The Treasure Coast suffered the biggest drop in home sales in the state last month, with sales posting their steepest decline in 18 years.
It’s the clearest evidence yet that the boom has gone bust in the wake of soaring foreclosures, tightened Florida mortgage lending standards and an exploding inventory of unsold homes.
There’s something about the Florida housing market that attracts speculators like an alligator to an easy meal.
Abundant sunshine has been known to distort investors’ perception of the laws of economics from the 1890s to the present. With tens of thousands of properties languishing on the market, the quick profits seem to have evaporated.
The experience of Beth and Fabrizio Faieta, who have bought five homes in the Fort Myers-Naples housing market over the past few years, provides a tale of what happens when home prices sour.
The Faietas aren’t your typical Florida “flippers” who had hoped to buy and sell properties within six months of purchase, though. They said their holdings were intended to be long-term investments. Yet as the market stalled, Florida mortgage applicants were scarce and expenses rose; they were forced to sell.
Homes are plentiful in southwest Florida. There are for-sale signs on almost every other property on the most desirable road that embraces the graceful, white-sand beaches of the Gulf of Mexico. Local newspapers carry four or more sections of real- estate advertising.
When the Faietas arrived in the Fort Myers area from Massachusetts 2 1/2 years ago, homes were in high demand in the Sunshine State. “We had to put in offers the same day we saw them or they were gone,” says Beth, who was a part-time real- estate agent in Massachusetts.
Lower Asking Price
One of their investments, a three-bedroom home in Bonita Springs, was bought from an owner who had to sell. With 4.62 percent financing in September 2004, they bought it for $260,000. The house originally listed for $395,000.
Although they have had no problem renting the Bonita home with the slack market, they have had trouble selling it on their own. They recently signed on with a Florida real estate agent and have reduced the asking price of almost $400,000 to $359,900.
Like so many formerly torrid markets, southwest Florida home prices are in retreat. Prices fell 2 percent in the fourth quarter of last year in the Naples area and more than 1 percent in Fort Myers after more than doubling in value over a five-year period, according to the Office of Federal Housing Enterprise Oversight, the watchdog agency for the mortgage companies Freddie Mac and Fannie Mae.
“We purchased the house with the thinking that we would like to keep it long term,” Beth says. “I am not happy to sell it. I am also not happy that we are putting our other properties up for sale.”
Boom-Market Curse
When buyers abound, few investors think about the long-term costs of holding properties. Yet a rapidly rising market that brakes suddenly, combined with unique local conditions, presents pitfalls.
In Florida, as in most coastal areas in the southern U.S., the wave of hurricanes in 2005 led to skyrocketing homeowner insurance premiums. Some insurers even stopped selling policies and dropped coverage in storm-prone states.
For the Faietas’ Bonita property, that meant an initial premium of $999 for their single-level house about a mile from the Gulf rose to $1,407. Beth expects it to climb even more in August. Another home they own in Naples had rates rise from $2,400 to $7,400.
A boom market also translates into higher assessed property values, which push up real estate taxes.
Economic Pressures
The Faietas paid a bargain $1,200 in property taxes for their Bonita house in the first year of ownership. Last November, the levy was $3,768. The dramatic increase in taxes is front-page news for all Florida residents now, particularly those who were originally drawn by the lack of a state income tax and relatively inexpensive Florida housing costs.
As if skyrocketing insurance and taxes weren’t enough to give Florida home investors cold feet, the market is glutted with properties.
A sluggish North Florida housing market has two real estate execs heading toward commercial development. And they’re using lessons from the banking industry to anticipate their next move.
Harry Trevett and Jay Mock head Trevett-Mock Inc., a real estate investment company. Some of its developments include Marsh Lakes in Fernandina Beach and Villages of Valencia in St. Johns County.
Trevett-Mock’s portfolio mix flip-flopped about two years ago:
Whereas three-quarters of the company’s business was in residential Florida real estate then, business now is 75 percent commercial development, which includes shopping centers, offices and banks.
Trevett and Mock also have a hand in community banking, and led a group of investors that bought the First Bank of Jacksonville in 2004.
The heavy regulation that comes with banking has shed serious light on upcoming changes in the Florida mortgage market.
“We’re market-driven guys,” Mock said. “We go where the market takes us.”
Trevett and Mock have grown First Bank of Jacksonville from one Mandarin spot with $22.3 million in assets to two locations (the second is in Baymeadows) with $104.3 million in assets, according to its 2006 year-end report to the FDIC.
Two more bank locations are awaiting regulatory approval, one in Lakewood near the intersection of University and San Jose boulevards and the other in Trevett-Mock’s Village Shoppes at San Pablo.
Trevett and Mock were founding members of the First National Bank of Nassau County. But although banking is an investment, real estate development is their bread-and-butter income, Mock says.
Mock, who got his start as a Florida mortgage broker, said he switched to land development because it was more lucrative than selling homes.
“Instead of doing it for people for a fee, I started doing it for myself,” said Mock, who graduated from Fernandina Beach High School in 1986.
The company’s most anticipated commercial real estate project is a 108,000-square-foot addition to Amelia Station, a shopping center in the heart of Yulee. For years, the 13-acre property has been piles of dirt.
As development of surrounding property has picked up - a new golf community and Target and Home Depot shopping centers are all nearby - Trevett and Mock hope to break ground before the end of the year.
Mock says interest is high among tenants and envisions bistros, cafes and other neighborhood retailers to fill the mixed-use “village” center.
SOURCE: Florida Times-Union
Numerous agencies are digging into the Florida real estate related mess that began with the collapse of Construction Compliance Inc.
According to the Sarasota Herald-Tribune, Tampa real estate investor Zanuel Johnson is in the midst of six federal and state investigators asking questions about the particulars of a home investment.
A meeting regarding an investment in the Southwest Florida housing market took place this month in the Tampa office of the Florida Department of Business and Professional Regulation.
Steve Hatch, an investor who bought a home from Construction Compliance and financed it with a Florida mortgage through Coast Bank of Bradenton, said he received a similar request by mail recently from the Florida Office of Financial Regulation in Tampa.
This marks the first sign other than the FDIC’s work with Coast Bank - the primary Florida mortgage lender in most of the arrangements - that regulators are looking into the situation.
Investors from California to New Jersey jumped at the opportunity to take out a Florida mortgage and sign contracts for investment homes.
The investors, many from the Northeast, were drawn to Florida real estate by companies that included CCI and Coast, Enchanted Homes of Fort Myers, American Mortgage Link of Tampa and Seashore Resorts of South Carolina.
The investors’ credit was used to secure construction loans with little or no down payments. With its homes, CCI promised to pay the interest until the houses were completed, and investors were promised huge returns after the investment homes were resold.
Johnson, a Tampa-based account executive with troubled national sub-prime (bad credit Florida mortgage) lender New Century, signed a contract to buy a home in Cape Coral built by Enchanted Homes and financed through Coast with American Mortgage Link as the loan’s originator.
The loan was made by Coast subject to documents that Johnson says were falsified by someone to show that he made a $43,000 escrow deposit.
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:
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
It was a simple pitch.
Or at least it seemed like one.
Investors would put little to no money down to take out construction loans that a real estate developer would use to build modest homes in a fast-growing sector of the West Florida housing market.
When finished, homes would be flipped for tidy profits of $30,000-40,000 apiece.
Too simple, perhaps.
Nearly two years since the developer started marketing the investment plan nationwide, work on the homes has come to a halt, leaving 482 investors with half-built houses and thousands of dollars in construction liens.
Coast Financial Holdings, which owns the bank that made many of the Florida home loans, has disclosed that $110 million, or 20 percent of its portfolio, could be in danger. Its shares have fallen 46.5 percent this year, and banking regulators are investigating.
“It was strictly a passive investment,” said Paul Matera, a retired contractor from West Islip, N.Y., who signed up for two houses and introduced dozens of others to the plan.
“You didn’t pick out the model of the house. You didn’t pick out the exact location. Everybody signed papers without reading what they were signing.”
During the boom that ended in 2005, tons and tons of money poured into Florida real estate from investors ranging from the ultra-rich to middle-class people such as like doctors, teachers and mid-level managers. Florida was one of the biggest recipients of this type of investment wave because housing in the Sunshine State often deemed a sure bet.
Like the day traders who drove up Internet stocks in the late 1990s, these scores of investors, aided by cheap Florida mortgage loan costs, helped drive a Florida housing market boom over the edge.
“It was a groundswell,” said Jerry Manning of J.J. Manning Auctioneers, a company which markets and sells homes in the Northeast and in South Florida. “Everybody thought that they were going to be a real estate mogul.”
Last year, however, a number of such plans started failing, causing pain to investors, builders and Florida mortgage lenders. Beyond their inherently speculative nature, many of the investments were never fully investigated and were poorly monitored.
Now some lenders and investors are starting to wake up to a harsh day-after reality.
“You will have a market correction, and the correction will make regional homeowners unhappy as Florida home prices fall,” said John Lonski, the chief economist at Moody’s Investors Service. “Regional mortgage bankers will find their livelihoods threatened.”
So far, the slumping market has not claimed a major casualty in Florida, though lenders to people with weak credit have started shutting down and regional home builders in formerly hot markets are hurting.
Transeastern Homes, which builds homes in Florida, is in settlement talks with lenders who contend it is in default on its debt totaling hundreds of millions of dollars.
WCI Communities, which builds condominiums in Florida and in other areas, recently hired Goldman Sachs to advise it on strategic options, including a possible sale of the company.
“We’re going to see much bigger builders and much bigger lenders facing bankruptcy because so much of the building has been on a speculative basis,” said Jack McCabe, a real estate consultant in Deerfield Beach.
Many borrowers where steered toward home loans that started out as construction debt and convert into traditional mortgages when the house is built.
“I’ve got my father stuck, my brother stuck, an ex-wife stuck,” said Carl Cirinelli, a partner at Seashore who previously lived in New Jersey.
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In Florida, desperate sellers will do anything to move a property.
Even bake for strangers.
The St. Petersburg Times reports that consultant Mike Morrell of David Weekley Homes in Brooksville was baking sugar cookies February 10 in the kitchen of a three-bedroom, 3,200-square-foot, $410,000 home on display at the new Southern Hills Plantation.
“If you feed them,” Morrell said, “they will come.”
There’s the small matter of Florida mortgage loan payments, but whatever works, right?
The tour of the homes at Southern Hills began last weekend and went through this Saturday. Jacksonville’s LandMar Group, which owns and runs the upscale development with “Old Florida” features and “New Florida” prices, is hoping this event spurs sales in this slowed-down Florida housing market.
An estimated 1,500 people came last weekend to look, but sales have been sluggish - especially compared with the furious pace of lot sales here a couple of years back.
“We’re not as far along as we would’ve liked to be on home sales,” LandMar regional manager Jim Harvey said this week. “People are much more cautious and taking their time now. They really want to see what they’re buying.”
Southern Hills is something new for Hernando County.
Most of the local inventory is much more modest and modestly priced. But Southern Hills promotional materials tout not “single-family homes” but “estates” and “luxury mansions” and talk about “architectural designs featuring elements such as porches, dormers, bungalow designs,” and so forth.
The development, which ultimately could have as many as 999 homes, sits on hilly terrain that’s unusual for mostly flat Florida. It has a spa and a fitness center with private steam and massage rooms, an on-site hair salon and a golf course with a Grand Clubhouse.
In June 2004, on one Saturday, the company sold 302 lots for more than $38 million. A year later, again on a single Saturday, the sales were similarly stunning: 236 lots for $40 million.
The buyers were empty nesters and people from Tampa or states up north looking for second homes - in other words, people not beholden to the fluctuations of Florida mortgage rates.
Nick Nikkinen of Hernando’s Property Appraiser’s Office called it a real estate phenomenon. Those years, of course, were wild and flush in the real estate game - ‘04, ‘05, even early ‘06 - but it’s not like here in ‘07.
In late ‘05, when the Southern Hills sales center opened, the least pricey homes had a stripped down asking price of about $325,000, and that didn’t include the lots, which started at about $80,000. Now some of the smaller “cottage” homes can be had for as low as $248,900, with lots priced at $66,900.
One high-end property built by Windjammer, with four bedrooms, a three-car garage, 4,032 square feet and a two-story pool cage the size of a small concert hall, was priced at $1.3 million but is on special right now for $990,000.
“If you’ve got a spare million bucks,” Southern Hills sales manager Steve Erick said last Saturday, “we’ll even give you change.”
Only 12 homes have people living in them. Erick is in one of them. He said all of the people who live in Southern Hills got together for a party for Christmas and fit into one family room.
“But next year,” he said, “we’re going to have to rent the clubhouse to get all the residents to fit in one room.”
At least that’s the plan. The hope. If Florida home mortgage demand doesn’t pick up by then, this area’s housing slump will continue and the developers won’t see the return they’re looking for on this expansive project.
But hope remains.
“Now that the models are finally in place, I think [spring sales] are going to be good,” sales executive Mark Tesch said. “I’ve had a number of people who are interested now. I think we’re starting to creep into the up again.”
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Dave Corey (pictured) has been flipping houses on the side for nearly 30 years, but the latest slump in the Florida real estate market is taking its toll.
His latest struggle: Unloading a ranch in Ocala, Fla., with three bedrooms, two baths and a two-car garage. He thought it would be a quick buy, rehab and sell transaction. Instead, it’s been buy, rehab … and sit. For 10 months.
After paying $146,000 in January of 2006, he’s now out of pocket $160,000 including closing costs and renovations, he said. The list price of $178,900 has drawn zero interest.
Before moving to Florida in the early 2000s, Corey’s main income came from his used Saab sales and service dealership in Vermont. He sold out and moved south where he earned good money flipping houses at the height of the boom.
“I made $80,000 in the first four months of 2005 and didn’t kill myself [working too hard],” he says.
A few years ago, Ocala, a small (under 50,000 population) central Florida city, was a hot spot for investors, mainly Northerners, according to Corey. Those potential Florida home mortgage loan applicants have flown back north. “I don’t see where any new investors are coming in,” he says.
Corey’s plan had been to follow the strategy honed in Vermont. Describing himself as a “hands-on guy,” Corey looks for places that are structurally sound but in some stage of disrepair or ones that need renovations. Houses owned by estates are often good, because the heirs don’t want to live there; they just want to get the money out of the property quickly.
Sometimes, the places look like bombs went off in them.
“I took my wife, Sharon, to one of the first houses I bought down here [in Florida],” says Corey. “She went in and said, ‘Oh gosh. Let’s get out of here.’”
Corey had to convince her that was just what he wanted; a place that looked terrible but that had a good roof and a solid foundation.
He managed to find five or six houses a year like that and when he corraled one, he acted quickly. His schedule was to have a contract on them or close a deal within three months of the day he bought.
But now the market is super slow.
“Inventory is so high, I heard they had 1,200 homes for sale in [a nearby subdivision] The Villages, it’s very difficult to buy and sell,” says Corey, “I haven’t bought anything in 10 months.”
Solution
Corey thinks he may have solved his problem, at least for now. He entered into a lease-with-an-option-to-buy Florida mortgage transaction with a 30-something couple.
They’re paying $1,200 a month, of which $200 goes into the down payment principal. He’s very pleased with the lessees; they pay promptly and he expects them to follow through on the buy option.
Still, he’d rather sell the home right away. (”It ties ups my money,” he says.)
He looks forward to a time when the market starts to open up again and he can plunge back into the flipping business. By then, he thinks, Sharon might be ready to retire from her job as a middle school assistant principal. “Maybe we can do it as a joint venture,” he says.
Hurricanes have wreaked havoc on Florida insurance rates, but investors with billions of dollars are still chasing quality office and industrial buildings in the Tampa Bay area and beyond.
Case in point: Tuesday’s arrival in Tampa of Jeremy Katz, an analyst with New York’s Real Estate Capital Partners.
On a buying expedition for his company, Katz said investors, both foreign and domestic, still hanker for well-placed office development in Tampa and St. Petersburg.
Their hunger is limited only by the availability of good buildings for sale, he said. Florida’s balmy business climate, including 3 percent unemployment, overshadows the recent deadly storms sweeping through the area.
Hurricanes and tornadoes may scare off some individual Florida home mortgage applicants and push insurance rates too high for some prospective buyers, but it won’t derail big investors like teacher’s pension funds, Katz said.
“Our company represents mostly German institutional investors. They just love Florida,” he added.
Katz’s remarks came during an annual luncheon Tuesday hosted by the real estate firm Grubb & Ellis in Tampa. Except for the slow Florida housing market sector, executives bore good news about area real estate:
Tampa’s Westshore business district, where Florida mortgage loans remain affordable for commercial banks, remains the region’s healthiest market and one of the best in Florida.
Downtown St. Petersburg was a strong No. 2, with vacancy half the national average at about 7 percent. Kennedy suspects downtown St. Petersburg, with its restaurants and waterfront, will lure tenants this year.
Overall, with limited land for growth and rising demand for quality space, office owners are sure to charge more this year, some rents reaching $28 to $30 per square foot.
“It’s clearly a landlord’s market,” he said.
COMMERCIAL REAL ESTATE
Most of the big retail action is confined to what Grubb calls the “northern outlying submarket” - Pasco County.
In Wesley Chapel/Land O’Lakes, three commercial real estate developments will be competing for tenants this year. The Grove at Wesley Chapel, the Shops at Wiregrass and Cypress Creek Town Center are about three-quarters leased. New retail won’t bypass Pinellas County either. A 575,000-square-foot project called Largo Town Center is in the works.
The Tampa Bay area boasted 6 percent vacancy for warehouses, factories and other industrial space, below the 8 percent national average. The rental market rose the fastest in Hillsborough and Polk County, where leasing costs leapt about 25 percent.
VACANT LAND
Property prices still hover in the stratosphere after years of investor-fueled growth. But Grubb’s Bob Zegota dubs the land market dead this year, thanks to strapped home builders looking to liquidate.
“I think there’s going to be a little washout,” Zegota said.
That’s welcome news to Florida mortgage holders on the consumer end. At the same time, Florida’s most densely developed county, Pinellas County, had the highest average land price last year: $437,000 per acre. So it’s hard to know how much relief one down year will bring.
In Hillsborough County, with miles of vacant tracts south of Tampa, the average acre sold for $81,000 last year.
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.
