Saturday, October 14, 2006

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.


At 7:36 PM, Anonymous Anonymous said...

I just sold my house in Miami Beach at 20% below ask after 9 months on the market. I am renting after owning my home for 10 yrs. I feel very fortunate since I believe that there will be a crashing correction.


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