Sarasota Housing Market: The Shake Up Continues
West Florida has seen its luxurious lifestyle shaken.
The Sarasota housing market has experienced the biggest drop in house prices in the country, with foreclosures spiking after a drop of almost 15 percent in the year to March.
Florida is the “canary in the cage,” according to Jan Hatzius, chief economist at Goldman Sachs.
The precedent has alarmed Wall Street economists tracking the worst housing slump in 16 years, as price falls in Sarasota have spread across the state and threaten to drag Florida into recession. But what caused the west Florida housing bubble to inflate and then suddenly pop?
It’s tempting to point the finger at the rise in popularity of high-risk adjustable loans that were backed by complex new credit securities, which are now in distress and, in some cases, regarded by traders as worthless. These innovative financial instruments played a role. But the accounts of residents, real estate agents and Florida mortgage brokers in Sarasota point to a more familiar culprit: simple old-fashioned greed.
“People were buying places figuring they would put in a new kitchen and then flip them. It was greed. We were all in the same game. We were selling a piece of paradise,” says Christina Neff, a real estate agent in Siesta Key. “Flippers are behind what is happening.”
Dorothea Sandland, a real estate agent with Remax, says: “A lot of buyers took out second mortgages, risky loans or even special bonds because they thought they could get rid of the property very quickly.”
Short-term speculative investments drove prices to unaffordable levels and it was this that eventually caught up with buyers. Speculative buying is not always easily obvious in publicly available housing data, but the accounts of local market participants are backed up by research showing Florida homes became increasingly unaffordable in the past two years.
Florida mortgage loan payments on a median-priced home in the state reached more than 30 percent of median state income last year, compared with an average of 18 percent in 2003 and a national rate of 23 percent, according to Goldman Sachs.
This risk-taking by buyers willing to bet money they did not have that prices would keep rising has been a key cause of the global credit crunch that is now under way. When house prices peaked and then faltered, many buyers were unable to sustain their mortgages. They are now being pushed towards foreclosure, hastened by higher borrowing rates as once-popular subprime loans reset.
“I’m looking at condos coming to market that were bought for $259,000 when there are brand new ones next door selling for $180,000,” says Sandland.
Claude, one of many so-called Canadian “snowbirds” who winter in Florida, said he had a good credit rating but opted for a subprime loan because the low initial rate made a short-term investment more profitable. He says he is now “trapped” with an unaffordable Florida mortgage and a depreciating beachfront property.
But Joe Hembree, president of the Sarasota Realtors Association, says the Florida housing market will recover as flippers cut their losses. “There are great bargains to be had throughout the community as asking prices have dropped,” he says.
