Investors Fueled Price Explosion in Naples, Other Southwest Florida Housing Markets
Naples, a once-sleepy retirement haven on Florida’s west coast, was arguably the hottest housing market in the country until 2005.
Area home builders held lotteries to determine who could purchase homes in new gated communities. In the older neighborhoods, buyers were snapping up modest ranch houses and cottages soon after they were listed for sale.
The median home price more than doubled between 2000-2005, to $482,400.
The frenzied run-up prompted economists at banking concern National City Corp. and the economic consulting firm Global Insight Inc. to label Naples “the most overvalued” housing market in the U.S. in the second quarter of 2005, a dubious honor it retains.
Today, prices are dropping, the number of unsold homes on the market has swelled to more than twice the national average and investors are in full retreat and scrambling to unload their properties.
Such a crescendo of activity might have prompted some to pull out of the Naples housing market altogether. But plenty of investors, who purchased homes to rent or flip, continued to buy and sell through the height of the boom.
One was Marjorie Dresner. The Canadian native believed that Naples, with its laid-back, balmy atmosphere, would long be an attractive market. A prolific investor, she purchased dozens of houses in recent years, many of them with a partner. One of them cost her $1.7 million.
The early run-up in real estate prices in Naples is based on basic economic fundamentals. Low interest rates, the creation of new types of Florida mortgage loans meant to encourage mass borrowing, and a strong economy all triggered a wave of home buying by making ownership affordable for the masses.
But it’s increasingly evident that investors and speculators here and elsewhere played a greater role than previously thought in pumping up the real estate bubble — especially near the end of the run.
Economists cite individual investors for pushing prices up excessively and lenders for lowering their credit standards. Borrowers were able to purchase homes with little or no money down and often without having to verify their income and financial assets. The bad credit Florida home loan explosion set the region up for a fall, and in many areas, builders made it worse by putting up too many houses for the market to absorb.
“If you look at the last two contractions you can see what caused it: high mortgage rates and a slumping economy. Today we don’t have that. The economy is still good. The thing that sent us into a contraction was that house prices were getting high and affordability was aggravated by investor speculation.”
Many economists and housing industry executives had previously estimated that as few as 10 percent of the buyers in hot markets were investors. A survey by the National Association of Realtors found that 28 percent of buyers in 2005 were investors.
The Southwest Florida housing market boom and bust also illustrates how some savvy investors can help rebalance markets, by coming back in and picking up the pieces left by previous investors.
“It’s all about timing,” says Jerry Krecicki, a local real estate investor and real estate agent who believes the market will rebound.
By 2004, investors were scouring every corner of Naples, including Lake Park. Although many homes were small and drab, they were built on spacious lots facing quiet streets with palm trees and shrubbery. That caught the attention of home buyers willing to tear down the old homes and pump Florida mortgage money into new, bigger homes or undertake substantial renovations.
Despite huge run-ups in prices and bidding wars from many buyers making an offer, Dresner says she never bought a home for more than its appraised value.
“The sellers can ask whatever, but it’s up to the banks in how they appraise it. I never overpaid for anything,” she said.
Several factors converged in late 2005 and early 2006 that turned Naples investors into mass home sellers. An active hurricane season caused a spike in insurance rates throughout Florida. Coupled with a rise in short-term interest and property tax rates, investors now were facing higher carrying costs.
Dresner says she was growing tired of the burdens of being a landlord. Many of her properties were listed for sale in early 2006, but some were slow to move. In late October, she tried a new tactic and auctioned off the houses.
In the past month, both Countrywide Mortgage and the Bank of New York filed court papers in Collier County Circuit Court in Florida saying they are seeking to force a foreclosure sale on two properties owned by Ms. Dresner. She says she isn’t in financial difficulty.
Krecicki and a partner still own about a dozen homes that they are renting out. He says they have cash reserves to cover homes where expenses exceed the rental income. He says he feels badly that Dresner has had trouble selling her properties.
“This market downturn came out of nowhere, like a snowstorm. It surprised everybody, especially the people making Florida home loan payments,” he said.
