Since she still owed the bank $130,000, she objected. ‘We’ve been completely violated,’ she said.”

The South Florida Business Journal. “Peter Zalewski, a principal with Condo Vultures LLC, said he’s astounded that, only two years after the first post-recession condo broke ground in South Florida, there are 152 towers planned, including 70 taking deposits and 32 under construction. Zalewski is taken aback by the pricing. A Condo Vultures study of 46 projects found prices averaged $725 a square foot, and 16 were asking more than $1,000 a square foot. (There are still unsold units from the bust available for less.)”

“‘That’s one hell of a pace,’ Zalewski said. ‘I joke that they are 500 percent sold out in an hour. The average prices for these units are mind-boggling. Some developers are arguing that preconstruction prices are what prices in the market will be two years from now. … At this point, statistically, it’s kind of shocking to me.’”

“Unlike the last boom, when down payments were 10 to 20 percent, many developers are now asking for upward of 60 percent down – so depositors mostly fund buildings. Such an arrangement isn’t acceptable to most domestic buyers, said Lewis Goodkin, president of Miami-based Goodkin Consulting. Now, he said, foreign cash buyers appear to be overpaying and distorting the equilibrium of the marketplace.”

“‘I can say with absolute certainty, based on all of my experience, that if these people are paying these prices, they will have to find other people like themselves to get them out because it won’t be the domestic buyer who does it,’ Goodkin said. It’s especially a problem when it’s illegal money, because those buyers don’t care if they overpay and drive properties out of reach for legitimate buyers, Goodkin said. Even relying on legitimate sources of foreign cash is a dangerous game, he added.”

“‘You have real wealth and also people where you don’t know who the hell they are,’ Goodkin said. ‘That’s one thing that is disturbing because it’s not really real. The market is so dependent on a source you can’t even qualify. If you look at our past sales and see what a relatively small percentage of these sales were cash, and now all of these buildings are going up, predicated on buyers’ cash,’ Goodkin said. ‘It would seem to me that that is a phenomenon that I’m surprised the FBI isn’t really cognizant of. This is a flood.’”

The National Law Review. “A team of Dutch developers would like to bring a little bit of Atlantis to Miami. Earlier this month, Dutch Docklands submitted a letter of intent and request for zoning variance to the City of North Miami Beach in order to erect 29 multi-million dollar floating homes and an ‘amenity island’ in Maule Lake. The project, deemed Amillarah Private Islands, would be the first of its kind in the Western hemisphere.”

“In addition to the potential environmental ramifications, there are legal issues to be addressed. In the 2013 case of Lozman v. Riviera Beach, the Supreme Court held that floating houses are to be treated as homes and not vessels under the laws of the United States. This allows owners to receive mortgages, purchase insurance and declare homestead exemptions, among other things, for such floating properties. Nevertheless, administrative challenges remain—for example, parking requirements and police patrol access. Further, as Bilzin Sumberg Environmental Practice Group Chair, Howard Nelson, pointed out to the Miami Herald, variances to ordinances regulating waterways are rarely granted.”