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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Friday Fountain Photo (Four Seasons Building, Brickell Ave., Miami)

posted on March 12th, 2010 filed under: Fountains

The Four Seasons Building on Brickell Avenue in Miami has a two-tiered “wall of water” along the driveway entrance:

Miami Real Estate Photos -- Four Seasons Brickell Fountain

Miami Real Estate Photos -- Four Seasons Brickell Fountain 5

The Four Seasons building is the tallest in Florida and, by some accounts, the tallest residential building south of New York.  Condos in the Four Seasons are among the most expensive properties in downtown Miami.

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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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Miami Foreclosure Filings May Have Peaked (But Liquidation Phase Remains)

posted on March 11th, 2010 filed under: Real Estate Market Data

The good news for Miami and Coral Gables real estate optimists is that the pace of foreclosure filings is probably in the process of receding.

Miami Foreclosure Filings Chart -- Annual

Miami Foreclosure Filings Chart -- Monthly

Filings, however, are just the first step in resolving nonperforming loans.  The mortgage holder still needs to either modify the delinquent borrower’s loan to the point that the borrower can handle the payments, or repossess and sell the property.

It ain’t over ’til it’s over.

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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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Pending Home Sales Fall More

posted on March 7th, 2010 filed under: Real Estate Market Data

The National Association of Realtors reported this week that pending home sales fell again in January.  The NAR’s index, which tracks contract signings for houses, condos and co-ops, fell 7.6% on a seasonally adjusted basis, from December’s revised level of 97.8 to January’s preliminary reading of 90.4.  An index level of 100 represents the number of pending sales in January 2001.

The index started 2009 at 80.5 and climbed to 112.4 in October as the government’s $8,000 tax credit artificially boosted sales last summer and fall.

The NAR’s chief economist blamed the January decline on weather, but the biggest drop occurred in the West.  The South fared least worst, with a month-to-month decline of 2.1%, from 100.2 to 98.1, after ranging in 2009 from 83.1 in January to 114.9 in October.  Data are not broken down by locality, but the real-estate market in Miami and Coral Gables has hardly been immune from national trends.

Bloomberg quoted a Wells Fargo Securities economist as saying:  “When you take away all the support from the housing market, the underlying demand for housing is a lot weaker than we thought.  We clearly pushed some demand forward, and there wasn’t that much demand to pull forward anyway.  The housing recovery is going to be very, very slow.”

That certainly seems plausible for real estate in Miami and Coral Gables, where the case for buying a home remains weak.  (Prices remain high relative to incomes, historical valuations, and rental costs.)

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Friday Fountain Photo

posted on March 5th, 2010 filed under: Fountains

Coral Gables Real Estate Photos -- Fountain at Coral Way & Granada Blvd

Lovely little fountain at the intersection of Coral Way and Granada Boulevard (officially dubbed Ponce de Leon Plaza).  The north side of Coral Gables is adorned with lots of these little treats, which makes it one of the more popular choices for anyone looking to buy or rent a home in the Miami area.

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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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Sales Pace Backs Off, Prices Continue Higher for Miami Real Estate in January

posted on March 1st, 2010 filed under: Real Estate News

The Florida Association of Realtors reports 436 homes sales at a median price of $208,100 in January 2010 for the Miami metropolitan statistical area.

The number of sales is down from the torrid 623 sales reported for December 2009.

The median price of $208,100 for January is significantly higher than the $204,300 reported for December 2009, which itself was a stupendous jump from the $184,800 for November.

A likely explanation for the erratic price data is the government’s $8,000 homebuyer tax credit.  The credit spurred lots of activity at the low end, where $8k makes the biggest difference to people.  Because the credit was originally set to expire at the end of November, closings were scheduled to close by that deadline.  Closings for December and January reflect costlier properties for which the credit was not a necessary factor.

Bottom line?  Market-wide data are distorted by government intervention, so pay especially close attention to micro-market data like recent sales in the neighborhoods that interest you.

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