Recession symptoms near fever level
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By ALEXANDRA CLOUGH
Palm Beach Post Staff Writer
Monday, November 05, 2007
Scott Badesch of the United Way is used to seeing people in need. Usually, it is the homeless or the poor who tap the services of Palm Beach County's leading community fund.
But these days, Badesch notices something different.
Take a look at housing in our area, which has become one of the most volatile U.S. markets.
"We're seeing more and more of the middle class falling into these situations. The demand in our shelters and in our emergency food pantries has never been as great as it is," said Badesch, chief executive of the United Way of Palm Beach County.
Ken Rappaport, a Boca Raton bankruptcy lawyer, also sees people in financial distress.
But when Rappaport received 250 applications for a $10-an-hour receptionist job in his office, that's when the area's economic troubles hit home. Many of the applicants were real estate and mortgage brokers used to sky-high salaries.
"That's scary," Rappaport said. "And that was the thing that brought me to the conclusion: I don't care what anybody says, we are in a recession."
Across South Florida and the Treasure Coast, the housing market's malaise is starting to affect virtually all parts of the economy: from mom-and-pop stores to professional service firms, from commercial real estate properties to corporations. The slowdown, in turn, affects how much people earn - and how much they spend.
National economic indicators may not show strict proof of a recession, defined as two consecutive quarters of declining gross domestic product. Last week, the Commerce Department reported that, during the third quarter, the economy grew at a very healthy rate of 3.9 percent. That was up from the second quarter's 3.8 percent increase in GDP.
Still, the Federal Reserve was worried enough about the future of the economy to cut the benchmark federal funds rate by a quarter of a percentage point to 4.5 percent.
Its concerns were borne out the next day, when RealtyTrac reported that a total of 446,726 homes nationwide were targeted by some sort of foreclosure activity from July to September, more than double the 223,233 properties just one year ago. That's one foreclosure filing for every 196 households, Irvine, Calif.-based RealtyTrac said.
Coming in at No. 3: Florida. Foreclosure filings in the state rose 51.5 percent from the previous quarter and more than doubled from the same quarter last year. The foreclosure rate amounted to one filing for every 95 households, RealtyTrac said.
Housing slump hurts many
Small wonder then that locally, business and civic leaders are increasingly certain that the region is in a recession. They see companies and consumers struggling to stay afloat at a time when business is down and the cost of living, including housing, food and gasoline, is way up.
Bankruptcy filings, for instance, are skyrocketing. In September, filings rose to 1,034 from 708 in September 2006, according to the U.S. Bankruptcy Court for the Southern District of Florida.
Rappaport said he is busier now than during the frenetic filing period before the 2005 change in the bankruptcy law.
"It's like a flood. There is a tremendous amount of hurt out there," he said.
Rappaport said he sees property owners trying to hang on to homes, seniors on fixed incomes unable to handle rising expenses, and businesses reeling from the decline in the real estate industry.
Take Olsher Steel of Boca Raton. In 2005, the steel broker earned $35 million in income. By 2007, Olsher Steel's income was zero, court records show.
But the falloff in the real estate market hurts more than businesses in that industry. It hurts every company that has come to depend on real estate to chug the economy along.
Financial service firms are getting hammered. Last month, Fort Lauderdale-based BankAtlantic Bancorp Inc. (NYSE: BBX) reported a loss of $29.6 million for the quarter ended Sept. 30. The loss was blamed on the deteriorating economy, particularly the real estate market.
Retailers and restaurants are hurting, too. Recently, Bianca's, a longtime Juno Beach restaurant, shut for reasons that included a downturn in the economy.
And consumer spending could worsen: During a recent meeting of the National Council of Bankruptcy Judges in Orlando, attendees expressed concern about big-ticket retail spending, especially in consumer electronics and furniture, said Tina Talarchyk, a West Palm Beach bankruptcy lawyer.
That's no surprise to Jessica Cecere, president of Consumer Credit Counseling Service of Palm Beach County and the Treasure Coast.
"If you don't have enough money to pay your mortgage, then you certainly don't have enough money to pay for everything else," said Cecere, who said Consumer Credit Counseling Service is swamped with people seeking help to save their homes from foreclosure.
In September, Consumer Credit conducted 381 foreclosure counseling sessions, up from 118 in September 2006. Demand for assistance is so high, Cecere recently made an unprecedented request for $21,000 from the United Way's emergency fund, which normally handles events such as hurricanes. The money would be used to train two more counselors.
Demand for food also is straining area resources as some food providers report up to 60 percent greater demand, said Perry Borman, director of the Community Food Alliance, a group that collaborates with governments and charities that work with the hungry.
Commercial market off, too
The growing economic slowdown has business leaders reaching back into their memories for a comparison of previous recessions.
"It's looking like 1990," said Rebel Cook, a commercial real estate broker and head of the Economic Forum, an area business group.
Cook is worried about the commercial real estate market. The office vacancy rate in Palm Beach County rose to 11.6 percent during the third quarter of 2007, up from 8.5 percent during the same period in 2006, according to CoStar Group, a real estate firm.
Buildings large and small are seeing vacancies from mortgage, real estate and title companies that have cleared out, said Cook, of Rebel Cook Real Estate in Palm Beach Gardens. Sublease space is rising, too, she said: Many renters are trying to find some other user to take space they pay for but no longer need.
Of course, the office market still has a long way to go before it mirrors the late 1980s and early 1990s, when Palm Beach County office buildings were one-third empty. But signs are afoot that space is becoming alarmingly plentiful.
For instance, the Class A Esperante office building in downtown West Palm Beach is more than 20 percent vacant, with entire floors that are empty, real estate brokers say.
It's the same story in the industrial market. Vacant space in that sector jumped to 6.7 percent during the third quarter of 2007 from 2.6 percent during the same period in 2006, CoStar found.
Blame the housing slump for hurting contractors and suppliers of electrical, lumber and plumbing services, said Robert Smith of CB Richard Ellis in Boca Raton.
It won't be long before some commercial landlords, particularly those who paid big money for trophy properties, start running into trouble, said Joseph Good of ComNet Realty of Boca Raton. Landlords will find tenants cannot pay enough rent to cover the rising debt, taxes and insurance on buildings, Good said. That could result in some commercial buildings' slide into foreclosure.
Even realty signs won't sell
Civic and corporate leaders expect business conditions to get worse before they get better. So they wait for the other shoe to drop.
To prepare, many people are tightening their belts.
"These are uncertain times," said Russell Greene, president of Grand Bank & Trust in West Palm Beach. "It seems like there's still news we need to get. I don't think we know everything."
But Greene, a longtime area banker, added: "Absolutely, we are in a recession."
And whether this "recession" lasts a year, or three years, makes little difference to people trying to pay bills each month.
For Jim Day of 222 Corp. in Lake Worth, the signs are clear: People are not paying for his signs.
Day makes and sells "For Sale" lawn signs used by real estate agents to market homes. When the real estate market started to go south last year, Day said, his business increased dramatically. A $25 sign, after all, "is the cheapest form of advertisement," he said.
But a funny thing happened during the past six months. Real estate agents stopped paying for the signs they had ordered.
"It's never been like this before," Day said. "I would never stiff someone for $25 or $50, especially since they know I did the work."
Now Day is looking at $40,000 in unpaid invoices, a worry for any small business.
If customers would just pay what they owe, he said, "I could take six months off." |
