Panhandle real estate boom just starting

[SHELLY]

Wile,

I don't expect to convince you the Florida condo craze is going to end (very) badly for lots of folks--time will prove me right on that point. It happened before in the 1920s Florida Land & Condo Craze

The crash of the real estate market in Japan proves that the "they're not making any more land so prices have GOT to go up" pitch isn't gospel.

The baby boomers who were going to flock to the Florida condo market no doubt included in their numbers the tens of thousands of workers who are going to get pink slips from GM, Ford, Merck, and others.

The heady days of condo flipping for fun and profit are quickly coming to an end sending speculators screaming for the exit. Justification for condo investment has been reduced to a series of "ifs and buts" (and as they say, "When 'ifs' and 'buts' become candy and nuts we'll all have a Merry Christmas" ")

During the recent condo craze it ALWAYS been about profits for the developers. I suspect some of the new developments won't get off the drawing board as banks (and the Fed) are clamping down on the easy lending practices of the past. Most of the condos coming out of the dirt now are of the $10,000 down variety; many of the higher cost condos were pushed as fractionals with an equally small down payment per investor. Lots of the small down payments were even financed by folks pulling equity out of their primary homestead (and interest on these equity loans are readjusting up as we speak). Some will have no other option but to walk away when they can't find a bigger fool or close on the mortgage.

Many people who were holding (and successfully renting) condos they bought years ago have cashed out. Those who recently purchased them for investment at (too) high prices will find out this coming summer they won't be able to cover their carry costs due to the increased taxes, insurance and fees; and due to the EXPLOSION in competition (more condos!) they will have to provide more competitive prices and pray they break even or don't lose too much money from their "investment." It won't take long for word to get out that renting on the panhandle isn't as profitable as it was in the good ole days when the area was pretty, the carry costs were low, hurricanes were few, and competition was scarce. When that happens, even more condos will flood the marketplace.

People who don't recognize that the real estate frenzy of the past couple years was an anomaly will get financially spanked in the end--find these folks QUICK if you have a condo to sell!

 

[Bob]

Wile,

I don't expect to convince you the Florida condo craze is going to end (very) badly for lots of folks--time will prove me right on that point. It happened before in the 1920s Florida Land & Condo Craze

The crash of the real estate market in Japan proves that the "they're not making any more land so prices have GOT to go up" pitch isn't gospel.

The baby boomers who were going to flock to the Florida condo market no doubt included in their numbers the tens of thousands of workers who are going to get pink slips from GM, Ford, Merck, and others.

The heady days of condo flipping for fun and profit are quickly coming to an end sending speculators screaming for the exit. Justification for condo investment has been reduced to a series of "ifs and buts" (and as they say, "When 'ifs' and 'buts' become candy and nuts we'll all have a Merry Christmas" ")

During the recent condo craze it ALWAYS been about profits for the developers. I suspect some of the new developments won't get off the drawing board as banks (and the Fed) are clamping down on the easy lending practices of the past. Most of the condos coming out of the dirt now are of the $10,000 down variety; many of the higher cost condos were pushed as fractionals with an equally small down payment per investor. Lots of the small down payments were even financed by folks pulling equity out of their primary homestead (and interest on these equity loans are readjusting up as we speak). Some will have no other option but to walk away when they can't find a bigger fool or close on the mortgage.

Many people who were holding (and successfully renting) condos they bought years ago have cashed out. Those who recently purchased them for investment at (too) high prices will find out this coming summer they won't be able to cover their carry costs due to the increased taxes, insurance and fees; and due to the EXPLOSION in competition (more condos!) they will have to provide more competitive prices and pray they break even or don't lose too much money from their "investment." It won't take long for word to get out that renting on the panhandle isn't as profitable as it was in the good ole days when the area was pretty, the carry costs were low, hurricanes were few, and competition was scarce. When that happens, even more condos will flood the marketplace.

People who don't recognize that the real estate frenzy of the past couple years was an anomaly will get financially spanked in the end--find these folks QUICK if you have a condo to sell!

Shelly, the U.S. Census Bureau predicts 35 million plus residents for Florida by 2025. That's nipping at the heels of California. Do the math.

 

[Smiling JOe]

Shelly,
The $10,000 down to which you reference is not the down payment. It is only the reservation amount, and once the reservation goes to hard contract, you will need to pony up 10% cash with a letter of credit, or 20% for the down payment, which becomes non-refundable.

 

[WiLe]

Wile,

I don't expect to convince you the Florida condo craze is going to end (very) badly for lots of folks--time will prove me right on that point. It happened before in the 1920s Florida Land & Condo Craze

The crash of the real estate market in Japan proves that the "they're not making any more land so prices have GOT to go up" pitch isn't gospel.

Its wrong to compare the 20's bubble to what's happening in Florida today. Credit was easy and, I think, most anybody who had a job could get in on the action. That's also why so many stock market investors were jumping out of windows. (10% margin for most any investor was the rule back then). This is not the case case today. Speaking strictly of condos, with a 20% down payment, you're talking about IMMEDIATELY eliminating most people from participating. And very few of those people who can afford the 20% will walk away from that much money and ruin their cedit in the process... Unlike Japan, with Florida the primary justification for real estate rising higher than most of the rest of the country is migration. Ask the average person in Michigan where he'd last to spend his last days - if he's inclined to relocate, the most likely answer is going to be "Florida" and, if he has been gainfully employed for a few decades, most likely he can afford to move somewhere in Florida. Plus you've got all the folks who just pick up and move to Florida and find work when they get there. If all this is false, demographers have a lot of explaining to do.

The baby boomers who were going to flock to the Florida condo market no doubt included in their numbers the tens of thousands of workers who are going to get pink slips from GM, Ford, Merck, and others.!

The pink slipped, who can't rebound are relatively few. Big companies going bust is nothing new. I'm from Birmingham and can remember when steel ruled. The world came to an end when U.S. Steel closed up most of its production in the early 80's. A few years later, people realized they weren't dead.

The heady days of condo flipping for fun and profit are quickly coming to an end sending speculators screaming for the exit. Justification for condo investment has been reduced to a series of "ifs and buts" (and as they say, "When 'ifs' and 'buts' become candy and nuts we'll all have a Merry Christmas" ")

Flipping at 50% profit might be over. So? Doesn't mean that appreciation can't average 10 -15% per year for prime property. Its also possible for HUGE profits to return one day - like they did for California. When land is limited and a lot of people want it, prices generally rise.

During the recent condo craze it ALWAYS been about profits for the developers. I suspect some of the new developments won't get off the drawing board as banks (and the Fed) are clamping down on the easy lending practices of the past. Most of the condos coming out of the dirt now are of the $10,000 down variety; many of the higher cost condos were pushed as fractionals with an equally small down payment per investor. Lots of the small down payments were even financed by folks pulling equity out of their primary homestead (and interest on these equity loans are readjusting up as we speak). Some will have no other option but to walk away when they can't find a bigger fool or close on the mortgage."

There is no such thing as a small down payment on a condo. 20% is a high. So what if some of the condo develpments don't get off the ground? Wouldn't that be a calming factor on an overheated market? Interest rates are a factor, but the first casualty would be new construction, which would cool down the market. Nobody's going to walk away. There would be somebody there to pick up the property at a discount - same as if you bought a bond and get rid of it before maturity, when interest rates are rising. Fractionals are a non-issue. People will want to hold on to them for the same reason they bought them. They're not time-shares.

Many people who were holding (and successfully renting) condos they bought years ago have cashed out. Those who recently purchased them for investment at (too) high prices will find out this coming summer they won't be able to cover their carry costs due to the increased taxes, insurance and fees; and due to the EXPLOSION in competition (more condos!) they will have to provide more competitive prices and pray they break even or don't lose too much money from their "investment." It won't take long for word to get out that renting on the panhandle isn't as profitable as it was in the good ole days when the area was pretty, the carry costs were low, hurricanes were few, and competition was scarce. When that happens, even more condos will flood the marketplace.

People who don't recognize that the real estate frenzy of the past couple years was an anomaly will get financially spanked in the end--find these folks QUICK if you have a condo to sell!

I think that people who are smart enough to be able to purchase a million dollar condo, are smart enough to know they can't cover the carrying costs by renting. The people I see buying those kind of condos here, know what they are getting into. Actually, most real estae agents explain this to them - the ones that I know do this. Way back in 1993, when I bought my first condo, the developer told me that I might have to supplement the payment with my own funds.

 

[SHELLY]

So it's $20,000 (from home equity loans?) and a "letter of credit." But for those who've made it to hard contract the pain will hit home when the developer comes knocking and wants final payment. Then they've gotta scramble for a mortgage (probably trying for an optional ARM to hold them over while they try unload (along with everyone else) into a declining condo market)...the idiots who can't afford the condo and all the trappings that go along with "investment condo" ownership will take a bath and SERIOUSLY regret they didn't walk out on the deal.

If one has the money to carry the investment--no problem. But there are so, so many out there who are holding onto a fistful of these contracts for "investment" who will end up NOT having a pot...but will certainly have plenty of windows to throw it out of.

HOT TIP: Get out of the conventional real estate business and into the real estate auction game--that's where the next "boom" will come from. Property, home and condo auctions are going to be hot, hot, hot!

BOB: And I bet that 35 million in California don't include illegals either! It's true that Florida's employment figures look good...but the majority of these jobs are "service" jobs...just how many $500,000 condos can a person who makes $8.50ph buy in Florida? With all the "rich" folks flooding the state, surely they'll want someone to do their nails or clean their pool--people don't live on Botox injections alone.

2nd HOT TIP: Look out for some goomba from Jersey to start organizing the service sector folks in South Walton. Something's gotta give.

 

[SHELLY]

WiLe:

You said: "Its wrong to compare the 20's bubble to what's happening in Florida today. Credit was easy and, I think, most anybody who had a job could get in on the action. That's also why so many stock market investors were jumping out of windows. (10% margin for most any investor was the rule back then). This is not the case case today."

This is not the case today?? :shock:

Maybe you are right--10% margin is TOO low for lots of real estate investors...those using "creative financing" are working on 80-100% margin!

 

[WiLe]

WiLe:

You said: "Its wrong to compare the 20's bubble to what's happening in Florida today. Credit was easy and, I think, most anybody who had a job could get in on the action. That's also why so many stock market investors were jumping out of windows. (10% margin for most any investor was the rule back then). This is not the case case today."

This is not the case today?? :shock:

Maybe you are right--10% margin is TOO low for lots of real estate investors...those using "creative financing" are working on 80-100% margin!

I kinda thought that you'd take hold an run with the analogy. You're drawing an apples and oranges conclusion. Difference is that in the 20's the stock market investor could pick up his phone and buy $100 worth of stock with $10 - ON HIS WORD. Today, banks make you jump through hoops to get a loan. They don't loan unless they have more reason to think that you'll pay than default. Certainly, just as with any other big ticket item, there is going to be some buyer's remorse. Massive amounts of people bailing out and walking away from a a hundred thousand + ain't gonna happen - unless our economy crashes, depression style. If that happens, odds are it isn't going to matter how you're invested. People would be walking away rom their primary residence, just the same as second home or investment property.

I will agree with you that if the investor could ONLY put up $10 - $20,000 and not run the risk of ruining his credit, many would risk more. $100,000 - $200,000 and ruined credit, "walking away" is not going to happen.

 

[beachmouse]

It's scary how many loans have been written for not just interest only, but for negative amoritization in recent years, and how many of those neg-am loans involved very little down payment.

Next 2-3 years, I can see a 10-20% decline in single family prices. Not great, but unless you bought at the absolute top of the market, not too horrible of a decline. Then a long slow gentle rise in prices and getting back to March 2005 prices in 5-10 years.

The condo market in the northern Gulf Coast is going to be a bloodbath in the next 2-3 years. Panama City Beach is in the process of massively overbuilding, and a lot of the flippers who are trying to unload their contracts right now are going to go into foreclosure. And it's going to be a big enough problem to depress prices between there and Orange Beach/Gulf Shores.

Yeah, PCB is still a bit scruffy, but when you can get a shiny new construction 2 bedroom beachfront condo for $180K at the bank foreclosure auction and get some decent rental out of it, it makes a lot more financial sense to buy there than to pay $500K for something similar in Destin or Perdido Key.

If I was looking to buy these days, I'd go with a single family home that could be improved with some sweat equity and modest modernizing.

 

[SHELLY]

"Today, banks make you jump through hoops to get a loan. They don't loan unless they have more reason to think that you'll pay than default."

OH NO???

Check it out:

NO DOC LOANS!!

And there are hundreds and hundreds more where that came from.

WiLe, you really need to get out more--just steer clear of realtors, you'd be like honey to the bees.

 

[Smiling JOe]

"Today, banks make you jump through hoops to get a loan. They don't loan unless they have more reason to think that you'll pay than default."

OH NO???

Check it out:

NO DOC LOANS!!

And there are hundreds and hundreds more where that came from.

WiLe, you really need to get out more--just steer clear of realtors, you'd be like honey to the bees.

Shelly is absolutely correct on no doc loans. However, the advice of steering clear of Realtors should be corrected to, "stay clear of bad Realtors." Good Realtors really do exist and they can be very helpful.