Florida Real Estate Investments Could Be In Trouble Next, Expert Cautions
Whether the Florida real estate market slump has come and gone - or is still alive and kicking - is one of the most hotly debated issues these days.
The answer is still very much unclear.
However, after last week’s report from the Mortgage Bankers Association about the ballooning Florida mortgage loan foreclosures and defaults, it’s hard to accept the bright and sunny theories some economists and investors are sharing:
- The worst is, for the most part, over
- Low Florida mortgage rates will boost demand
- The housing market is in the process of stabilizing
- Battered home builder stocks are among the best buys in the market
Some buy this outlook, but Michael Larson, a Florida real estate investment adviser, says the housing horror show is only in its intermission stage.
Last April, Larson, associate editor of Safe Money Report, a monthly newsletter out of Jupiter, Fla., said that subprime (bad credit Florida mortgage) lenders were indiscriminately lending to too many customers.
At the time, he recommended the sale of the shares of the industry’s third largest firm, New Century Financial. At the time, the shares were trading at around $45. Now? $2.
While Wall Street is heavily focused on the latest debacle, this expert sees another burgeoning risk — real estate investment trusts, notably rental-oriented firms that build, own, and manage apartment complexes.
“They could be a major housing problem, the next big shoe to drop,” he said of these potentially volatile real estate investments.
U.S. real estate investment trusts could be yet another act in an ongoing housing market trauma. But you can’t detect that from the showing of REITs in recent years. Many have racked up sizzling gains, including reinvested dividends, of roughly 100-150 percent.
Nowadays, though, Larson observes REITs as facing rising problems, among them increasing supply, rising vacancies, and slowing real estate demand, all of which point to diminishing rental market growth.
He sees rising competition from many speculators who hoped to make fast bucks - seen frequently in the Sunshine State as thousands of people using low-interest Florida mortgages flocked to buy and flip condos, single-family homes, and townhouses alike.
But the housing market still slumping in spite of historically low Florida mortgage rates, many flippers are unable to flip - and have resorted to renting, thus upping the pressure on the rental market.
SOURCE: New York Sun
