The Property Market In South Florida, It’s Hurricane Season !!
Categories: Foreclosures, Real Estate News, South Florida Market Stats
hi
This article will give you a breakdown of the state of the real estate market in South Florida
Many Floridians have learned the hard way: All hurricanes have three parts—the front half, the eye and the back half. The eye is a deceiving quiet period at the center of the hurricane. The eye lulls you into believing the storm has passed and all is well.In fact, the back half of a hurricane can be far more devastating than the front half. The front half of a hurricane does a lot of damage and weakens many structures. Then, when the back half hits, houses, buildings and personal property teetering on the brink of failure are utterly destroyed. Moreover, since the wind is coming from the opposite direction, anything strong enough to resist the first half is tested again by the back half.
This is exactly what’s happening in Florida’s housing and financial markets. We are in the eye of the hurricane, and the back half will hit us twice as hard as the front.The front half of the Florida real-estate hurricane was fed by a bidding frenzy that drove prices to a peak far above real demand: Flippers were not buying homes for function, just for trading. And with the Fed’s free-money policy, flippers were leveraging themselves at the same 30-to-1 and 50-to-1 levels as the financial wizards on Wall Street.This artificial demand created an inflated supply of homes. By 2006, the inventory of unsold real estate reached a crisis level . The combination of rising inventory and prices, which had no relation to demand for housing that people wanted to live in, fed the front side of the hurricane.Recently, however, there has been a lull in the windstorm. Would-be buyers are returning to the market.
Over the past few weeks, we’ve been seeing 300% increases in traffic at our open houses from a year ago. Builders and real-estate agents report that offers are up, along with traffic. But this is not the end of the hurricane; it’s still the eye. What the builders and agents neglect to report is that most of the traffic couldn’t qualify to buy. Nor do they report rising rates of pending contracts that fail to close. And they don’t mention the damage being done by falling prices, which put more and more homeowners into negative-equity positions and make it more likely that more property gets pushed back to the lenders. Nor do the builders dare to mention the bulk sales of inventory homes they are making to a new generation of real estate investors with deeper pockets. This nonsense not only forces prices down further; it also creates a new competitor for the builders’ remaining inventories. The bulk buyers still have to sell these homes to end-users.This twist is not all that new, but it is continuing to feed the overall problem of inventory glut. However, this is not what we should be focusing on as we enter the back half of this hurricane.Almost nobody is reporting on how the inventory problem of 2006 has moved from builders to lenders, and how the lenders have no clue about what to do with the surge of defaults and foreclosures. The reason the back half of the hurricane will be such a devastating wipeout: The failure of the lenders to address their issues with defaults is compounding the inventory problem to the point where we will see a tidal wave of inventory hit the market.
As a real-estate agent in South Florida, I have first-hand experience with homeowners defaulting on mortgages and lenders who appear to be far too confused to develop a clear plan for avoiding foreclosure auctions. Buyers now realize lenders are going to take weeks or months to review and respond to offers that often reflect market value but fall short of covering the balance on the mortgage. Such “short sales” should be the easiest way for lenders to move inventory at market prices—but the lenders have not faced reality. And now, most buyers who have had experience with short sales no longer want to look at short-sale properties because of the long and convoluted process. Instead of using this tool to realize market values, the lenders are dumping property into below-market foreclosure auctions, which then creates another new downward spiral for prices.Lenders’ failure to address these issues has forced more defaults, which lead to skyrocketing foreclosure rates. Defaults and foreclosures mean huge expenses for the lender, and significantly lower values. And it gets worse for lenders. In the most extreme examples, lenders cannot foreclose because the documents have not followed the mortgage.
Lenders may be telling Wall Street and Capitol Hill that they are developing plans to keep owners in their homes, but we are seeing the exact opposite in the world of reality. Even when we try to work with lenders, most of the time there is no one at the helm with the authority to process a cup of coffee, let alone the sale of a property in default. The easy answer is to simply let the property flow through to the foreclosure auction, even when that means 30% to 50% less in sale price.
This is not all bad news if your are a prospective buyer. You can buy a property today at 2003 prices with the highest inventory choice in a decade.
Most of the above blog was courtesy of a fellow realtor Mike Morgan up in Jensen Beach Florida.
The eye of the storm — this is the perfect analogy for what’s going on. The spin about how “things are on the rebound” and “the worst is over” ignores the fact that consumer debt has gone up, not down, and lending options are fewer.
The consumers in distress I talk with are willing to do what they can to stay in their homes, but as you point out, lenders aren’t reasonably working with them.
The proposed bankruptcy reform legislation advocated by the Center for Responsible Lending and the National Association of Consumer Bankruptcy Attorneys, among others, is the only reasonable solution here in my opinion. If lenders won’t work with consumers, then a bankruptcy judge needs to step in and take the helm.
Otherwise, we better hold on tight. It’s going to be a rough hurricane season.