Buyers Calling the Shots...

Flashback to 2005. Sellers would receive multiple offers, at full price. Flippers were everywhere. Prices went up 2-3 % a month.

Fast forward to 2006. Like a marriage gone bad, homeowners are trapped in their houses, unable to sell, unable to move, and some are unable to continue to make the payments.

As reported in today's Palm Beach Post , the markets have turned from a seller's dream to a sellers nightmare. The scary thing, is that we have a long way to go until prices return to the mean. The nightmare will continue for some time. Prices in Palm Beach county dropped 9 percent year over year. Notice the key points of this article, all of which have been mentioned since this blog started. As usual, the MSM is reporting the obvious.


"Palm Beach County and the Treasure Coast, once among the hottest real estate markets in the nation, are no longer the booming sellers' markets they were between 2000 and 2005. "

"Now, buyers are calling the shots. "

"The slowdown has caused an astounding 49-month supply of existing homes for sale in Palm Beach County, Regional Multiple Listing Service records show. Last month, Palm Beach County and the Treasure Coast led the state in declining home sales and tied for the third-largest rate of falling home prices. "

"The buyers who are out there now are very aggressively looking for tremendous price cuts," said Klein's agent, Barbara Siegel of Lang Realty.

"Before the slowdown, homes in this community were selling in 24 hours," Siegel said. "There were bidding wars."

"In most neighborhoods where we sell property, the average sales price has dropped more than 20 percent this year," said Thomas Moffett, broker/owner of Century 21 Sunland Realty, whose office sells property in central Palm Beach County. "

"In Martin and St. Lucie counties, the median price of an existing home also dropped significantly, to $244,300 from $269,400 in September 2005. It was the fourth straight month of falling home prices and the biggest percentage drop so far. "

"Until last month, when the median price of an existing home in Palm Beach County fell 6 percent, the last time comparable prices fell year-over-year was in February 1999, according to association archives. But the number of homes sold has been declining throughout 2006, and that trend continued in September, when existing single-family home sales fell 53 percent in Palm Beach County and 46 percent in the Treasure Coast, the two biggest declines in the state. Palm Beach County buyers closed on 566 homes last month, just over half of last year's 1,022. Treasure Coast buyers purchased 336 homes, down from 621. "

"The market turnaround has caused a tremendous increase in what the industry calls "inventory," unsold homes on the market. The regional MLS shows 27,611 homes for sale this month, more than double October 2005's inventory of 11,605. "

"Nevertheless, affordability remains a critical issue in Palm Beach County, where 90 percent of the workers can't afford the median-priced home, recent studies show. "

"Foreclosures also loom large as falling home prices prevent financially troubled homeowners from selling to get out from under exotic mortgages with escalating payments they no longer can afford. "
Statewide, the median price of an existing single-family home fell 1 percent last month, to $243,900. Sales fell 34 percent statewide as every market in Florida posted declines compared with September 2005.

Florida prices post YOY Decline.

From the FAR press release today. They are not reminiscent of the boom years of 2004 & 2005.


................................Florida Sales Report - September 2006
................................... Single-Family, Existing Homes

.................................. Realtor Sales Median Sales Price

........................Sept.... Sept ... % ........... Sept ......... Sept ..........%
........................2006... 2005.. chge ........ 2006 ......2005... ..Chge

STATEWIDE ............13,485 20,451 -34% $243,900 $246,100 -1

STATEWIDE
YEAR-TO-DATE 142,508 197,098 -28 $249,900 $231,800 8


Daytona Beach (1) 612 1,077 -43 $207,100 $224,400 -8
Fort Lauderdale 741 977 -24 $370,300 $379,400 -2
Fort Myers-Cape Coral 693 1,075 -36 $261,400 $288,700 -9
Fort Pierce-Port St. Lucie 336 621 -46 $244,300 $269,400 -9
Fort Walton Beach 267 347 -23 $231,400 $245,500 -6
Gainesville 215 289 -26 $206,400 $179,800 15
Jacksonville 1,191 1,546 -23 $190,800 $194,400 -2
Lakeland-Winter Haven 387 574 -33 $168,900 $161,300 5
Melbourne-Titusville- Palm Bay 475 679 -30 $206,100 $225,300 -9

Miami 769 872 -12 $371,700 $371,200 -
Naples 236 377 -37 $446,900 $487,500 -8
Ocala 387 429 -10 $168,000 $157,500 7
Orlando 2,015 3,105 -35 $265,000 $250,100 6
Panama City 110 163 -33 $202,100 $201,000 1
Pensacola 466 564 -17 $167,900 $163,400 3
Punta Gorda 206 353 -42 $207,800 $229,700 -10
Sarasota-Bradenton (2) 436 648 -33 $290,000 $343,300 -16
Tallahassee 395 508 -22 $185,000 $169,800 9
Tampa-St. Petersburg- Clearwater (3) 2,595 4,443 -42 $227,400 $215,200 6
West Palm Beach- Boca Raton 566 1,202 -53 $365,500 $400,000 -9


We now have YOY negative prices with volume down an average 34%. Drive through any neighborhood in South Florida and count the number of FOR SALE signs.

Sellers are faced with several problems:

1. Out of control insurance rates.
2. Insurance companies refusing coverage.
3. Skyrocketing taxes.
4. Rampant speculation.
5. Home prices that have for the most part doubled, causing houses to be unaffordable.
6. The majority of purchases in 2004, 2005, and 2006 were using ARMS.
7. Many buyers simply cannot afford the mortgage payment.
8. An explosion of inventory.
9. Rising rates.
10. A decline in the pool of potential buyers.
11. A tightening of lending standards.
12. Declining home values.

In my opinion, I have not seen a market this overvalued ever in Florida, and there appears to be a lot further to go before we see a return to the mean for prices.

A Call to ARMS

The media is picking up on the "Big Squeeze" in ARM resets over the next three years. In case you are not aware, here's the scoop- in 2006 there will be about 600 billion in resets, in 2007 and 2008 about one trillion in resets each year. Yes, you read that right- each year.

Here is a story I found in the "Orlando Sentinel. It gives you a brief outline of what the current outlook is for the typical homeowner faced with the reset quandry.

"Homeowners who were lured to so-called option ARMs during the big housing run-up by promises of extra-low monthly payments or 1 percent interest could soon face an ugly reality: mortgage payments that could more than double."

"This surprise could kick in early next year for those who took out these loans three years ago, mortgage experts predict. And that's not the worst of it: Borrowers who put little money down, took out option adjustable-rate mortgages and who live in areas where housing prices have barely risen or even fallen can owe more on their house than it's worth."

"There is a lot of concern in the industry and among regulators that a high percentage of people taking out these [mortgages] will have difficulty continuing to make these payments," said Allen Fishbein, director of housing and credit policy with Consumer Federation of America. "They will either figure out alternative ways to make payments or they will have to get rid of their homes."

"This adjustable-rate mortgage usually allows borrowers to choose among four payment options each month. They can pay only the interest or pay principal and interest based on a 15-year or 30-year term. Or they can make a minimum payment that does not cover the interest due. Unpaid interest is added to the principal, so each month the borrower ends up owing more. This is called negative amortization. It's this payment method that worries advocates and regulators. "

"Here's how the minimum payment works:Monthly payments are based on an artificially low interest rate of 1 percent to 3 percent. The actual rate being charged can be much higher and change monthly. Unpaid interest each month is tacked onto the principal, so the balance doesn't go down.Payments are fixed for the year. They adjust annually but usually cannot go up by more than 7.5 percent.At some point borrowers must begin repaying the principal. This usually happens at five years, but it can occur earlier if the growing balance reaches 110 percent or 115 percent of the original loan. "

"Borrowers who took out an option ARM in June 2003, for example, could hit this trigger in February or March, said Keith Gumbinger, vice president with HSH Associates, a provider of mortgage information. Once this happens the mortgage will be recalculated based on the larger balance, the interest rate at the time and years left on the 30-year loan. This is how borrowers can end up with payments more than doubling."

"For many, the solution will be to refinance into another type of mortgage that better suits their finances. But beware: Option ARMs often carry prepayment penalties that can be thousands of dollars if borrowers refinance within the first three years, Sweren said. "

Keep on eye on this subject as I believe that you will see the number of homeowners that simply cannot afford to stay in their homes either list them to sell or hand the keys back to the lender.

Free Falling............

First, yes I know it has been a while since I posted. Sorry. All I can say is , what a difference a few months make. The air is out of the balloon and the current view of the bubble is that of the picture on the left.

Prices peaked anywhere from the Spring to Summer of 2005, right around the hurricane season. Now they are in a free-fall that in my opinion will be ugly. I mean twenty to thirty percent downward prices from the peak ugly.

As I have warned, the massive amounts of resets are starting to hit. Insurance and taxes are skyrocketing. The latest numbers show over a three year inventory of units across South Florida. There are no more "greater fools" to flip to.... And the builders keep building, and dumping their product at huge discounts. Real estate auctions are popping up all over the place, as flippers walk away from their properties.

The downward spiral of this bubble is playing out infront of us, as reported in today's Palm Beach Post .

"The number of homes in some stage of foreclosing in Palm Beach County and the Treasure Coast soared last month compared with a year ago, while Florida posted the second-highest number of new foreclosure filings in the nation, according to RealtyTrac. "

"The new report gives fresh evidence that local homeowners are struggling with budget-busting energy prices, adjustable-rate mortgages resetting at higher rates and a sluggish home-sales market. "

"In Palm Beach County, 873 homes entered some stage of foreclosure in September, or one in every 637 households. That's a 46 percent increase from the 596 reported in September 2005, according to Irvine, Calif.-based RealtyTrac, which tracks foreclosures. "

"What I am seeing is an increase in selling motivation in Broward and Palm Beach counties. People are not sitting and hoping for a sale," Wiser said. "They are dropping the price, doing open houses midweek, whatever it takes to get out before foreclosure."

"In Martin County, 55 homes entered some stage of foreclosure in September, or one in every 1,190 households, RealtyTrac said. Martin's September foreclosures were up 189 percent from the same month a year ago, when 19 homes entered foreclosure. "

"In fast-growing St. Lucie County, 190 homes entered some stage of foreclosure last month, or one in every 480 households. That compares with one in 1,030 homes in foreclosure across the nation. Further, the September numbers for St. Lucie were up strongly from the same month a year ago, when 106 homes were in some stage of foreclosure, the report said. That's a 79 percent hike.

"Statewide, 12,946 properties entered some stage of foreclosure last month, the second-highest number of new filings in the nation and up 41 percent from September 2005. California was No. 1 in new filings, with 14,806. Florida's foreclosure rate of one filing for every 564 households was the fourth-highest in the nation, RealtyTrac said. "

"Recent government reports indicate that Florida and Palm Beach County have high percentages of option adjustable-rate mortgages. These exotic mortgages, as they are known, allowed local buyers to afford homes in one of the hottest real estate markets in the country. "

"Local home prices nearly tripled in five years, pricing even professionals such as teachers and nurses out of the market. The price gains are astounding: The median price of an existing home in the Treasure Coast soared from just $93,100 in 2000 to $254,000 in 2005. In Palm Beach County, the median price rose from $138,600 in 2000 to $390,100 five years later. Figures are from the Florida Association of Realtors' archived year-end reports. Given these astronomical price gains, many buyers considered option adjustable-rate mortgages their only route to homeownership. However, those loans are beginning to reset with monthly payments that are out of reach for many, making foreclosure an unwelcome choice in a market where homes aren't selling. At the same time, home values are stagnant or even dropping. "


This is just the tip of the iceberg. As this juggernaut starts to build momentum and as the inventory continues to swell, the acceleration downward will grow faster and faster. I have said many times that sellers will run towards the same exit at the same time once they realize the game is over. Like any other bubble, excesses will eventually be wrung out and those prices will return to the mean. In this case, I suspect around the year 2001 to 2002 prices.