Today's F@cked Buyer

Thank you to a reader for contributing this one:



891 NW 110TH AV, CORAL SPRINGS, FL 33071

• 4 Bed, 2 Bath, 2,473 Sq. Ft. SFH


• Bought April 2006 for $500,000


• On the MLS for $349,000


• Loss before the Realtor® commission: $151,000


• Loss after the Realtor® commission: $171,940

I need your help with this daily feature. Do you know of a F@cked Buyer? Just add the MLS number or the FSBO link in the comments section and I will add it to an this daily update in the future.

Today's Local Real Estate News

The Miami Herald reports some stunning data on the looming foreclosure crisis:

“The number of U.S. homes facing foreclosure surged 58 percent in the first six months of the year, with Florida ranking second after California among states with the highest numbers of troubled borrowers, data firm RealtyTrac said.”

“One of every 81 homes in Florida were sent foreclosure notices in the first half of this year, RealtyTrac said.”

“In Florida, the number of foreclosures is up 77 percent compared to the same six months last year, RealtyTrac said.”

“In South Florida, foreclosures have tripled in Miami-Dade County and Broward County in the first six months of the year, according to data from the counties.”

“Between January and the end of June, lenders started legal proceeding to regain title to 10,519 properties in Miami-Dade, according to the Miami-Dade County Clerk's office. By mid-June, close to 8,000 properties in Broward had entered foreclosure.”

The Sun-Sentinel covered the continued property insurance issues:

“Florida Gov. Charlie Crist said Monday he expects the state to reject recent requests by property insurance companies to raise prices.”

“Despite a mandate to lower insurance costs, many insurers are instead asking for rate increases, including The Hartford, Metropolitan Property and Casualty, Cincinnati Insurance Cos., Auto Insurers and Amex Assurance Co.”

The Palm Beach Post piled on with news of another insurance asking for increases:

“USAA, Florida's fourth-largest insurer of homeowners, has filed a request for a statewide average rate increase of 53.9 percent, another indication that the plan to bring rate relief to hard-pressed policyholders by lawmakers and Gov. Charlie Crist is not working.”

“USAA, which filed the request Friday, becomes the 36th insurer to seek a rate increase in its so-called ‘true-up’ filing. The true-ups were supposed to reflect the final tally of rate cuts resulting from changes in the property insurance law in January, once costs of reinsurance - insurance for insurance companies - were factored in.”

Meanwhile, reduced tourism in the Carribean is being blamed on the housing bubble. From The Morning Call:

“Americans who flocked to the islands in record numbers until recently are finding new destinations or staying home, leading to declines of more than 10 percent this year in islands including Jamaica, St. Lucia and Grenada.”


“’The trickle-down effect is huge,’ said Richard Kahn, a spokesman for the Caribbean Tourism Organization. ''In the long run, this could mean the loss of jobs throughout the Caribbean.’”

“Some analysts argue U.S. tourism will rebound quickly, attributing the recent decline in part to a sluggish U.S. housing market that has cut into Americans' spending.”

But, don’t worry; the housing bubble may be saved. The National Association of Realtors® announced yesterday positive news about foreign investment in U.S. housing:

“Only a couple of years ago, the National Association of Realtors expanded its useful annual Profile of Home Buyers and Sellers to include the intended use of homes by homebuyers as homesteads, second homes or vacation homes or investments. Now they're taking the examination of second home or investment home purchases further with the first study of the international homebuyer.”

“The 2007 NAR Profile of International Home Buying Activity found that an astonishing number of customers for American property are foreigners. Nearly one in five Realtors has sold a home to an international client in the past year. The NAR classifies an international client as ‘a foreign citizen living abroad who has legally entered the United States to purchase a home.’”


“International clients are one of the uncounted factors in the phenomenal housing boom of 2000 - 2005. In Florida, NAR researchers found that 7.3 percent of home sales were to foreign purchasers, and that 65 percent had brokered at least one home sale to an international client and nearly half (48 percent) said that one in four of their transactions were to foreign clients.”

Video: David Lereah is Bullish on Florida Real Estate

CLICK HERE TO WATCH THE VIDEO.

The Briny Breezes saga defines the bubble.

The saga has it all: irrationally exuberant home owners, hedge funds, subprime-mortgage-backed CDOs, irresponsible developers, and crocked politicians. In the end, this saga may define the housing bubble in South Florida.

The ordeal begins with subprime mortgages. Wikipedia provides some background on these mortgages:

“As with subprime lending in general, subprime mortgages are often defined by the type of consumer to which they are made available. According U.S. Department of Treasury guidelines issued in 2001, ‘Subprime borrowers typically have weakened credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments, and bankruptcies. They may also display reduced repayment capacity as measured by credit scores, debt-to-income ratios, or other criteria that may encompass borrowers with incomplete credit histories.’”

Basically, these were loans that were provided to consumers that were traditionally unable to qualify for mortgages. These individual subprime loans were bundled by mortgage bankers into debt instruments know as collateralized debt instruments (CDOs). In turn, the CDOs were sold off to investors. The following chart illustrates the complexity of turning subprime mortgages into securities (the source is the best primer on the subprime meltdown I’ve seen – it's worth the time it takes for the free registration):



So, what does this have to do with Briny Breezes? The connection starts with Key Biscayne-based hedge fund manager, John Devaney, principal of the investment firm, United Capital Market. United Capital Markets ran Horizon Funds, a $619 million-dollar hedge fund that primarily invested in CDOs purchased on margin. This in turn was used to finance the Briny Breezes purchase. The Palm Beach Post reports:

“In January, two days after Briny Breezes residents voted to sell, Devaney put out a news release calling United Capital Markets underwriter of the project. The company ‘will set up working capital facilities and ultimately structure and distribute commercial mortgage-backed securities or set up a bank facility to finance the project's construction costs,’ the announcement said.”

Soon afterwards, it was revealed that Briny Breezes politicians stood to gain as well. Again, The Palm Beach Post reports:

“Based on the shares each official has in the corporation that owns the town, the mayor and aldermen would earn a combined $7.9 million from the sale. Mayor Roger Bennett stands to make $2.1 million. Four aldermen would make $1 million-plus each. The fifth alderman would get $876,902. Given those paydays, opponents suspect that the board will do whatever developer Ocean Properties asks. So far, the Briny board has done just that.”

But then, the house of cards began to rapidly crumble. On July 3, 2007, Briny Breeze’s primary investor admitted to trouble:

“United Capital Markets Holdings Inc. has stopped honoring refunds to investors in some of the firm's Horizon Strategy group hedge funds that invested in subprime-mortgage bonds, Bloomberg reported on its Web site.”

On July 7, 2007, United Capital Markets tried to calm concerns about the connection with the troubled hedge fund and the Briny Breezes project:

“Devaney's company, Key Biscayne-based United Capital Markets Holdings, acknowledged this week that it has suffered ‘significant losses’ on its risky subprime mortgage trades. The company has taken the unusual step of not allowing investors to cash out of four of its hedge funds.”

“United Capital spokesman Michael Gregory on Friday said there was no cause for concern. He said United Real Estate Ventures, the company investing in Briny Breezes, is separate from United Capital Markets, although both are owned by Devaney.”

“’It's a totally different company,’ Gregory said. ‘Briny Breezes and the asset manager have nothing to do with each other.’”

“While the company now is trying to distance the hedge fund from the Briny proposal, in the past the names have been used interchangeably.”

Early yesterday, news came out about Devaney’s asset liquidation. The New York Post reports:

“In the latest sign that circumstances are rapidly changing for one of Wall Street's most colorful characters, United Capital Markets founder John Devaney has put ‘Positive Carry’ on the market in Fort Lauderdale, Fla. He is seeking $23.5 million for it, according to the yacht broker's Web site.”

“The Post has learned that Devaney is also trying to unload a 16-bedroom Aspen, Colo., property he bought in November. He is trying to get $16.5 million for that asset; he paid $16.25 million, according to reports.”

“The $40 million he might get for his properties would help offset some of his personal losses. Devaney had $100 million in the troubled fund prior to the collapse in the asset-backed securities markets that his Horizon ABS funds specialize in.”

Soon afterwards, the Briny Breezes deal was called off.

While it might seem that the saga is over, based on a Sun-Sentinel article a vicious circle might be developing:

“Marge Dwyer was in ‘total shock’ when she heard she wouldn't be getting the money to pay off her mortgages. The Maryland native, who lives here seven months out of the year, was to receive more than $1 million for her two mobile homes in the seaside community.”

“She planned to pay off about $1 million she owed on three properties in Delaware, three in Maryland and a condo in Delray Beach.”

“’I'm mortgaged up to my eyeballs,’ Dwyer said. ‘I'm going to have to start selling [my properties] off just to survive.’”

“Dwyer, who's been unable to work for months because of a knee surgery, said she recently refinanced all her holdings, leaving herself just enough money to live on until the Briny Breezes sale in 2009.”

Based on this information, Marge Dwyer probably used subprime loans to finance her nine properties – properties that now seem destined for foreclosure. In turn, these foreclosed loans will further devalue the CDOs in which they were bundled. As a result, more hedge funds will become worthless, more developments will be abandoned, more yachts will be sold, and more “Marge’s” will be unable to pay off mortgages – the vicious cycle complete.

The Ponzi scheme is coming to roost.

Breaking News: Briny Breezes Deal is Dead

Not that this is a surprise, but the Briny Breeze land deal is now officially dead. From the Sun-Sentinel:

"The developer that agreed to buy Briny Breezes, a seaside town in Palm Beach County that is made up of mobile homes, has terminated its $510 million contract with the municipality. Ocean Land Investments decided to cancel the deal after the town declined to give the developer an extension on its due diligence period, which ended Aug. 10, said Logan Pierson, Ocean Land's vice president of acquisitions. Ocean Land had requested a 45-day extension so that it could answer comments from the state Department of Community Affairs on the developer's comprehensive plan to transform the mobile home park into a destination luxury resort."

This was expected because Ocean Land Investments was backed by Union Capital Markets, a troubled hedge fund based out of Key Biscayne. Not only is Union Capital Markets backing out of the Briny Breezes deal, John Devaney, the fund manager, is being forced off assets. From Reuters today:

"A hedge fund manager whose fund ran into rough weather earlier this month has put his yacht up for sale, the New York Post reported on Monday. United Capital Markets founder John Devaney is seeking $23.5 million for his 142-foot yacht, 'Positive Carry,' the Post reported, citing the broker's Web site. Earlier this month, the $620 million hedge fund portfolios he runs were forced to suspend investor withdrawals, the Post reported. Devaney is also trying to sell a 16-bedroom Aspen, Colorado, property he bought in November for $16.5 million, the paper said."

Today's F@cked Buyer

This one has a projected loss of $304,000 in just 9 months. Ouch.

11784 NW 5TH ST, PLANTATION, FL 33325

• 5 Bed, 4 Bath, 4,094 Sq. Ft., SFH
• Bought October 2006 for $1,150,000
• On the MLS for $900,000
• Loss before the Realtor® commission: $250,000
• Loss after the Realtor® commission: $304,000

I need your help with this daily feature. Do you know of a F@cked Buyer? Just add the MLS number or the FSBO link in the comments section and I will add it to an this daily update in the future.

Today's Local Real Estate News

The Ocala Star-Banner reprinted a great Stephen L. Goldstein editorial:

“WARNING: Without a miracle, quality of life in Florida is doomed to be the lowest of the lowest of the lowest.”

“The Catch-22 in Florida's economic "strategy" is finally dinking us. For decades, we've been losing the proverbial dollar on every state resident, but making it up in volume. We're on an unavoidable collision course with ourselves.”

“Increasingly, Floridians have discovered that they are the suckers left holding the bag in a state-sponsored Ponzi scheme. Developers in cahoots with elected officials opened the floodgates to people migrating into the state. They made it seem as though not only the moon belongs to everyone, but the best things in life are free under the Florida sun.”

“Each year, the Legislature does the equivalent of rearranging the deck chairs on the Titanic. Some people still think we're unsinkable. Others don't realize that we've already hit an economic iceberg. Those who know we're in trouble don't realize we don't have enough lifeboats.”

“Thousands are already fleeing Florida's sinking ship - and they're not rats. Anyone choosing to stay should pray for a miracle, an economic epiphany in the Legislature - or, your best bet, piles of dough to pay the tolls on your privatized roads.”

From Florida Trend Magazine:

“The fallout from the downturn in Florida’s housing market: More than 21,000 new foreclosure cases in June alone — up 144% from a year earlier — and a skyrocketing number of complaints against home builders over construction defects. Meanwhile, home builders in financial trouble have simply abandoned hundreds of customers, many of whom end up paying twice. ‘Contractors and consumers had both better hold onto their chairs,’ says one attorney.”

“Florida law, in fact, carries felony-level punishments for contractors who intentionally misapply construction funds. But proving intent is tricky, and many law enforcement officials consider it a civil matter, not a crime, when a contractor takes a down payment or makes hefty bank draws from a customer’s construction loan, does little to no work and abandons the job. Criminal prosecutors tend to leave abandonment cases in the hands of prosecutors for state agencies like the Department of Business and Professional Regulation. Officials there can do little more than take away a contractor’s license and encourage victims to apply for relief through the state’s Construction Recovery Fund, which can provide limited compensation for homeowners who’ve been harmed financially by a contractor.”

“For years, Florida’s home building industry has fought off most attempts to make contractors more accountable, including killing proposals that would have required licensing bonds or mandated that contractors have more money upfront. This year’s Legislature, however, tightened several requirements, allowing the Construction Industry Licensing Board to establish a minimum credit score for contractors, to require bonds for those who don’t meet the minimum and to require criminal background checks. The Legislature also ordered a review of Florida’s construction lien law due in October.”

The Briny Breezes sage continues:

“The owners of Briny Breezes have chosen to sell their town to a developer for $510 million. The mayor and five aldermen stand to earn millions from the sale. First, however, they have to rewrite the town's growth plan to the developer's specifications, then approve it.”

“The Florida Commission on Ethics said Friday that there's nothing unethical about the mayor and aldermen being in this position. They would benefit from their votes the same way all town landowners would benefit. In other words, lining their pockets based on their willingness to change the growth plan is no different than if they were voting to pave a road that they - like all town residents - would drive on.”

“The ethics panel may be right on the law, but there's a big difference between paving a road and selling for millions. Based on the shares each official has in the corporation that owns the town, the mayor and aldermen would earn a combined $7.9 million from the sale. Mayor Roger Bennett stands to make $2.1 million. Four aldermen would make $1 million-plus each. The fifth alderman would get $876,902.”

“Given those paydays, opponents suspect that the board will do whatever developer Ocean Properties asks. So far, the Briny board has done just that. But the plan put forth by the developers and approved by the aldermen drew 23 objections from the state Department of Community Affairs. The plan for 12- to 20-story condos on the 43-acre barrier island between Ocean Ridge and Gulf Stream offered no coordination with neighbors and no setbacks for tall buildings, and didn't account for employee housing in traffic projections. It failed to consider regional goals by proposing disaster-prone housing incompatible with neighbors.”

The condo-hotel scheme represents the housing bubble so well. Anyone who wasn’t irrationally exhurberent about real estate boom could see that they were nothing more than a ponzi scheme – the modern version of the timeshare. Now, the Orlando Sentinel is reporting on the downfall of the condo-hotel (just as most of us expected):

“Condominium hotels may go down as one of the briefest fads ever to sweep the real-estate industry as the market slumps in Central Florida -- only a year after it peaked.”

“Potential buyers are disappearing and financing commitments are falling flat, leaving condo-hotel developers with an uncertain future.”

“’Our sales were good in the beginning, but it got bad, bad, bad and then even worse,’ said Barry Greer, an owner of The Lexington at Orlando CityPlace. ‘The market was red-hot when we started this, but it folded up before we could close it out.’”

“Greer said nearly 100 people placed deposits on rooms in the 227-unit hotel but then backed out. According to the bankruptcy filing, just 31 units were sold.”

“’Until the market improves, you won't see anything getting built,’ Greer said.”

Today's F@cked Buyer

Thanks to a reader for this today's edition:

1458 FAIRWAY CIRGREENACRES, FL 33413

• 3 Bed, 2 Bath, 1,930 Sq. Ft. SFH
• Bought on August 2005 for $319,99
• On the MLS for $269,900
• Loss before the Realtor® commission: $50,000
• Loss after the Realtor® commission: $66,194

I need your help with this daily feature. Do you know of a F@cked Buyer? Just add the MLS number or the FSBO link in the comments section and I will add it to an this daily update in the future.

Today's Local Real Estate News

Surprisingly, the Sun-Sentinel published a story on how foreclosures affect property values:

“Mounting mortgage defaults across South Florida threaten to hurt more than just those homeowners who lose their properties to lenders.”

“Experts say foreclosures could drag down already sluggish housing prices throughout entire neighborhoods.”

“In a national study published last year, two housing analysts found that for every foreclosure within one-eighth of a mile of a single-family home, property values decline by about 1 percent, and even more in dense developments.”

“The numbers of homeowners defaulting on their mortgages and facing foreclosure are rising steadily across South Florida this year, according to Realestat.com, a Plantation-based company that compiles local housing statistics.”

“The number of Palm Beach County homeowners behind on their mortgage payments topped 1,000 in June, almost a fourfold increase from 259 a year ago. Actual foreclosures were flat last month.”

The South Florida Business Journal reports:

“The housing market in Florida and across the Southeast continues to bottom out and will likely stay weak through 2007, a report issued by RBC Centura economist Amy Goldbloom showed.”

“The Raleigh, N.C.-based bank said it expects housing markets across the Southeast to gradually recover, though Florida and Virginia may lag behind other areas because those markets were hit the hardest by the housing correction.”

“’The South Florida housing market has been hit pretty hard, when it comes to Florida,’ said Rick Perez, regional president of personal and business banking in Florida.”

“He blamed speculation for exacerbating the rise in prices, and said that homes in Orlando and South Florida were the first to zoom up in price, and may be the first to come down.”

Yet with all this news, the Palm Beach Post published a story that once again quotes the Realtor's® mantra, “Now is a great time to buy:”

“Amid proliferating news stories about an underperforming real estate market and a glut of foreclosures, this might seem like a scary time to buy a home.”

“Nevertheless, challenging conditions are also making this a prime time to buy a home in Florida.”

“Several factors are contributing to the state's ‘buyer's market.’”

“Homes are taking longer to sell, with house sales falling 34 percent and condo sales declining 28 percent this May over the same period in 2006, according to the Florida Association of Realtors®. Median home prices are dipping as well, as sellers strive to make a deal.”

Unfortunately, our real estate market has become the laughing stock of the nation. One New Hampshire columnist mentions the Miami market in his column today:

“It was a rough week for investors as markets worldwide took a tumble. The only silver lining, at least for me, was watching CNBC’s bobble head boobs attempt to rationalize the financial fiasco. The gist of their kooky conclusion was that the markets had overreacted. The global economy is in fine shape, they chimed almost in unison.”

“As usual, Larry Kudlow, the grand sultan of shills, shrugged the loss off – proclaiming the “Goldilocks” economy remains intact. In his myopic mind Thursday was merely a minor 2 percent correction.”

“Hey, Larry, as I recall Goldilocks’ was trespassing and in the end it didn’t turn out too good for her. In any case, if you believe Kudlow and his cadre of cretins I have some captivating condos priced to move in Miami. Swampland was once the punch line of that joke, but nowadays swamps have higher valuations than Miami real estate.”

The Miami Herald gives a possible solution to our affordable housing problems:

“For $380 a month, it seems the most anyone looking for housing in Miami could hope to get is, perhaps, a broom closet or a toolshed.”

“But in Little River, Shawnee Chasser, who runs a landscaping company out of a tiny inner city farm, offers what, for some, is a green dream come true: a small and cozy space, including electricity, cable TV and broadband Internet access, in a pithecellobium. In other words, a large tree common in Florida.”

“’I've been renting space out here for a few years now to make some extra income and share the space,’ said Chasser, who lives and works at the Earth N' Us farm, a wooded 1.5-acre wonderland in the middle of a gritty, concrete-heavy neighborhood near the edge of Little Haiti.”

“’$380 A room in a treehouse . . . Yes, a real treehouse. This is a small yet cozy room in a real Treehouse in the middle of paradise which lies in the middle of Miami. It is about 10 minutes from downtown and 10minutes from the beach.’”

EXPOSÉ: The Miami-Dade Housing Agency

PBS recently broadcasted a disturbing investigative report on the Miami-Dade Housing Agency fiasco. Do not miss this one.

Here's PBS's synopsis:

"With the Miami real estate market booming, why were some residents being left out in the cold? With an innovative tax on commercial real estate transactions, money was flowing into the Miami-Dade Housing Agency, the body charged with building affordable housing. But there was a problem: a lot of money was going out, but not a lot of houses were being built. Reporter Debbie Cenziper of THE MIAMI HERALD goes inside the agency's own incomplete records, fills in the gaps, and connects the dots -- exposing mismanagement and an insider's club where backs were scratched and palms were greased."

CLICK HERE TO WATCH THE ENTIRE VIDEO

Today's Local Real Estate News

The Sun-Sentinel ran a human-interest story about a woman facing foreclosure:

“Lester bought her house in Fort Lauderdale shortly after she was diagnosed with breast cancer in 2003. She says she owes $315,000 on it. She can't afford to pay it anymore. If she tried to sell the house today, she says she would probably get $240,000. If she tried to rent it, she figures she'd get $1,300 a month, but her monthly payment is $2,700.”

“Meanwhile, the cancer resurfaced last year. Now her credit-card accounts are being closed. There is at least one lawsuit for nonpayment filed against her. She can't work, because she's still recovering from a second round of chemotherapy and an operation. Her family and friends have helped as much as they can.”

“It's not a nice picture. And so, she shared it. Lester made her story into a video and put it up on YouTube. She sent out a press release about herself. ‘I put it out to the universe,’ she said.”

“The problem is obvious in hindsight — and it belongs to Lester, her lender and to the cancer that prevents her from getting a full-time job. When her home went up to $340,000 in value, she says her lender allowed her to borrow $325,000 against it. Now it's not worth enough to salvage the loan.”

While I feel terrible for Lester's health problems, BCPA.net shows that she only paid $128,000 for her house in 2004. This means that she pulled $198,000 out of her small 2/1 home in just three-and-a-half years. Click here to watch her video. After watching, let me know what you think in the comments area below.

The Miami Herald provided more evidence that population growth in South Florida is a myth (see my previous post on this subject)

“Miami-Dade County faces a 'brain drain' of middle-class blacks who are fleeing because they're anxious over job prospects, poor schools and a lack of affordable housing, according to a new study being released today.”

“Florida International University political science professor Dario Moreno, the study's author, said the exodus bodes ill for Miami-Dade's economy.”

“’Miami-Dade is losing middle-class African Americans. I was shocked that the numbers were so bad.’”

“The latest Census data available affirmed the same trend. About one in four blacks leaving Miami-Dade are black, while just one in 14 new Miami-Dade residents is black."

"Concerns over affordable housing have surpassed education as the community's most critical issue, the report noted. Also, the percentage of blacks who live below the poverty level remained unchanged, while unemployment leaped to 14.9 percent, up from 7.3 percent in 1983, Moreno said.”

More South Florida companies are reporting poor earnings due the housing crunch. The Miami Herald reports:

“Ocean Bank -- the largest commercial bank chartered in Florida -- lost $33.7 million in the second quarter after taking losses on real estate loans that had gone bad.”

“The red ink at Ocean Bank was a further sign that Florida's real estate problems have begun to spill over into the rest of the economy.”

“Ocean Bank, which lent heavily in the condo market, said on Friday that losses for the second quarter that ended June 30 rose to $33.7 million after the bank increased its loan loss reserves to $77.5 million in June. The company, in contrast, earned a profit of $24.4 million in the second quarter of 2006.”

“Miami bank analyst Ken Thomas said the losses at Ocean Bank were an indication of tougher times for the banking sector. ‘This again is a sign that the good times in banking are gone,’ he said. ‘It's one thing to report decreased earnings like BankUnited and BankAtlantic did in recent days. It's another to report a loss.’”

Clueless Jack vs. Well-Informed Jack

Here's an interesting video by PBS's Nightly Business Report that provides some interesting analysis of the South Florida housing market. Jack McCabe, of McCabe Research, provides great insight into the impending foreclosure crisis. Meanwhile, Jack Winston, of Goodkin Consulting, maintains his head firmly buried in the sand (or somewhere else).

CLICK HERE TO SEE THE VIDEO

Today's F@cked Buyer

This South Dade property has been on market for 198 days without a taker:

18000 SW 94 CT, Palmetto Bay, FL 33157

• 3/2, 1369 sq ft SFH
• Bought 6/2005 for $303,200
• On the MLS for $275,000
• Loss before the Realtor® commission: $28,200
  Loss after the Realtor® commission: $44,700

I need your help with this daily feature. Do you know of a F@cked Buyer? Just add the MLS number or the FSBO link in the comments section and I will add it to an this daily update in the future.

Insurance and Taxes are Merely Scapegoats

From time to time, I go to open houses just to see what is selling in the market. When I go, I usually end up talking to the Realtors® about the South Florida real estate market. Months ago, the Realtors® would explain that housing market would rebound as soon as the state legislator and governor fix the property insurance problems.

The Florida Association of Realtors® (FAR) argued the same point back in July 2006:

“Florida's recent housing sales slowdown is in fact partly caused by ‘the lack of affordable or available homeowners' insurance,’ the association contends. The group's research division examined Florida's housing market and concluded that the downturn in home sales since last year can't be fully explained by rising interest rates and the normal cycle.”

“The study was completed during the spring, but Florida's decline in sales has continued, adding to the argument that the insurance crisis is having a negative effect, association representatives said this week.”

When the governor and legislator failed to implement any meaningful insurance reform, Florida’s unfair property tax system became the Realtors® next scapegoat. Now, the proposed super exception is being touted as the latest savior for housing.

Realtor® Glen Ginsburg explains:

“The real estate tax reform amendment goes before voters in January. The amendment does two things to jumpstart the state’s sluggish home sales market: It provides substantial tax breaks for most first-time homebuyers, and it begins to address the ‘locked-in’ effect felt by long-term homeowners who cannot afford to move – even to downsize – because they would be forced to pay substantially higher property taxes. But it also protects long-time homeowners by giving them the option to keep their Save Our Homes protection.”

In some way, Realtors® are correct; Florida’s insurance and property tax rates are onerous and need reform. Thankfully, the Realtor® lobby has been invaluable in fighting for this critical reform.

However, Realtors have made insurance and taxes the scapegoat of current housing downturn even thoug the current conditions have little to do with them. The principal reason for the current woes in the housing market is price – price that was artificially inflated by ridiculously easy credit.

In my option, even if taxes were eliminated and insurance was heavily subsidized, we’d still be facing a housing downturn here in Florida. Why? Because the bubble is bursting everywhere in the United States, even in states that don’t have onerous taxes and insurance.

Regardless of the claim that “all real estate is local,” the current woes stretch far beyond Florida’s borders – far into states that are not hampered by high taxes and insurance rates. Every single state in the Union is affected. What proof?

Provide the following list to any Realtor that claims that “all real estate is local” or tries to scapegoat insurance and taxes:


Alabama: Home-buying firms see no end of eager sellers
Alaska: Residential real estate demand cools
Arizona: Many homeowners facing foreclosure now turning to short sale
Arkansas: Foreclosure Rates Still High
California: Foreclosures Skyrocket In Contra Costa County
Colorado: Lien times for SW Denver
Connecticut: Payments skyrocket as values decrease
Delaware: Foreclosures Rates Soar In First State
Florida: Divorcing in a down market
Georgia: Increasing Rate of Foreclosures Upsets Atlanta
Hawaii: Realtors Predict Home Prices Plateau
Idaho: Ada home sales lag behind 2006 numbers
Illinois: Foreclosure auctions go silent
Indiana: KB Home is leaving Indianapolis market
Iowa: D.M. area weathers housing's ebb, flow
Kansas: Housing industry is in for a long struggle
Kentucky: Kentucky foreclosures up 10.4 percent in June
Louisiana: New Orleans home sellers struggle
Maine: Southern Maine Is Hit Hardest With Housing Costs
Maryland: Low appraisals hurt subprime borrowers
Massachusetts: Mass. housing slump continues
Michigan: Buyers' market prevails in region
Minnesota: Shakopee home sales down 23.7%
Mississippi: County foreclosures spike
Missouri: One in 26 homes in St. Charles County face foreclosure
Montana: Housing boom in Big Sky hits slow down
Nebraska: Housing Market Challenges
Nevada: Again in June, foreclosures hit Nevada harder than any other state
New Hampshire: Rising foreclosures bad economic signal
New Jersey: Residential glass half-empty
New Mexico: NM subprime: Bad, but not as bad as it could be
New York: LI, Queens housing sales still cool
North Carolina: Rebound wears off for home sales
North Dakota: FBI wary of new mortgage scams
Ohio: Number losing homes up 300%
Oklahoma: Enid builders, Realtors say fraud figures are puzzling
Oregon: County sees jump in homes for sale
Pennsylvania: Sale listings for midstate homes rise
Rhode Island: The impact of speculation on R.I. real estate prices
South Carolina: Charleston area awash with condos for sale
South Dakota: Maxed-Out Mortgages Cause More Foreclosures
Tennessee: Foreclosures up locally
Texas: Area home deals fall for second month as subprime woes weigh on market
Utah: Home-for-sale signs stack up
Vermont: Housing sales indicate heyday has passed
Virginia: Area still trying to shake off housing slump
Washington: Pierce County property not as hot
West Virginia: Greenbrier officials ponder affordable housing shortage
Wisconsin: Home sellers see less profit
Wyoming: Cheyenne, Wyo.: Homes stay on market longer

Today's Local Real Estate News

The Palm Beach Post reports on the tightening credit:

“Lenders once eager to extend credit are seeing mortgage defaults pile up and are tightening loan standards in response. While there are plenty of would-be buyers, the number who can qualify for a home loan is shrinking.”

“The pool of available buyers also is drying up: 1,143 buyers moved in during the second quarter of this year, down 29.6 percent compared with the second quarter of 2006.”

Even though they are seemingly unaffected by the real estate market, another company headquartered in South Florida is blaming poor earnings on the housing market:

“Office Depot (NYSE:ODP) Inc., the nation's second-largest office products retailer, said Thursday its profits dipped 8 percent in the second quarter as weak sales in North America offset double-digit growth in international revenues.”

“The Delray Beach-based company said North American sales were hurt by the continued weak economy, with slumps in furniture and technology sales due to changes in the housing market and higher fuel and construction costs.”

“'This trend significantly impacted our furniture business which continued to experience soft sales,' North American retail division president Chuck Rubin said during a conference call.”

“Rubin said the company is 'seeing early indications of a tough retail environment' for the next quarter because of slowed consumer spending.”

The Sun-Sentinel explained how the housing downturn is affecting the overall market:

“It was one of the worst days of the year on Wall Street Thursday, when investors' worries about the housing market and the subprime mortgage crunch deepened.”

“Stock prices have been on an unusually stable path for much of the year since February, rising on a stream of strong company profit reports. Even as the housing market meltdown continued and foreclosures were on the rise, investors seemed to count on low interest rates and a wave of leveraged buyouts to continue to lift stocks.”

“The bottom dropped out Thursday.”

"A significant worry had emerged Wednesday, when the nation's largest mortgage lender, Countrywide Financial Corp., said late monthly payments were increasing among borrowers with good credit who had taken out home equity loans."

“That shook investors because, previously, the trouble in mortgage lending was limited to the riskiest borrowers who had subprime mortgage loans. Many of those borrowers have been losing their properties in foreclosures.”

Today's F@cked Buyer

Thanks to a reader for this today's edition:

12200 NW 2ND ST, Coral Springs, FL 33071

• 4/2.5, 2,493 Sq ft., SFH with pool
• Bought on 8/15/2005 for $510,000
• On the MLS for $450,000
• Loss before the Realtor® commission: $60,000
• Loss after the Realtor® commission: $87,000
  

I need your help with this daily feature. Do you know of a F@cked Buyer? Just add the MLS number or the FSBO link in the comments section and I will add it to an this daily update in the future.

Today's Local Real Estate News

The Florida Association of Realtors® released data on existing home sales yesterday. Even with very little to work with, they still managed to spin the absolutely dreadful data by comparing to 2002 data:

“ORLANDO, Fla. – July 25, 2007 – Despite favorable mortgage interest rates, strong job growth and other positive economic conditions, statewide sales of existing single-family homes in Florida totaled 12,954 in June and were closer to activity levels in June 2002 – prior to the housing boom years – than June 2006 figures when 18,607 homes sold for a 30 percent decrease in the year-to-year comparison, according to the Florida Association of Realtors® (FAR).”

“Florida’s median sales price for existing single-family homes last month was $243,200; a year ago, it was $256,200 for a 5 percent decrease. The median is the midpoint; half the homes sold for more, half for less. In June 2002, the statewide median sales price for single-family homes was $142,400, for an increase of 70.8 percent over the five-year-period, according to FAR records.”

“In May 2007, the national median sales price for existing single-family homes was $223,000, down 2.4 percent from the previous year, according to the National Association of Realtors® (NAR). In California, the statewide median resales price was $591,180 in May; in Massachusetts, it was $355,000; in Maryland, it was $312,683; and in New York, it was $239,000.”

“Existing home sales are expected to recover in 2008 and pick up by the end of this year, according to NAR’s latest market outlook. ‘It appears some buyers are simply waiting for more signs of stability before they get serious about getting into the market,’ says NAR Senior Economist Lawrence Yun. ‘The market is underperforming when you consider positive fundamentals such as the strength in job creation, economic growth, favorable mortgage interest rates and flat home prices.’ "

“Sales of existing condominiums in Florida also decreased last month, with a total of 4,004 condos sold statewide compared to 5,532 in June 2006 for a 28 percent decline, according to FAR. The statewide median sales price for condos last month was $206,100, down 3 percent from June 2006’s condo median price of $213,200. NAR reported the national median existing condo price was $228,200 in May 2007.”

Locally, the Miami Herald, the Sun-Sentinel, and the Palm Beach Post reported on their respective counties:

For now, the median price of a single-family house in June was $371,600 in Miami-Dade, a drop of 2 percent from June 2006 and 7 percent from May. There were bigger price swings for condos. Miami-Dade's median price was $275,500, up 7 percent and 1 percent from May.

But the big story remains the ongoing dearth of sales activity. Existing Miami-Dade condo sales plummeted more than 50 percent in June from the same month last year and 15 percent compared to May. Similarly, the number of existing Miami-Dade single-family houses sold in June plunged 47 percent compared with a year ago. Sales were off 5 percent from May.

Sales of existing homes in Broward County tumbled 22 percent last month, to 674 from 861, the Florida Association of Realtors said Wednesday. But the median price of an existing home in the county rose a modest 1 percent or $4,600, to $382,000 from $377,400 a year ago, the association said. Tallahassee and Ocala, north of Orlando, were the only other areas in the state to have median price increases in June.

Sales of existing homes in Palm Beach County declined in June, but not as much as in many other parts of the state, according to a Florida Association of Realtors report released Wednesday.

Still, sales of existing single-family homes fell 19 percent when compared with June 2006, and the median price took a tumble to $377,900 from $405,500. It was the first significant drop - 7 percent - in home prices since the market started cooling off from its unprecedented run-up two years ago.

Of particular interest is the human interest part of the Sun-Sentinel article:

"June Bechthold and Allan Sacks have been trying to sell their two-bedroom home near the water in Deerfield Beach since January. They originally asked $434,900 but have since dropped the price to what they hope is an eye-catching $387,387."

"The couple has had only one offer, and it was too low.'We're not trying to get top dollar,' said Bechthold, 65, a retired volunteer services coordinator. 'We're just going to hang in there.'"

Fortunately, we can look up June and Allan’s home on BCPA.net and see that they only paid $157,990 for their home back in December 1997. So, they stand to make a sizeable profit even after their "eye-chatching" price drop. However, I doubt they will be selling their 2/2 dated home any time soon. Keep hanging in there, June; it may be a decade at your current price.

With all that, I thought the most interesting and telling story of the day comes from a South Florida company that one would think is unaffected by the housing crisis. Following an earnings release that contained lower-than-expected revenue, AutoNation explained how the housing market affected automobile sales:

“Mike Jackson, AutoNation's chairman and chief executive, pointed to the continued housing slump in California and Florida for much of the pain. Those two states account for about half of AutoNation's new-auto sales and about 20% of the auto industry's new vehicle sales nationwide.”

“In California, the nation's largest auto market, sales of new and existing homes and condos plummeted 33% in June from a year earlier, according to DataQuick, a real-estate research firm. Foreclosures in the Golden State have also spiked, with the number of default notices issued during the second quarter rising to its highest point in more than a decade, DataQuick says.”

“’A key force behind consumer spending in recent years was the perceived growth in household wealth consumers had from the value of increasing home prices and readily available home equity credit,’ Mr. Jackson said. ‘With the slumping housing market, consumers have been less willing to purchase big-ticket items, including vehicles.’ Mr. Jackson said he expects weak auto sales to persist amid the continued housing correction."

"The housing slump, along with high fuel prices, has hindered auto sales throughout much of the year. Detroit's auto makers have borne much of that pain as consumers shy away from pickups and sport-utility vehicles. In addition to sapping consumers of equity and outright cash for vehicle purchases, the housing slump damps sales of profitable pickup trucks as home construction slows.”

Today's F@cked Buyer

Starting today, I am adding a new daily feature called "Today's F@cked Buyer.'' I borrowed the term from another great housing-related blog, Housingbubblecasualty.com. On a daily basis, I will highlight a South Florida home that is currently selling for far less than its original purchase price. Here's our intial F@cked Buyer:

8697 NW 1ST ST, Coral Springs, FL 33071

• 3/2, 2,000 Sq ft., SFH with pool
• Bought on 11/8/2005 for $424,900
• On the MLS for $369,000
• Loss before the Realtor® commission: $55,900
• Loss after the Realtor® commission: $78,040

I need your help with this daily feature. Do you know of a F@cked Buyer? Just add the MLS number or the FSBO link in the comments section and I will add it to an this daily update in the future.

The Myth of the Median Price

Today, the Florida Association of Realtors® (FAR) announced that median price of homes in Broward County increased by 1% over one year ago ($382,000 from $377,400 a year ago). How can that be? The inventory is ballooning, sales are miniscule, foreclosures are exploding, the credit markets are restricting, and people are migrating out of Florida. How could the price of homes increase when all this is happening?

FAR is able to announce this price increase because they use the “Median Sales Price” as their measure. Using a “median” as a principle statistic, especially in a slow market is problematic.

First, consider how median sales price is calculated: FAR takes the list of all homes sold in Broward County during a particular month, sorts them in order of sales price, and then picks the price in the middle as the median (50% of homes sold for more than median and 50% sold for less).

The problem with this measure is it merely shows where sales have been most active. When credit markets tighten, the poor are much more likely to be affected than the rich. Therefore, the poor are much less likely to buy homes. Similarly, when we experience an economic downturn, the poor are also more likely to be affected and are less likely to buy homes. This tells part of the story – the tighter credit markets and the economic slowdown is causing less sales activity among less expensive homes.

A slowdown in investment activity also disproportionately affects sales activity among less expensive homes. Investors are much more likely to take a gamble on a two-bedroom townhouse than a 4000 square-foot, five-bedroom single-family home. So, when investors abandon a market, sales activity among less expensive homes slow more significantly.

That exactly what is happening here in South Florida – expensive homes are still selling to those who are not affected by the economic downturn and the tighter credit markets. At the same time, less expensive homes are no longer getting snatched up by eager investors.

So, what’s a better measure than median sales price? I think that median asking price is a much better measure. Asking prices, although not perfect, tell us much more about the overall market, not just the parts of the market with the highest sales activity.

Median asking price tells a much different story. The median asking price in the Miami MSA (Dade, Broward, and South Palm Beach) fell from $373,475 in June 2006 to $333,500 in June 2007 – a 10.7% decrease. Anyone who follows the local market closely know that this is a much closer approximation of reality that FAR’s claim of a 1% increase.


The following shows the movement median asking price for the Miami MSA (Dade, Broward, and South Palm Beach) since April 2006:

I doubt FAR is going to show off this graph any time soon.

If you're interested in this topic, I found a pretty good article on real estate statistic in a surprising place, the website of Texas Association of Realtors.

Kendra Todd on Miami's Condo Glut

A reader sent me a link to the great video clip of Kendra Todd, of The Apprentice fame, discussing the condo glut in Miami. Click here to see the clip. This is the same Todd that told us back in November 2006 that prices would recover within 12 months. That clip is here.

Today's Local Real Estate News

The Real Estate Downturn is Affecting the Rest of the Economy

Florida legislators are calling a special session in September to determine how to slash the State’s budget in response to reduced revenues. The Miami Herald explains:

“Even though legislators passed a new budget in May, collections of state sales tax -- the major revenue source -- have consistently fallen below forecasts. Although Florida can borrow money for some things, the state Constitution requires a balanced budget.”

“Normally conservative state forecasters had already projected that taxes on real estate documents would decline this year but didn't seem to anticipate the fast pace of the state's economic slowdown, which is reflected in the low volume of sales statewide and declining corporate income taxes.”

The Bradenton Herald reports:

“’We are now confronted with the challenging but necessary task of reconciling our budget with the anticipated reductions in state revenues,’ Rubio said in a memo to House members.”

“The action was all but inevitable, considering a budget shortfall of more than $1 billion. That is the product of a depressed real estate market and weakened retail sector, which together have shrunk state revenues from documentary stamps and sales taxes.”

The private sector is also seeing revenue shortfalls. Recent earnings announcements highlight the deep economic impact of our housing downturn. BankAtlantic Bancorp, Inc. explained in their announcement today:

“Approximately twelve loans in this portfolio, aggregating approximately $135 million, are characterized as 'Builder Land Loans'. 'Builder Land Loans' were made to borrowers who have agreements to sell the underlying collateral to national and local home builders pursuant to option contracts. However, due to the deterioration in the Florida housing market, some of these option contracts have been cancelled or modified. We continue to monitor the impact of the weak homebuilding environment on this portfolio. Although our non-accrual loans declined $3.9 million in the quarter from the first quarter of 2007, we may have additional downgrades and additional provisions relating to the portfolio if the housing market does not improve.”

Whitney Holding Corp. explained that their reduced earnings were partially due to Florida’s real estate market:

“’A decrease of approximately $100 million in loans serviced from Florida operations was not unexpected in light of market conditions that are restraining the pace of new real estate project financing in Florida,’ the release said.”

TIB Financial Corp. also explained that their reduced earnings were due to “softness” in the residential real estate market:

“We continue to closely monitor economic activity in our regional and local markets which have slowed considerably due to the softness of the residential real estate market. Our operating environment remains challenging and our loan growth is muted due to loan payoffs and a lower level of loan origination and funding during the first half of the year. During this period of slower economic activity we are maintaining our disciplined underwriting standards and prudent risk assessment practices.”

The real estate slowdown has forced some Realtors® to find new and creative ways to make money. Palm City Realtor®, Jim Weix certainly found a creative way. Somehow, Mr. Weix convinced a Nigerian email scammer to send him $51,000:

“The 57-year-old real estate broker knew the story was bunk but ‘thought it would be fun to play along’ with a man named ‘Bryan Lewis,’ who claimed he would be helping with the transaction.”

“After a series of phone calls and e-mails, Weix thought the game was over last Wednesday when he told Lewis he would never disclose his Social Security number or send him money.”

“’I told him, I own a real estate company in Martin County for God's sake. We're in a depression,’ Weix said. ‘I didn't think I'd hear from him again.’”

“But just a few days later, Weix said he began receiving money from Lewis. It came in two wire transfers to separate credit cards — one for $29,000 on Saturday and another for $22,000 on Sunday.”

“The money virtually wiped out all of the debt Weix had accumulated on the two cards.”

Researching local listings

Have you ever wanted to determine the approximate value of a property in South Florida?

Years ago, consumers were completely reliant on Realtors® to research the market (We had to rely on the likes of Suzanne). We had no idea if we were getting accurate or complete information. Fortunately, the Internet provides us with a huge amount of information on the local market.

In my opinion, the best site to start your search is Ziprealty.com. Although it requires registration, I prefer this site far more than Realtor.com. Ziprealty.com has features that Realtor.com does not including:

• Advanced search features including the ability to search by address, proximity, and MLS #
• Listing of HOA fees for most property when applicable
• Display of listing dates and days on market
• Display of price decreases and increases on the properties
• A great automatic email system that can be set to notify you when new listings appear and when your saved listings are changed
  

At the same time, I have found some of their online information highly unreliable –specifically their “Sold Homes” and “Estimated Value” features. Both of these features pull data from Zillow.com. Zillow.com is infamously inaccurate and, in my opinion, should never be trusted as remotely useful data. Also note that I have never used Ziprealty.com beyond its online search. I have no idea if their Realtors® are worthwhile or not.

To determine recent sales data on properties, it’s always better to go to the county’s property appraiser for recent sales information. The following are links to our local appraisers:

Broward County
Miami-Dade County
Palm Beach County
Monroe County

Recently, I used these sites to research a Fort Lauderdale loft a friend of mine was casually considering after seeing the following Craigslist.com advertisement:

“$359000 2/2 NEW YORK STYLE LOFT DOWNTOWN-Nola Lofts. BEAUTIFUL NEW YORK STYLE LOFT IN THE HEART OF DOWNTOWN FORT LAUDERDALE WITH POLISHED CONCRETE FLOORS AND FLOOR TO CEILING WINDOWS. CLOSE TO LAS OLAS AND BEACHES.BRING ALL OFFERS!!”

If you have a Ziprealty.com account, you can see the MLS listing here. The listing shows that unit has been on market for 46 days (as of today). It was originally listed for $389,000. Most importantly, it shows the unit’s outrageous monthly homeowners’ association (HOA) fees of $696.

I also used Ziprealty.com’s address search feature to find other 2/2 lofts in the same building. Unit #203 has been on the market now for 223 days and has dropped its price five times, all the way down to $319,000. Unit #705 was recently listed for $444,000.

On the Broward County Appraisers site, I was able to see that the unit was purchased for $329.000 back in March 2005. The site also shows its current annual property tax bill of $6,817.80 (if homesteaded, this amount would go down approximately $500 per year).

BCPA.net also shows that Unit #705 was purchased just 8 months ago for $306,000 prior to the recent accelerated market drop (down approximately 5.8% since this December 2006 purchase). In other words, based on comparable sales and the recent market drop, this Craigslist listing should probably be priced closer to $288,252.

We can also use the information we gathered to estimate of monthly costs (to calculate monthly mortgage payment, this is a good site):

• Mortgage (Assuming 90% financed, 6.5%, 30-year fixed): $2042.21
• HOA Fees (Assumes HOA covers property insurance): $696.00
• Taxes (Assuming property is homesteaded): $526.48
• Total Monthly Cost: $3,264.69

My friend would have to pay over $3,000 a month for a 2-bedroom loft -- a loft that is probably overpriced by $70,000 and will undoubtedly depreciate over the next few years? No wonder consumers have nearly stopped buying South Florida real estate.

If you have any other useful online research site, please let me know.

When is the right time to buy? (Part 2)

One of the easiest ways to determine the direction of residential real estate market is to look at current inventories or homes that are listed for sale. A few years back, we were dependent on the Florida Association of Realtors® to provide this data -- data that was often skewed to promote the “buy now” agenda.

Fortunately, there are a few websites that grab data off the Realtors’® proprietary database of homes for sale, the Multiple Listing Service (MLS). My favorite site to track movements in MLS listings is Housingtracker.net, which tracks total MLS listings in the Miami MSA (Dade, Broward, and South Palm Beach Counties). Using this data, we can see what’s been happening to inventories in the Miami MSA since April 2005:

While this record increase is alarming, it only tells part of the story. This inventory only includes existing homes listed with a Realtor®. It does not include For Sale By Owner (FSBO) homes, homes that will soon be added to the market through foreclosure proceedings, and new construction.

Nationally, the inventory of the unsold new homes inventory is at a 15-year high. Likewise, South Florida must be near a record high with 20,000 new condos soon to hit the market in Dade County alone.

So, we can see that the supply of available homes is ballooning to record levels. Anyone who took Economics 101 learned that increases in supply causes prices to drop. Yet, as expected, Realtors® are telling their potential customer to buy now even though prices are rapidly dropping. Would you use a stockbroker who encouraged you to “buy now” when the value of a particular stock in the midst of a freefall?

Yet, Terrabella Realty employs the-buy-now-while-prices-are-dropping argument flawlessly:

“At the beginning of 2006, however, the national real estate market began to turn due to rising interest rates and a drastic slowdown in home value appreciation. Former hot market areas like Miami and Ft. Lauderdale were especially hard hit by this turn, and as a result the South Florida real estate market is in a heavy period of transition. Overdevelopment and an influx of too many quick-flip real estate investors have left the major markets of South Florida with too much inventory, and South Florida real estate sellers now have to compete to find buyers in a way that most have never seen before in this area.”

“South Florida real estate buyers are having the best time they’ve had in years especially those who are purchasing primary residences and even some vacation home buyers. Interest rates are good, the selection is phenomenal, and all that property inventory means sellers are now competing for you to be their buyer instead of the other way around. With so many options, you’re bound to find the perfect dream home in some of the best areas of Miami, Ft. Lauderdale, and Palm Beach. If you’re a buyer who’s looking to call South Florida home, then the time is right to buy on primary residences and any vacation investment properties!”

Bizarre logic, but I guess it must be working for them.

As a consumer considering the market, how should you use the inventory numbers to predict when it is a good time to buy? In my opinion, potential buyers should wait until inventories drop significantly before buying – hopefully consecutive inventory decreases over four months.

Of course, inventory levels should not be the only gauge to determine a good buying opportunity. In upcoming posts, I will provide other important factors one can use to predict the direction of the market. I will also periodically update the chart to show movements in the inventory levels.

The Myth of Population Growth (South Florida's Housing Savior)

As the market started to turn in 2005, anxious Realtors®, builders, mortgage brokers, and bankers assured us that South Florida was bubble-proof because of continued population growth.

Back in 2005, Mark Vitner, a Senior Economist with Wachovia Bank argued that the housing boom was sustainable due to population growth:

“Population growth has soared in recent years. The Sunshine State has added 1.35 million residents over the past four years, including 400,000 new residents in 2004 alone. The bulk of Florida’s population gain comes from net in-migration, which accounts for 87 percent of the state’s annual population increase. Most of these new residents are prime working-age adults, who are relocating to take advantage of the state’s favorable employment conditions. Population growth should remain strong through the end of the decade, with gains averaging around 370,000 new residents per year.”

The Real Estate Press, presented the now infamous urban legend on 1,000 people moving to Florida each day when the wrote back in December 2005:

“Ft. Lauderdale, like most of Florida is a thriving market, with prices on the rise. The attractive job markets and attractiveness of Florida make it a hotspot for new residents. It’s estimated that 1000 people move to Florida each day. This can only serve to increase the need for new housing, as well as making resale prices on homes jump. The US Census speculates that Florida population will be the third highest in the country by 2011.”

Back in April 2005, USA Today was also on the population boom bandwagon. They wrote:

“Florida 's developers and real estate brokers are flying high amid an unprecedented condo-building and -buying wave they hope won't end anytime soon. The frenzied spending is coming to a large extent from outside Florida — well-to-do baby boomers from the North nearing retirement, and foreigners whose money for real estate has gained potency from a weak dollar.”

“Powerful economic and demographic forces are driving the boom. Developers see an army of aging baby boomers looking for a warm place to vacation or retire. Low interest rates have made big mortgages more affordable. In the past five years, real estate has been a far a better investment than the stock market.”

However, the population boom urban legend seems to be deflating as quickly as the housing bubble. Today, the Sun-Sentinel reported:

“In half of Broward's cities, more people are leaving than moving in, census figures show.”

“‘The losses can be related to buildout and the aging of the population as children leave the house and head somewhere else,’ said Stan Smith, director of the Bureau of Economic and Business Research at University of Florida.”“Yet the population drops confirm the area's high cost of living is making Broward less attractive to families, say real estate analysts and demographers.”

There’s plenty of other evidence that the population boom was a farce. Palm Beach County, Broward County, and Dade County all faced “unexpected” decreases in public school enrollment. Florida Atlantic University recently had their first decrease in enrollment ever.

The St Petersburg Times recently ran an article that best put to rest the population boom myth:

“So it is across the state. Squeezed by rising property taxes and homeowners insurance rates, and frustrated by crowded roads and schools, increasing numbers of residents are moving from Florida, which since World War II has been one of America's favorite states to move to. To be sure, Florida remains a strong lure, particularly for retirees, but evidence is mounting that the migration boom it experienced in the first half of the decade is over:

- Public school enrollment, expected to climb by nearly 49, 000 students last school year, dropped by 3, 571, the first decline in 24 years.

- The number of Florida drivers seeking licenses in other states has increased since 2005, while the number of out-of-state drivers moving to Florida has fallen.

- Three of the nation's largest van lines moved more customers out of the state than into it last year, reversing a decades-long trend.”

Right Now

A great video created by another blogger, longislandbubble.com, that is extremely relevant to my post earlier today:

When is the right time to buy? (Part 1)

Realtors® are notorious for always claiming that “now is a great time to buy.” The website of Andy Weiser, a Fort Lauderdale Realtor® proves this point perfectly. It’s actually quite hysterical.

In a post on August 20, 2006, Mr. Weiser explains:

“Some people shopping for homes in Fort Lauderdale have been waiting to buy, hoping home prices will drop, hoping the state legislature would alter the property tax system or hoping for some dramatic change in property insurance rates. None of that is going to happen any time soon and prices are not going down.”

“If you are ready to buy a home in Fort Lauderdale, I urge you to go ahead and buy now.”

Then, on December 20, 2006 on the same website, Mr. Weiser completely contradicts himself when he declares:

“There is no doubt that the residential real estate market in Fort Lauderdale has undergone a price correction. More homes are on the market and prices are increasing less dramatically than in the past five years.”

“All of this is good news for home buyers in Fort Lauderdale. If you have been waiting for the market to slow down and for the selection of homes to expand, this is your opportunity to buy.”

Like most Realtors®, Mr. Weiser thinks consumers should buy when prices are going up as well as when prices are going down!

However, regardless of the views of certain Realtors®, there are times that consumers should never buy a home. I believe now is one of those times. In fact, I think “now” is one of the worst times in South Florida history to buy. In the coming weeks, I will post a number of arguments to show that all consumers should remain on the sidelines, at least for now.

To set the stage, let’s look at how buying “now” could have a long-term negative effect on your finances. To illustrate, let’s use the same numbers I used in a previous post entitled, “Should I buy or should I rent.”

Suppose we have two consumers, Joe and Susie. Joe is convinced by a Realtor® to “buy” this particular townhouse “now” for its asking price of $254,912. Susie, on the other hand, decides to wait and continues to rent the same townhouse next door. If a job transfer forces Joe to sell his townhouse after two years, who comes out ahead? Buyer Joe or renter Susie?

Joe and Susie's success depends entirely on what happens to the price of the townhouse after two years. Here’s the potential profit (loss) for Joe's investment:

In other words, if the townhouse doesn't change in value at all, Joe will end up spending $25,900 more than Susie over the two-year period and he will have to come up with $9,405 in cash when at the closing.

In my opinion, the most important part of the table is the last column because it shows the massive risk Joe took when he bought his townhouse. Under the worst case scenario, if the market drops at a 15% rate over the next two years (as I fully expect), Joe will have to pay $75,899 cash just to get out of his “investment.”

This table shows why it is so important for a consumer to avoid buying during a falling market. Doing so could potentially make the consumer a long-term prisoner to his mortgage.

In later posts, I will show why I believe the South Florida market drop by at least 15% annually during over the next two years.

Today's Local Real Estate News

Unemployment Spin

I thought it was interesting how the three major newspapers in South Florida reported recent increases in unemployment rates due to the housing downturn. This is a perfect example why you should not rely on a single news source for economic news. Here are the opening paragraphs of the newspapers:

The Sun-Sentinel reports: “Unemployment in South Florida shot up sharply in June, as the troubled construction industry continued slicing payrolls. The ranks of the unemployed grew by almost 14,000 in Broward, Palm Beach and Miami-Dade counties in June, compared with May.”

“That's a 57 percent increase in the number of people without jobs in South Florida over this time last year. In June 2006, the number of unemployed grew by 8,823.”

The Palm Beach Post reports: “Jobless rates spiked in June in Palm Beach County and the Treasure Coast, hitting their highest point in two years.”

“The culprit: layoffs in the housing sector, which in the past two years has seen its blistering boom turn to withering bust. While construction employment in Palm Beach County had been weathering the housing downturn, job losses accelerated in June.”

“The county's construction employment shrank by 3.3 percent, or 1,600 jobs, from June 2006 to June 2007. That's after a year-over-year loss of 800 construction positions in May - the first month the construction industry's year-over-year employment shrank.”

The Miami Herald reports: “Despite the continued housing slowdown, Florida's unemployment rate remains relatively steady and job growth is fairly strong, economists said.”

“The state's unemployment rate for June was 3.5 percent, nearly unchanged from May and again below the national rate of 4.5 percent, according to state data released Friday.”

Obviously, the Miami Herald is trying to spin the recent bad news about unemployment in the best possible light. On the other hand, the Sun Sentinel has made the jobless picture look particular bleak. Reality falls somewhere in between; Florida’s housing-related employment is tanking while other sectors seem to be doing quite well. Unfortunately, most readers would only pick one of the three articles and would be left believing the particular newspaper’s biased spin.

In other news, Channel 6 reports that South Florida had the highest cost of living increases in the United States: “National Consumer Price Index statistics show that South Florida is experiencing the highest cost of living increases in the United States.”

“Most residents agree that South Florida's sun and surf is a slice of paradise, but the lifestyle comes with a price. ‘It's not feasible to live here anymore,’ one resident said. ‘We make more money, but it costs more to live here.’”

Suzanne Researched This!

This commerical epitomises this whole housing bubble so well. Don't miss this one:

Today's Local Real Estate News (We're # 1!)

Channel 10 is reporting a dubious distinction, “A real estate analyst for Forbes.com on Thursday explained why he ranked Miami the No. 1 riskiest real estate market in the country. He blamed the unflattering ranking on escalating insurance costs, a high number of adjustable rate mortgages, unaffordable housing prices and high vacancy rates.”

Of course, Channel 10 needed to balance its report with the Pollyanna views of local Realtor®, Ronald Shuffield, president of EWM Realty. “Shuffield said he's convinced the slow down is only temporary. He said Miami is still a hot spot for prospective buyers across the country and globe.”

This is the same Shuffield who predicted back in Second Quarter of 2005 that, “As the demand increases for homes and the supply of developable land decreases, South Florida values are going to rise. It’s that simple.” I guess it was so simple that Shuffield completely missed the 20% decrease in median prices since he made his projection.

Bloomberg provided a particularly devastating assessment of the South Florida condo market: “The oversupply will force prices down as much as 30 percent, the worst decline since the 1970s, and help push Florida's economy into recession as early as October, said Mark Zandi, chief economist at West Chester, Pennsylvania-based Moody's Economy.com, who owns a home in Vero Beach, Florida.”

“’Florida is the epicenter for all the problems that exist in the housing industry,’ said Lewis Goodkin, president of Goodkin Consulting Corp. and a property adviser in Miami for the past 30 years, who also foresees a recession. ‘The problems we have now are unprecedented and a lot of people will get burnt.’”

“Thirty-seven new high-rise condos and 20,000 new units are being built in Miami's 1,040-acre downtown, where sales fell almost 50 percent in May, according to the Florida Association of Realtors. The new units will join the 22,924 existing condos in Miami-Dade County that were for sale in April, according to Jack McCabe, chief executive officer of McCabe Research & Consulting LLC in Deerfield Beach, Florida. That's the most unsold units since McCabe began tracking sales in 2002.”

The Palm Beach Post reported that unemployment is rising due to the housing bust: “Palm Beach County unemployment rose to 4.1 percent in June from 3.3 percent in May, the Florida Agency for Workforce Innovation said today.”

“One culprit: Layoffs in the housing sector. In one example of that trend, DiVosta Building Corp. has laid off 430 workers in Palm Beach Gardens since December.”

“The state's construction industry shed 18,000 jobs over the past year, state officials said, marking the first time since 1992 that the state has experienced four consecutive months of year-over-year declines in construction jobs.”

And, just when you think we have used up our final nails in the housing coffin, The Miami Herald is reporting that property insurers are looking for more rate increases: “Now, in just the past two months, nearly two dozen companies have filed for rate increases ranging from 9 percent to 95 percent.”

“To make matters worse, the state's largest private insurance company, State Farm, now says it won't renew 50,000 policies along Florida's coasts next year. ‘Someone has a lot of explaining to do,’ said Rep. Dan Gelber, a Democrat from Miami Beach and the House minority leader. ’We have to be on these guys 24/7.’”

Should I buy or should I rent?

Despite the constant drone of Realtors® and their claims that “now is the time to buy.” at current prices in South Florida, it is nearly always better to rent than it is to buy.

Let’s consider the following example. Let’s compare renting this 2/2.5 townhouse in Pembroke Pines (Realtor.com link). You can rent this unit for $1275 per month. Assuming that you pay $25 a month in renter insurance, your total monthly cost to live in this unit will be approximately $1300.

Instead, you could buy the identical unit for $254,912 (two doors down). Your monthly cost on this unit would be:

Mortgage = $1,611.22 (Assumes a 6.5%, 30-year fixed loans)
Homeowners’ Association Fee = $101.00
Property Tax = $321.93 (Based on the current assessment with homestead exception)
Insurance ≈ $200.00
Less Federal Tax Deductions = -$246.90 (Assumes a 15% incremental tax rate)

Total monthly cost after the Federal tax advantage = $1987.25

That’s a $687.25 difference. Why in the world would you buy this rapidly depreciating asset when it is so much cheaper to rent?

Suppose you rent this property for 5 years and invest the difference into a money market earning 4% per year. At the end of 5 years, you’ll have $45,563.97 in cash.

Goodbye Housing Bubble

Today's Local Real Estate News

The Palm Beach Post reports, "The average rent in the county from April through June was $1,156, according to RealFacts. That is an average of all bedroom and bathroom combinations.
It is a 1.6 percent increase over the same period in 2006, according to the second-quarter report."

"Meanwhile, the occupancy rate for that period was 90.7 percent, down nearly 3 percent from a year ago, according to RealFacts, which tracks rents and occupancy rates at more than 12,000 rental communities nationwide in 15 states. "

On the other hand, the biased Sun-Sentinel reports the complete opposite of The Palm Beach Post and tries to claim that rents are going up in South Florida. They write, "'There's no question rents have gone up,' said David Levin, of the Delray Beach real estate consulting firm David Levin & Associates. Florida's previously hot residential real estate market drew in speculators, and the stock of rentals went down."

Of couse, the Sentinel never bothered to do any real research. Had they actually looked at rental prices, they would have seen what every other renter in South Florida has seen, an market absolutely flooded with amazing values on rentals. Instead, the Sentinel only quoted Levin, someone who has a vested interest in spinning postive real estate news.

A report in The South Florida Business Journal supports my claim that advertising dollars from Real Estate is driving local reporting. In the article, they state, "'Advertising results worsened across the board in the second quarter of 2007, but particularly in real estate advertising,' he said. 'Nearly three-quarters of our advertising declines are coming from California and Florida, two regions that benefited strongly from the real estate boom, and are likewise being hurt in the subsequent real estate slowdown.'"

CBS4 presented an ridiculously biased segment that could have passed for a Realtor® infomercial. Make sure to watch the video. Of course, just one day ago, the same news station presented another report on the foreclosure crisis in South Florida (here's the link). So, let me get this straight -- now is a great time to buy, yet thousands of foreclosed properties are about to hit the market? Does this make any sense?