Florida Housing Prices Will Not Double in the Next 5 Years

News Team 6 Interviews Delusional Miami Realtor

This past weekend, I saw a report on the Miami NBC affiliate in which a business reporter was asking people what would happen after the $700 Billion bailout which Henry Paulson is pushing onto the US taxpayers.

During this report, the reporter talked over video of entire condos in Miami where vacancies are running 80-100%. Construction at some of these condos had stopped dead in their tracks as the developer had run out of money before completion. Some completed condos sat empty as buyers had run away, leaving their deposits. Other condos, with few occupants, were described as desolate and dark places for the few owners whose equity in their units has already evaporated.

I don't watch much TV news, especially since Mainstream Media folded their tents and went to Iraq with no questions asked. And what really solidified my leaving TV news in the waste bin of memories was how no one at CNBC, Fox, CBS, NBC, or ABC was following epic Credit and Housing Bubble and the insane deficit imbalances which was sure to blow up in our faces. (I thank my lucky stars I found many of the "Links to make you think" and the most interesting message board on the Internet, Motley Fool's "METAR" board.)

So there I was, curling some dumbbells before I got on the motorcycle to head into work. And I flipped on some "local" news (we can't afford big News desks in Key West, hallelujah) whence I saw this reporter doing his thing about the $700 Billion Bailout.

While I watched and looked at all the pretty condos with dozens and dozens of empty floors overlooking Miami Beach and downtown Miami, our reporter at large began the cheerlead for the Real Estate turnaround which he felt this Bailout might bring us. He said something along the line that the bailout would give hope to all these people stuck in upside down mortgages and with few neighbors. He said the Bailout should get the credit markets moving again. And then, mixed in with his twaddle, he introduced some bigwig Realtor from Miami.

This Realtor said (and I'm paraphrasing as I can't find the video on youtube) "This bailout will do wonders for the stalled condo market. All these condos you see behind me should have no problem selling out AND prices should double in five years from where they are today."

I snorted at the screen and asked out loud "Are you eating Oxycontin's like button candy, Brother?"



Affordability: the bailout won't help this issue

Look at the Census Bureau chart above. Look at the first line with those incredible statistics concerning South Florida homeowners.

Almost 60% of all South Florida homeowners are paying more than 30% of their paychecks to mortgage payments.

Almost 30% of all South Florida homeowners are paying more than 50% of their paychecks to mortgage payments.

Obvious questions: How many more tens of thousands of foreclosures will South Florida face over the next five years?

If a bailout includes provisions for a mortgage borrower to refinance his loan, who still wants to hold onto an asset which continues to lose value as more inventory comes on the market at ever cheaper prices?

As the government pushes new regulations in lending to prevent fraud, how in hell will Ninja loans, Interest only loans, Reverse Amortizations loans, and all the other dangerous ways of borrowing still be acceptable? This means a much smaller pool of potential buyers as the USA has negative savings as nation, meaning fewer people will have 20% to put down for these cheaper condos this Realtor is claiming are at bargain levels now.

Meanwhile, more Americans are seeing more jobs in the FIRE (Finance, Insurance and Real Estate) economy evaporate. Southeast Asia continues to grow and siphon American factory jobs and white collar service jobs. And little things like gasoline, heating oil, cereal, eggs, milk, etc., will continue to inflate dramatically as $700 Billion new dollars entering the economy means the dollar will continue to slide ever downward.



Waiting on the .49 cents burger special at McDonald's

I read an AP news release this morning in the Orlando Sentinel titled "Millions spend half of income on housing"

The Census Bureau reported Tuesday that more than 7.5 million people -- almost 15 percent of American homeowners with a mortgage -- are spending at least half of their income on housing costs. That's up from nearly 7.1 million the year before.

Historically, the government and most lenders consider homeowners to be financially burdened if they are spending 30 percent or more of their income on housing costs. But that definition now covers almost 38 percent of American homeowners with a mortgage -- 19 million of them.

My note: Once again, Affordability is not being addressed by these Sunny Day Real Estate types who claim housing has bottomed and will double in price in the next five years.

How bad is it for some of these homeowners in over their head? From the same article . . .

The most cost-burdened homeowners in the country live in the giant Miami-Fort Lauderdale -West Palm Beach metro area in South Florida: 58 percent of them are spending 30 percent or more of their income on housing costs, and 29 percent are spending at least half their income on housing.

In Davie, Al Ray is so strapped for cash that he eats out only on Wednesdays or Sundays, when the local McDonald's sells hamburgers for 49 cents.

Ray lost his engineering job in November, and has been working as a high-school tutor, scratching out about $1,000 a month -- if he's lucky. He struggled to make his $1,400 monthly mortgage payment and $330 monthly homeowners-association fee until May, when he stopped paying. (Rock's highlight as this is a subject I will be bringing up in future blog.)

Ray, 44, is looking for work and renting out a room in his two-bedroom condo for $500 a month, but his income doesn't match his expenses and he is facing foreclosure."I barely have money to survive," he said.

Finally, from the same source, we get something which I hit upon time and again when I caution people who want to buy South Florida Real Estate without doing some back of the envelope math.Though home Real Estate prices have been falling for 2 years in South Florida, many working families still cannot afford to buy a home because . . .

Although prices in Florida are dropping, the high cost of land, construction, insurance and property taxes makes living in Metro Miami, in particular, too expensive for some. (Again, my highlight)

Don't be fooled again

I hope South Florida and Florida Keys residents will let that Census Bureau chart sink in and not give any credence to some Bubble loving Realtor who claims Miami condos will double in five years after the bailout is made.

Housing is still not affordable in most of Florida . . . especially in the Florida Keys.

I don't care how Realtors want to shade the truth, but when you figure in mortgage payments, condo fees, taxes, maintenance and insurance, housing must and will come down in price. Working class people are still priced out of the market. And as I said in a post from a week ago, we are just one good hurricane away from Real Estate cutting the elevator cables which has enabled a slow descent so far.


Let all the hot air out of the Housing Bubble

More from the AP article:

"We had a bubble," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. "This is a case where we absolutely want the market to adjust."

The data underscore the serious affordability problems in this country and highlight how the slightest financial problem — from a lost job to higher gas prices or insurance premiums — can put a family behind on their mortgages and into the realm of foreclosure. (Note: My highlight)

When home prices fell in the early 1990s, borrowers had more equity in their homes, and were able to escape foreclosure. But now, an estimated 10 million homeowners owe more on their mortgages than their homes are worth, according to Moody's economy.com.

More than 4 million homeowners were at least one month behind on their loans at the end of June, and almost 500,000 had started the foreclosure process, according to the Mortgage Bankers Association.

The bailout will save most lenders and some borrowers

The $700 Billion bailout is not going to save everybody. Of course the FIRE sector is foremost in the minds of Republicans. Democrats want to give concessions to small homeowners who jumped into loans which they can't pay. Each party wants to save its base constituency.

But what the $700 Billion bailout cannot save is Housing.

Cascading foreclosures over the past two years created a domino effect in the lending industry, undermining investor confidence. When people starting raiding their Money Market Funds last week, the Bush administration, fearing a run on all types of banking, announced the greatest rescue package and market intervention since the Great Depression.

The majority of the money from this bailout could be blown by banks simply bringing their books back into balance. There are scads of banks, large and small, which do not have enough reserves to cover current and future losses. That's why short sales are taking so long to approve. Once a bank books a short sale, they have to show their loss on paper.

The pressure to lend will not be foremost in the minds of bailed out bankers, especially if the Bailout Plan contains language which cuts out bonuses and high pay for CEOs who pad their books with shaky loans.

Just because the Treasury might let a FIRE sector company borrow money, doesn't mean the banks and insurers will have the cojones to take on risk like they did in the manic years of the Housing Bubble. If and when a bank is moved to lend to a homeowner, do you think it will be in the form of Liar's Loans, Ninja Loans, Zero Interest Loans, and all the other junk hybrid loans which undermined this matchstick pyramid of crappy Mortgage Backed Securities?

I sure don't.

I believe most of the money will sit in reserve, maybe invested back into something safe like short term Treasuries (yielding way less than inflation, by the way) so that banks can pay off losses from credit default swaps and other toxic derivatives.



Housing will not have another Bubble as we've just seen in the next 50 years.

I don't see Real Estate even keeping up with inflation for another four generations, the fourth of which will have outlived the young people of today who will remember this once in a lifetime economic meltdown.

I feel we are going to do a repeat of Japan. I feel Real Estate here in the US will not double in five years, ten years or fifteen years now that I see what is happening to our financial banking core.

As a nation, we are standing in the eye of Category 5 Economic shitstorm which reaches from coast to coast.



Sic Semper Realtorus

The hypehyperventilatingRealtor from Miami who made this ridiculous claim that empty or foreclosed condos today will sell for twice their price by 2013 has not thought through what is happening to credit markets: derivatives trades in the trillions of dollars are finally unwinding. It's going to take months and years for some of these trades to be tracked and marked to reality.

Banks are simply not going to lend money to anyone with less than stellar credit and 20% downpayments. >

The days of the Chop Shop Mortgage Company setting up on every block are gone.

Mortgage brokers and Realtors will be thought of as old time stockbrokers who used to overcharge people in the past to buy 100 shares of AT&T: everything in Real Estate is moving online and people in the future will wonder how in hell we agreed to pay 6% commissions to Realtors when most of the work can now be done by anyone with a computer.

I suspect more buyers will look to save points by D.I.Y. methods employed on the web, and I see Realtors giving up their fancy offices to work from home so they can cut their commissions and still make a living.

As more Realtors and Mortgage brokers realize the Gravy Train has left the station and it ain't coming back, more newly unemployed white collare workers will put pressure on the jobs markets.

SIn a world where incomes are not able to buy homes, we will see home prices continue to fall for many years to come.

The Great Unwind has begun.

American Empire is now officially in decline.

Foreigners hold trillions of our debt and now that debt is going to be backed by the full faith of the Federal Government, that is, you, I, and all the other Middle Class taxpayers.

Derivatives are beginning to unwind like a rubber band inside a 1950s golf ball which a young boy with a pocket knife has just set free. We are talking tens of Trillions of dollars of bets made in unregulated markets which companies are trying to stop from taking them under as the pace of unwinding picks up.

Meanwhile, housing will decline, grinding inexorably down in price, year over year, as more Americans lose their jobs due to losses in FIRE economy.

More strapped homeowners and speuclators will realize that walking away from their unwise decision to buy a home during a Housing Bubble makes economic, if not ethical, sense.

Multiply Al Ray in the story above by another two million Americans in 2009 and 2010 . . . when the bulk of Option ARMs kick in with higher rates (short term Libor rates have doubled in the last week portending bad mojo for long term rates) . . . and there's no way housing will bottom any time soon.

Remember, gang, fewer people will qualify for any kind of loans going forward.

This is the new reality America faces: our currency will be debased further, durable goods will deflate, precious metals will still be a huge store of real value, and oil will continue to march ever higher as China and emerging markets eclipse the USA in making real things which can still be sold elsewhere in an emerging market world.

Meanwhile, the USA will slowly sell more of our assets to foreigners with real savings.

Lastly, if we don't find us a real leader who understands History in this election, America will become an also ran country bankrupted by greed and Consumerism.

As always,Caveat Emptor,

Rock Trueblood