Archive for the 'Financial Responsibility' Category

Miami Ranks As Most Troubled U.S. Real Estate Market

posted on March 18th, 2010 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

Oh, Lawdy, Trouble So Hard.

Miami ranks as the most troubled real estate market in the United States, says Forbes.  The honor was bestowed on the Miami metropolitan area for having, by a wide margin, the highest percentage of mortgages delinquent 90 days or more.  The number for Miami is — hold onto your hats — 28.8%.

Try to wrap your mind around that.  Think about what it means for someone to be 90 days delinquent.  That’s not just late on a single monthly payment.  That’s nonpayment for three months in a row, strongly suggesting that the borrower has no ability or intent to pay again.

This is misery.  Personal financial ruin.  Borrowers have themselves to blame, but financial institutions and real estate brokerages are equally responsible.  It was irresponsible for anyone to buy, lend money on, or advise the purchase of property at prices equal to six times the buyer’s gross income, at ownership costs twice the rental costs, and in drastic deviation from historical price trends.

Miami Real Estate Photos -- Residential Neighborhood 2

The greed and incompetence are staggering.  Next time someone preens about being a “top producer,” think what their sales “producing” did to the personal financial condition of real people.  What does it mean for someone to buy a house for $1.1 million on an income of $200,000, only to find their home sweet home worth $700,000?  What does it mean to take a $400,000 loss when your income is $200,000?  How much, and for how long, would you have to save to make up for that kind of loss?  And for what?  So some bailed-out mortgage investor can keep taking six-figure summer vacations in the Hamptons?

From Forbes:

In greater Miami, including Fort Lauderdale and West Pam Beach, one-quarter [actually, 28.8%] of mortgages are 90 days past due or worse.  In Miami proper, one-fifth of mortgages are in foreclosure or converted to REO.  Worst in the country by far.

The next-worst metro is Las Vegas, at 21.7%.  Florida fares poorly as a whole, with only one metro area under 10% in the 90-day delinquency measure.

The Forbes study is based on data from First American CoreLogic.

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Condo Flipping in Miami Real Estate Market — Just Like the Good Ol’ Days?

posted on March 16th, 2010 filed under: Financial Responsibility, Real Estate News

When the Miami and Coral Gables real estate markets were in mania mode, condo buyers would sell (assign) their purchase contracts for hefty profits.  Condo units might be flipped numerous times before a building was even constructed.

Miami Real Estate Photos -- Brickell Key 1

So what should you make of today’s Miami Herald article reporting that bulk buyers of condo units have been flipping deals within weeks, even minutes, for hefty profits?

First, don’t take it literally.  Nobody buys condos in bulk and sells to a new buyer within minutes, unless it’s all prearranged.  More likely, a first bulk buyer enters a purchase contract that is not assignable, and while waiting for the deal to close, finds the new buyer and lines up the two deals to close on the same day.

Second, if you’re an individual or a family looking to buy a place for yourself, none of this really matters to you.  The bulk market is not the same as the owner-occupied market.  It’s the difference between wholesale and retail.  If one wholesaler gets such a good deal that another wholesaler is willing to pay a premium, that doesn’t necessarily affect prices at the store.

Just because there’s activity in bulk condo transactions doesn’t change the fundamentals that should inform your decision about buying real estate in Miami or Coral Gables.  If you care about whether a purchase makes financial sense, the price you pay should bear a reasonable relationship to incomes, rents and historical values.

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Condos in Downtown Miami Reportedly Gaining Residents (If Not Value)

posted on March 12th, 2010 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

Condo prices may not be recovering yet in downtown Miami, but enough units have been sold and rented that the area is gaining residents and becoming more lively.  That’s the conclusion of a study reported by the Miami Herald today.  (No mention of Coral Gables, but the trend there is probably comparable.)  A few highlights:

  • 74% of units are occupied, up from 62% last May, which means . . .
  • 26% of units are vacant, down from 38% last May
  • 52% of occupied units are rented
  • 68% of units have been sold, up from 62% last May
  • 22,079 units were built since 2003
  • 7,010 remain unsold, down from 8,000 last May
  • 51% of unsold units are in the Brickell area, 23% in the Central Business District

Miami Real Estate Photos -- Condos and Biscayne Bay

A choice quote comes from a nightclub operator who says things are going well.  And why, praytell, are things going well?

“Renters are the ones with the disposable income.”

Owning a home shouldn’t mean otherwise ruining your life, but that’s exactly what happens when the financial/real-estate complex convinces you to commit an unreasonable portion of future earnings to housing.

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Strategic Default Not So Easy in Miami and Coral Gables Real Estate

posted on March 11th, 2010 filed under: Financial Responsibility, Real Estate News

Strategic default is a fancy term for a property owner’s refusal to pay a loan that far exceeds the value of the property.

Whether that’s an option depends on what state you’re in.  Some states are non-recourse, meaning the mortgage holder cannot pursue the borrower personally for the difference between the loan amount and the property value.  Florida, however, is a recourse state.  Borrowers are personally liable for the difference (generally speaking).

A borrower in Miami or Coral Gables therefore cannot so easily walk away from a home loan.

That would be good to remember before you “lever up” and buy real estate.  For no other asset would you dream of paying a price that is a function of maximizing the amount you can borrow against the next 30 years of your income.  But that is exactly what you’re asked to do when buying real estate.

The result, if you’re not careful, can effectively be debtor’s prison.  You can owe a distant mortgage holder money for a property that you no longer own because the mortgage holder took it away from you in partial satisfaction of your bad debt.  The rest you can pay off with your future wages — like a subtle form of slavery.  Or you can declare personal bankruptcy.  (If you’re actually in such a situation, please consult an attorney licensed in your state, don’t draw specific conclusions from a real estate blog.)

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Update 03/14/10:  Right after this post, Moody’s reported that lenders were being more aggressive in seeking deficiency judgments against borrowers who walk away.  It’s in the latter half of the following CNBC clip:

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Is the Worst Really Over for Miami and Coral Gables Real Estate?

posted on March 7th, 2010 filed under: Financial Responsibility, Real Estate News

Have you been hearing that real estate has turned the corner — that sales are up and prices have stabilized?  While there’s some evidence for that, the future is by no means safe and sound.  And as poster children for the real-estate bubble, Miami and Coral Gables remain as risky as anywhere.

A huge number of properties have been languishing in pre-foreclosure for months or even years at this point.  Scheduled repossession dates are postponed as banks shun not only the property-tax and maintenance responsibilities that would come with repossession, but the mammoth losses that would show up on their balance sheets if they re-sold the properties.

A recent Standard and Poor’s analysis of the national market lends credence to this view, and paints a very disturbing picture:

[I]n Standard & Poor’s Ratings Services’ view, the mortgage crises may be far from over.  The overhang of homes heading toward liquidation suggests more delinquencies and lower home prices are to come.

The current “shadow inventory” (including all delinquent loans, not only those that are real estate owned [REO]) of troubled mortgages will likely take about 33 months — or nearly three years — to clear at the current rate of liquidation.

We believe that the recent reversal in housing prices is the result of a temporary constriction in the supply of foreclosed homes on the market. . . . [T]here is a rapidly growing shadow inventory of properties where borrowers are delinquent but foreclosure has not been completed.

Far from the wave of foreclosures being over, S&P points out in a simple chart that in 2005, the ratio of distressed loan balances outstanding to distressed loan balances closed was about 18 to 1.  Now it’s 31 to 1.

This wouldn’t be the first time that properties in Miami and Coral Gables emerged from a pounding only to find that it was just the eye of the storm.

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Fed Nearing End of Mortgage-Buying Orgy — Could Affect Rates and Real Estate in Miami and Coral Gables

posted on March 7th, 2010 filed under: Financial Responsibility, Real Estate News

The Federal Reserve is supposed to stop buying mortgage-backed securities (MBS) at the end of this month, which could lead to higher mortgage rates as private buyers demand a higher return for MBS risk.  As a chart by financial blogger Calculated Risk illustrates, MBS are now the single biggest chunk of Fed holdings, far outstripping the Fed’s position in U.S. Treasury securities.

Try to wrap your mind around that.  Before 2008, the Fed held no MBS.  Banks and Wall Street firms packaged the stuff and sold it to private buyers.  Once real estate was revealed to be a fraudulent Ponzi scheme, the private buyers vanished.  But the Fed stepped in, printing dollars out of thin air to buy what nobody else wanted, thus keeping the mortgage market from completely shutting down.

The result is that the Fed, which started 2008 holding well under a trillion dollars in U.S. Treasuries and little else, is putting the finishing touches on a buying spree that will leave it with $1.25 trillion in MBS.

Economists are divided on how much the Fed’s departure from the MBS market will cause mortgage rates to rise.  And real-estate brokers can spin the prospect of rising rates as a reason to buy now.

See both sides.  If homes in Miami and Coral Gables are more affordable now while the Fed artificially depresses mortgage rates, homes might be worth less if rates go up.  Indeed, rising rates played a significant part in the bursting of the bubble.  So if you buy that property in Miami or Coral Gables today while rates are low, be prepared for the possibility of its losing value as rates rise and affordability drops.

The risk would be less if incomes could be expected to rise in tandem with rates and thus support affordability.  While possible, such an outcome is no sure thing.

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Update 02/13/10:  See Feb. 13, 2010 post titled “With Fed Ending Mortgage Purchases, Fannie and Freddie Step In — What It means for Real Estate in Miami and Coral Gables

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Real Estate Fundamentals — Wages in Miami

posted on March 3rd, 2010 filed under: Financial Responsibility, Real Estate Market Data

Previous posts have emphasized the relationship between home prices and incomes.  While some fortunate folks don’t need to work for a living, most do.  Property values are in significant part a function of what people earn (and of their willingness and ability to borrow against the next 30 years of those earnings to buy this particular asset).  So when considering the condition of the real estate market in Miami and Coral Gables, it helps to understand the area’s wage profile.

Here’s the picture painted by the Bureau of Labor Statistics in a September 2009 analysis of data from 2008.  (The time lag is of little consequence, as these numbers don’t move far in a single year or two.)

Miami Wage Data -- BLS Survey

The data are for the Miami metropolitan statistical area, not just Miami or Coral Gables.  But many of the other data, like median home prices, are for the same area.

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