"You could consider Florida to be ground zero for the housing market," says Mark Zandi, chief economist at Moody's Economy.com, an economic consulting firm in West Chester, Pa. He says the factors that caused the housing market to overheat nationwide -- such as "creative financing" offered to credit-risky buyers -- were exacerbated in Florida. "There were more lenders, more realtors, more foreign investors," than anyplace else, he says.
How investors react will have a big impact on how Florida's correction will unfold. According to San Francisco-based LoanPerformance, which tracks mortgages nationwide, 15% of Florida homes last year were purchased by investors, the most of any state. Investors are also critical, economists say, because in a slowing market they could be quicker to drop their prices to cut their losses than typical homeowners.
Speculative buying helped drive up prices in many Florida cities and shut out many nonspeculative buyers. Recent upticks in interest rates have put homeownership even further out of reach.
To be sure, the slowing in Florida could prove to be temporary. The state remains one of the fastest growing in the nation. It's growing, on average, by 1,000 people a day. Florida's economy is relatively strong and it continues to create new jobs. And while many Florida cities are seeing declines in sales, a smaller group of Florida markets is holding steady. Sales in Jacksonville were essentially unchanged in February year over year, and they were up in Tallahassee. But in many other parts of the state "things have slowed to a crawl," says Mike Morgan, a broker in Stuart, Fla.
Another factor that may be affecting sales is the appearance of some investor-dominated housing developments, some of which were built with minimal landscaping next to highways, cemeteries and mobile-home parks. Several of the housing developments snapped up by investors now look like ghost towns, with "For Sale" or "For Rent" signs in many windows. In some cases, the builders "were building for investors, not for homeowners," says Mr. Morgan, who is trying to resell several investor-owned homes with mixed success.
About a year ago, when the market was stronger, Mr. Morgan sold homes to several out-of-state investors, who never saw the property in person. "It's really no different from the dot-com [bust]," Mr. Morgan says. "The people who bought the [low-quality homes] got clobbered." He says he refused to sell poor-quality homes to his clients. "If I didn't have any ethics, I could have made a million dollars last year."
The swelling supply of condominiums is also causing concern. In Miami-Dade County alone, there are roughly 70,000 new condos either under construction or nearing construction, and an additional 25,000 units that have been announced but don't have final approval, says Michael Cannon, managing director at Integra Realty Resources-south Florida, which analyzes the local market.
"We believe that the condo market is more distressed," says Hank Fishkind, principal at Orlando-based Fishkind & Associates, an economic and financial consultant. "We are seeing a mismatch in timing. The projects started two years ago -- the delivery is accelerating, while closings are slowing."
Adding to that supply are the rental apartments that have been converted into condominiums. Mr. Cannon says roughly 150,000 rental apartments in South Florida have been converted or have begun to be converted to condos in recent years. Typically, the condo converter buys the rental unit, renovates it and then sells it to an individual, often an investor.
Paul Zani, an investor, is trying to resell two converted units he purchased in Orlando. He bought one condo unit in November for $137,000 and had it listed for $185,000; he bought the other for $147,000 and it was listed for $195,000. But he's been unable to resell either one. "We will probably come down on the price," says Mr. Zani, who lives in Nashville, Tenn. Some pockets of the condo market may fare better than others. Mr. Cannon says parts of Miami's downtown business district and the area north of downtown, which aren't directly on the ocean, "have the signs of being overbuilt. The jury is still out. We have to wait until they are completed," he says. Meantime, John Warsing, a broker of high-end Miami-area condos at Turnberry International Realty in Aventura, Fla., says "anything oceanfront is going to be fine," in part because well-heeled consumers from across the world are attracted to buying oceanfront property.
Other problems are rattling Florida's market. Home-insurance costs are rising, after the active hurricane season of the past few years. And real-estate agents say some homeowners are spooked by the storms themselves.
"A lot of people have that view of New Orleans in their minds and they are getting nervous. They are putting houses on the market," says Melissa Watkins, a sales agent with Michael Saunders & Co., near Sarasota. "They are not living here full time and [their home] is an investment. They want to pull their money out and hold on it."
Ms. Watkins says sales are slow, inventory is rising and listing prices are being reduced slightly. She says one recent deal almost fell through at the last minute when the buyer balked at the insurance premiums on a high-end, waterfront home.
Some Floridians blame the media and even Wall Street for scaring people away. Mr. Linsley recalled a headline in a local paper declaring that the local housing market was overvalued. The headline type was so bold that it looked as if the nation had just declared war. "The media is killing the investors," Mr. Linsley says. |
