As housing inventory grows in Florida, prices continue to fall, and foreclosures continue to grow.I just read a Time Magazine article this morning while standing in line to vote. This article, titled "The Housing Bust: Signs of a Bottoming Out?" had this to say about the Miami skyline and inventory:
The last piece of the last residential construction crane in Miami is coming down this week. Don't expect to see another crane in this city for a decade, says Peter Zalewski, a real estate broker and founder of Condo Vultures, a realty intelligence service. Miami is both a metaphor and model for once torrid real estate markets that melted in the subprime debacle. Miami developers threw up some 23,000 units beginning in 2003, many of them bought by speculators who thought they could flip them for a quick profit. Some did.
Then the music stopped. "Our best guestimate — and we've talked to lenders and developers — is that you will not see a residential construction crane in the sky in downtown Miami for a generation," Zalewski told TIME. "Well, at least seven years," he said before modifying his forecast yet again. "Let's go with a decade," he finally concluded. Let's. The latest Case-Shiller Home Price Index for a 20-city composite showed that prices recorded a 1% drop in August and were down 16.6% for the past 12 months. Miami had a 1.8% monthly drop and a 28.1% tumble over the past year; in San Francisco, it was -3.5% monthly and -27.3% for the year.
I can't imagine being trapped in a fast depreciating asset like a home or condo which no one will buy unless I drop the price dramatically.
The problem I'm seeing in the Florida Keys with fast depreciating homes is this: they haven't depreciated to the point, yet, where buying one is cheaper than renting.
Why buy when renting makes more economical sense?
Why buy an asset like a house when you know the market is flooded with inventory? More foreclosures coming down the pike will continue to place pressure on median prices to slide. And as foreclosures are sold as REOs or short sales, everyone of those sales becomes a loss on some bank's books and entered into the MLS as a huge hit to median home prices. Thus, the Housing Crash will continue well beyond 2009 and 2010 in Key West and all of Florida.
Furthermore, why buy a overpriced depreciating asset which has hidden costs such as insurance, taxes and maintenance climbing more quickly than inflation?
Not only that, but few new condo buyers in Key West, Miami, or anywhere else in Florida have done the simple math on monthly fees tossed in by condo associations. I'm amazed at how shocked some new condo owners are when they figure in their "condo fees" to that deal they thought the were getting. These are smart people who've put aside downpayments, waited while prices declined, and somehow jumped into a condo today at what seemed an okay price without figuring in insurance and the loathsome condo fees.
And then there's this to consider:
1.2 million Florida mortgage holders owe more than home's value
I read this article Friday online from the Palm Beach Post which shows just how bad homeowners in Florida are taking it on the chin:
No need to put a fright mask on these numbers: Nearly one in three Florida mortgage borrowers owed more on their loans than their homes were worth in the third quarter, according to a report issued Friday.
Fully 1.2 million of Florida's 4.2 million mortgages - 29.2 percent - were upside down, said First American CoreLogic of Santa Ana, Calif.
If home prices dip another 5 percent, nearly 200,000 more Florida borrowers would slip under water.
Further price declines seem a near certainty as foreclosures soar and job losses mount.Moody's Economy.com forecasts a 10 percent price decline in Palm Beach County, while Veros Real Estate Solutions predicts a 15 percent drop for Palm Beach County and the Treasure Coast in the coming year.
It all adds up to a gruesome picture. With so many homeowners under water and the job market weakening, foreclosures are likely to rise, said Sam Khater, senior economist at First American CoreLogic.
This Recession will continue to kill housing. As more jobs are laid off, more commercial and residential real estate will become vacant. As rental vacancies rise, rents will continue to come down.
As an example: condo fees in my condo (I rent) out here by Key West Airport just went up at a time that condo sales prices are fetching 50-60% less than they did just three years ago. We've got a new condo manager who just increased maintenanc fees with board approval. And still, 2 bedroom condos with 2 bathrooms just like the one I'm renting for $1600 a month are now asking $1400-$1500 a month. These new rental prices have dropped in just a few months time.
Out at West Isle Club, they've brought in a new manager to replace the manager who had been their 15 years. Eventhough their rents have not gone up or down, West Isle has just completed massive renovations of empty units, adding new carpet, new wallboard, new paint, and all new stainless steel appliances to 1, 2 and 3 bedroom apartments. So, renters are getting more bang for the same buck at West Isle, which no longer has waiting lists to move in.
Everywhere I look, there are apartments remaining vacant for months in Key West. And I know the trend is the same in Miami, Ft. Lauderdale, Fort Pierce, Tampa, and now even in Ocala. You see ads on craigslist everywhere for "First month's rent FREE!" in all of these locales. It's another sure sign that landlords are desperate.
Yes, Florida, we are in an deflationary spiral for apartments, condos, houses, businesses, cars, boats . . . you name a durable good, and it fetches far less than it did just three years ago.
Car lots are filled with inventory. New car sales are the worst since World War II.
Marinas down here are renting parking space for repoed boats.
And now apartment landlords are sticking rental signs for airport condos on grassy road medians blocks. These desperate landlords are looking for warm bodies to fill their vacant condos and rescue their bad decision to buy "investment" property at the market top. Yep, rental wars sure are nice for us renters, but not so good for landlords with a decreasing pool of good candidates as the Tourist Recession continues to end more jobs in Key West.
By the way, unemployment for Augusts 2008 was the highest in Key West since 1994 . . . and maybe longer . . . but the Chamber of Commerce records only go back that far. (See page 20 of 29 for unemployment stats.)
We're now at 4.8% unemployment in Key West, but if you look at all the homeless people camping out for the night at those bus shelters built for advertisers along every road in the Keys, you know homelessness is dramatically up. (One of my favorite homeless guys has claimed the bus shelter directly across from the swank Hyatt Beach Club by the airport. That shelter has an ocean view and I've never seen one person wait there during daylight hours for a bus. But the ad for Comcast on it's side hasn't changed in over a year. The only user of the shelter is this homeless guy who claims it at night.)
Add all these speculators and homeowners in Key West who are still scraping by, keeping up with their mortgages, but whose loans are now under water (look at all the Realtors who bought Smurf Village quad-plex condos in New Town for $550,000 at the market top and who are now trying to arrange Short Sales for $180k-$200k) and you've got many more years of painful wrenching down of housing prices, for sure.
All these speculators and homeowners in Key West who are one paycheck away from being homeless because they are spending all their hard earned money trying to keep up with their loans, taxes, insurance and maintenance are in the same hard spot which other Floridians are in. As the Palm Beach Post article also stated,
It all adds up to a gruesome picture. With so many homeowners under water and the job market weakening, foreclosures are likely to rise, said Sam Khater, senior economist at First American CoreLogic.
"There's a large percentage of very vulnerable homeowners," Khater said. "If they lose their job, if they run into some kind of health problem, or divorce, they might just walk away."
Most homeowners will hunker down and continue to make mortgage payments in spite of the downturn, Khater said. But negative equity adds a toxic new ingredient to the housing market witches' brew.
"We've created an entire class of homeowner that is very sensitive to price changes," he said.
During the height of the real estate bubble, buyers routinely made small down payments and took adjustable-rate mortgages. And many homeowners refinanced to take equity out of their homes to fuel spending. That worked when prices were rising.
Now, though, the nightmarish rise of negative equity is sapping wealth and sending Florida's economy into a tailspin. Palm Beach County's jobless rate has doubled in the past two years, while St. Lucie County unemployment has hit double digits.
It wasn't different "this time", was it Realtors, Lenders, Appraisers and Builders?
You can't pyramid forever. Every pyramid has it's point at the top. Stand on it for too long, and you will most certainly fall off.
I feel the continued slide of American, Floridian, and Key West housing is a 100% sure fire bet for all of 2009 and 2010. When will we bottom? I don't know. But I'll bet this: when we bottom, we won't do a "V" ascent from the bottom. We'll do a hockey stick "L" for many years, in my opinion. If you buy a home, you better buy it to live in and make damn sure it costs less to buy it and run it than renting. Otherwise, why buy at all and become a miserable slave to the ball and chain of a house which you will have trouble selling in a market where lending is harder to find?
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