Too Hot To Handle?

More news today that the South Florida Real Estate market is so 'hot' that some lenders are pulling out, afraid of getting burned.

A story today in the Palm Beach Post details of the mass exodus in lenders and the glut in condos.

"Major commercial lenders are withdrawing from financing South Florida condo construction and conversion deals, another sign the overheated market may be too hot to handle. UBS AG is out of the Miami market, confirmed spokesman Peter Casey. So is GE Commercial Finance. Philadelphia-based private real estate investment firm AMC Delancey is still interested in Florida. Just not, for the time being, South Florida."

"The likely upshot: "There are many thousands of condo units announced as future projects or in the planning stages that will never get going," predicts Bradley Hunter, director of Metrostudy's South Florida Division in West Palm Beach. "They won't even get to the starting line."

"See how many are dark at night," said Jack McCabe, Deerfield Beach-based real estate prognosticator and president of McCabe Research and Consulting, of condos newly on the market. "There might be one light on for every 20 units. People are not living there. It is the height of the season, but they are sitting dark."

"Even "pre-sold" buildings are struggling. That's because would-be owners who put down deposits thinking they would secure a 2.5 percent interest rate mortgage are now facing rates of 5.5 percent and higher — just as the condo is ready for occupancy, and they have to sign mortgage papers. "Within the last three weeks, I have seen several reservation holders who walked away from earnest money deposits," McCabe said. "There was a fellow who had put over $100,000 down who walked away."

"People are not going to be able to rent these out at anywhere near the amount needed to cover" their costs, McCabe said. That's because many of the new units were designed to appeal to the luxury market, and a lease big enough to cover seven-figure mortgages is out of reach for many renters. As a result, speculators who can't quickly resell are likely to wind up renting their units at a loss."