Florida Real Estate Showing Signs of Trouble
In 2009, President Barack Obama visited Fort Myers, Florida, promoting the need for a federal economic stimulus package. Foreclosure rates were some of the highest in the country, and unemployment in the town was 11.7% and on the rise.
The court system was having a hard time keeping up with the number of foreclosures on the docket. Florida law requires a court hearing when a house is foreclosed on, and by the end of 2008, the court had a backlog of 30,000 cases in Lee County, where Fort Myers is located. The court created a “rocket docket,” where homeowners were only given quick hearing, often lasting on a few seconds long. It was the only way to start to clear the docket.
At the time, Marc Joseph, a Fort-Myers-based realtor, was taking people on foreclosure tours. Investors were looking to scoop up foreclosed properties, and Joseph bought a green bus and took the investors to all the foreclosed properties. Often the tours were long because of the huge number of properties in distress.
Things have changed drastically during the last decade, as the Florida real estate market has recovered. Over the last six and a half years, housing prices have increased every month, according to the Florida Association of Realtors. The median price was $254,290 in August, up 6 percent from 2017.
“Interest in buying Florida properties is persistent, and given the strength of the Florida economy, tax situation in the Sunshine State, and an aging population, we should see strong prices for many years,” according to Florida housing expert Gord Collins.
Signs of a Softening Market
However, the market has shown signs of softening, and some professionals in the real estate industry have begun to worry. Joseph said he is concerned that many homeowners have leveraged themselves too much and a slight change in the market could have a severe impact.
“If there’s any hiccup on a global level, war, another bad hurricane, anything of any kind of magnitude glitches the market, people live paycheck-to-paycheck,” Joseph said. “I hate to think the green bus is coming back, but something’s coming.”
While foreclosure rates have been relatively low, they have started to increase in Florida. Foreclosures increased 55% in October 2018 in Florida, top in the nation, according to ATTOM Data Solutions. At the same time, the Miami and Tampa-St. Petersburg areas had some of the highest foreclosure rates of any metro area in the country.
“Foreclosures are the tip of the spear of distress entering the housing market,” Daren Blomquist, senior vice president and analyst at ATTOM. “Those upticks could result in more underwater homes because when distressed properties hit the market, they can drag down overall home values.”
Ned Murray, associate director of the Florida International University Metropolitan Center, has been researching the growing foreclosure problem in South Florida, and he says working-class neighborhoods are being heavily impacted. Areas like Homestead, Opa-locka, Miami, Hollywood, and Pompano Beach have seen a significant upturn in foreclosures.
“It’s a disturbing trend, especially when you see the biggest impact is in less affluent communities,” he said. “This is the older, less valued housing stock.”
Murray said the increase in home values in recent years could be a primary cause.
“Because values have increased steadily over the last five to six years, some homeowners took out second mortgages and equity loans,” Murray said. “But wages have remained flat and housing costs such as insurance keep going up.”
The wave of foreclosures could have a larger impact on the Florida real estate market overall, according to experts. The region has seen a huge increase in the supply of high-end homes and condominiums and a slight decline in the market might have a ripple effect.
“The condo situation is starting to mirror the way it looked pre-recession in terms of price drops in Miami,” said Michael Sichenzia, president of the Deerfield Beach-based consulting firm Global Advisors. “Prices have dropped considerably while supply keeps increasing, and there’s still a ton of product that has yet to come to market. I think that the next two years do not bode well for prices in general in Miami. The market is overheated again and you’re seeing the beginning of that cool-down now.”
Hurricane Partially to Blame
Some analysts have pointed to Hurricane Irma and the strong 2017 hurricane season as one of the reasons for the foreclosure trend. The hurricane caused major devastation throughout the region, and many residents fled the region, as their homes were inhabitable. The same thing happened this year when Hurricane Michael hit Florida’s panhandle.
Some people were able to get some form of economic assistance, but others did not take the time to access the needed resources to help them rebuild. They have now fallen behind on their mortgage.
“I think the biggest problem lies with the folks who don’t reach out,” said Glenda Kizzee, a housing counselor. “They’re going to utilize whatever resources they have to rebuild the home, and sometimes miss the payment on the home, which is just going to make it worse. By that time, our resources are limited in what we can do.”
Lenders did offer a temporary moratorium on foreclosures, but that ended last spring. The homes could be several months behind on mortgage payments after the hurricanes, and that could play a role in the foreclosure rate in Florida.
“We’re going to see some elevated delinquency rates continuing over the next couple of months,” Frank Nothaft, chief economist for CoreLogic. “Too many houses were damaged and had flooding. It takes time for homeowners to rectify their financial situation and can start making payments on their mortgage again.”
Of course, increased interest rates are also having an impact, especially with homeowners who got a flexible rate mortgage. In recent years, the private mortgage industry has grown and has offered mortgage products to appeal to lower-income people. Many of these have flexible rates, much like what happened during the Great Recession.
“Gradually loosening lending standards over the past few years have introduced a modicum of risk back into the housing market, and that additional risk is resulting in rising foreclosure starts in a diverse set of markets across the country,” Blomquist said. “Most susceptible to rising foreclosure starts are affordability-challenged markets where homebuyers are more financially stretched and markets with some type of trigger event such as a natural disaster or large-scale layoffs.”
As rates continue to increase on flexible rate mortgages, homeowners either have to sell, pay the higher price for the mortgage or go into default.