SW FL Real Estate

The list of cities that are most likely to experience declines in home prices over the next 2 yrs.- published 6-19-07.  Surprise - Surprise -

1. Naples, FL.
2. El Centro, Calif.
3. Riverside-San Bernardino, Calif.
4. Phoenix-Mesa-Scottsdale, Ariz.
5. Stockton, Calif.
6. Cape Coral/Ft. Myers, FL.
7. Sarasota, FL.
8. enuff is enuff 4 of top 10 are in FL. - 5 of top 11 are in CA.
   

These findings are released by PMI Mortgage Insurance in its Summer 2007 U.S. Market Risk Index. This is a company that insures lenders against their borrowers delinquency and drops in valuation.

Let's look at these findings:

• This index gives additional weight to an area's recent price volatility
• Shows a weighting of risk toward FL and CA.
• This is based on the 1st quarter 2007
• Look at markets listed.  They have been (except Vegas) the most active markets in the U.S. for the last 5 years.
• Of course they will have the most volatility in a receding market and depressed pricing market.
• The SW FL real estate market is a mere shell of what it was thru mid-year 2005.
• According to F.A.R. published reports, the median price of an existing single family home in SW FL has dropped by $40,000 in the past 2 years.
• The number of sales have dropped proportionately, as well.
• What is the most common factor with all these highly suspect market cities?  The most volatility, of course. 
• These cities have experienced the fastest appreciation rates in the past 5 years (thru mid 2005).  This rise, of course, could not be supported (47-80% appreciation rates in '05) which was followed by a sharp downturn in both pricing and sale transaction numbers.

This price problem is real and is compounded by the continuing over supply problem. 

• I think price drops will vary by community and area and not be a county wide or area wide drop.  
• If Naples is going to drop substantially it needs to hurry because even in these doldrums, a new property record was just set.  A home on Gordon Dr. just sold for $40M! 
• Do I think we have bottomed out?  No 
• Do I think we will see major drops from where we are on 6-15-07?  No 
• We have no buyers - but more and more sellers
• As I keep saying, the over supply still exists and that depresses the market.  Until that goes away, the market can't respond.

That's the way it works.  It sucks if you are in this market as anything other than a buyer or if you bought anything between '03 and -06.  The press is helping us all they can.  This topic will be the headline for days.

That's what I think - what do you think?  Let's talk about it here...... or call or email me

Come on boys and girls - the insurance legislation didn't really "take" did it?

The truth is - as I have previously written - the insurance legislation was political window dressing and chest thumping.  There was no real substance with certain exceptions.  One notable exception being the state (out on a limb) is providing catastrophic reinsurance to companies to guarantee less expensive reinsurance charges hence, lower premium charges (theory).  With that said, how about..... 5... count 'em... 5 property insurers have recently filed to increase rates!!!

The 5 (to be shamed) companies are: The Hartford (29.5%), Florida Farm Bureau (30.3%), Cincinnati Insurance Co.(37.5%), Metropolitan P & C (14.9%) and Auto Owners (41.9%).

Metropolitan says they have paid out over $2 for every $1 taken in (over the past few years).  Guess what?  That is a principal of insurance.  Why are we not "gloating" over your results from 1989 to 2004?  That is 15 years of gravy, that's why!  Insurance rates are promolgated using a 20 year window, not 3.  Let's run '86 to '06 and see how it comes out for a "FALC",  that stands for final average loss cost.  That is a part of the formula used in rate making.  Another part of the formula is a catastrophic factor.   See, it is already in there.

Hartford says they periodically adjust rates to make certain they are pricing their product in a manner to adequately cover risks.  Well, they have at least done that!  Florida Farm Burea says it is just a rate correction....

The state says they have an average of a 15% drop in rates so far this year.  Is that a 15% drop in what the cos' were asking for or 15% drop in comparing the rates from what they were prior to January 1, '07?

The state has published a list of insurance companies and their premium charges for a homeowner policy.  This list is by county, utilizing a $175k home insurance amount and lot of other presumptions.  This wouldn't be a bad idea if it were even close to accurate.  In our area, most of the cheapest premium rated companies won't write a home in the area.  Yes, they have a rate filed but don't have to accept any risk in the area.  And, they don't.  Other companies were rated incorrectly.  That is just as bad, if not worse, because the consumer sees their company listed as a high priced premium company and think they have a bad "deal" or bad company when, in fact, they may be one of the best.  The rates used may have been wrong and the other assumed factors were likely wrong.  The state could have done it accurately, at least.

That's my story - what's yours? 

Here are some quotes, opinions and statistics as published by our illustrious local paper:

“There's a 100 percent chance our prices are going to be lower in two years," Denny Grimes, saying that a PMI Mortgage Insurance study released a week ago was overly optimistic in pegging the chances at 63.4 percent (sixth-worst in the country with Collier's the worst at 68.1 percent - as published in the News-Press.

I think the inventory of unsold homes, foreclosures and dumping of houses by builders at discount prices are the major contributors to this scenario.

J. Larry Sorsby, executive vice president and chief financial officer of Red Hook, N.J.-based Hovnanian Enterprises, said Monday at the Reuters Real Estate Summit in New York that Lee County is "by far the worst housing market that we're in and I wouldn't be surprised if it's the worst housing market in the country." Hovnanian bought the assets of First Home Builders, the area's largest residential developer, in 2005.   Interesting point - they have removed Ft. Myers and Cape from their web site.....

Elsewhere in Southwest Florida, Collier County statistics weren't available because the Naples Area Board of Realtors does not provide the numbers to the state association. Isn’t that typical of Naples?   It would just be beneath them to provide necessary statistics like every other county in the state!!!!

In Lee county, the number of sales plummeted by 42% in May compared to May 2006 (which was awful).

What do I think of the reality of this situation?  That it is unprecedented and I think if I would take about a $500k loss on property I own here and move away - the problem would rectify itself overnight.   Anybody interested in underwriting that solution? 

What do you think?

Will this market be fine in 2 yrs (it has been almost 2 yrs now).  We are looking at a 4-5 yr overall market collapse prior to a turn around of any kind.  We are getting ready to make the next set of real estate zillionairs.  Think about it.  The buyer today, in this market, and the value of that property in 5 - 10 yrs.  

As I have alluded to in prior posts.....

The xs $1M home market continues at a much more positive rate when compared to other price groups.  What do I mean?  Homes with price points between $1M and $12M are moving better than homes with price points of $300k - $900k.

Naples just set a new record sale with a beach front estate on Gordon Dr selling for $40M!  It is a 4.5 acre estate on the beach!  But, $40M?

Why?  Because they know this market fluctuation doesn't matter compared to 5-10 yrs. from now when they think they will be ready to sell.

Why?  Because they know this market will ultimately respond and values will grow again.  This condition is probably necessary but not a forever condition.  Do not believe the current market is permanent.

That's why smart buyers with some money - are taking advantage of this market pricing structure.

Just thought you might want to know.  If you want to discuss - please give me your thoughts here -- or email me -- or call me at: 239-560-8893....

Lee County’s MPO voted 13-1 Friday (6-15-07) to use $10 million in federal money earmarked for an interchange study to determine whether to build an I-75 interchange at the controversial Coconut Rd. interchange in Estero. That money got national attention from the New York Times front-page article about the link between a local developer and U.S. Rep. Don Young, R-Alaska, former chairman of the House Transportation and Infrastructure Committee as well as national news footage recently.
The study should find where an appropriate interchange should be built, if one needs to be built at all.

Young put $10 million into the 2006 federal highway bill for the Coconut Road interchange study, shortly after supporters helped Young raise $ two years ago during the congressman’s visit to Southwest Florida.

Locally, there has been much controversy over this simply due to local politics (before the nationals took over). What I want to point out here are a few realities:

This is not a new idea and I have personal knowledge and proof;

I bought a home in The Brooks and closed on it in Dec., 1999. At that time, I was told by the builder that Coconut Road would become an interchange on I-75 when The Brooks was completed! All original property owners were told at closing about this. I was told that land was allocated by the original developer as part of the agreement for the developer to build Coconut Road. If you look at the aerial photos of the area, at that time, that is obvious. By the way, I no longer live there so this is not being written by a resident that has an ex to grind.

Lee County had Bonita Bay (the developer) set aside the land for the interchanges as part of the original CDD agreement. For those readers not familiar with the term CDD, it is where the developer gets the county to agree to let the developer build a road (float a bond issue) and make the property owners pay it back as an added part of their property taxes, for about the next 20 years. The property owners in The Brooks are all paying for Coconut Road to the tune of $1,000 per year for 20 years (that is per property owner added to their property tax bill). But – I digress…..

Do you really think the Coconut Point Hyatt was built without the belief that Coconut Road would become an I-75 interchange?

Do you really think the Simon Group built Coconut Point without the belief that Coconut Road would become an I-75 interchange?

The old saying that all politics is local. Well, this politics – with however much national discoloration – is local. This is about who has the most political clout. The homeowners with serious money in The Brooks that don’t want more traffic on Coconut Road or the developers and builders of locations previously mentioned as well as the potential builders and developers of projects under construction and under zoning application.

Actually I am not sure who will win because it should have already been done (in accord with prior long term commitments). This isn’t about the environment and all the hoopla that goes along with the “E. of 75 DGNR” malarkey. IF that were actually the case, the new development E. of Bonita Beach Road that totally “flies in the face” of all those issues would not have been approved. This is about local political power. Yes, the owner of the land E. of 75 was influential in the fund raising for the former Congressman. And, yes, he is undoubtedly doing that for personal gain. And more importantly – yes, you can build an interchange that does not open up his land for development. So, we come back to my long held truth that it is really a matter of local politics. Who has the money for the right pockets? That’s who eventually wins these cases in SW Florida. We are always all about conservation and DGNR and some damn lost turtle or an eagle nest and all that - until a developer brings serious money to the table. Then, it isn’t such a problem any more.

As we all know – this is the worst real estate market in the last 15 years – at least in SW FL.

Lee county has lost more value than Collier. Comparatively, Lee has far fewer sales transactions too.

What’s funny about all that is (not funny - ha ha but funny odd) – the amount of political and extraneous community government activity related to this real estate market.

The FL state legislature did pass (6-14-07) monumental law changes effecting real estate taxation. It certainly isn’t enough. I have addressed this topic in prior postings. See prior postings on property tax for details.

The state has made monumental changes in property insurance laws in an attempt to get the “run away” property insurance industry under control. The state has taken a huge chance. Honestly, it was probably not a prudent decision overall. I am referring to the reinsurance charge-set up issues, etc. The other incredible decision was to make the state run “last resort” insurer program a competitive insurance company. Citizens is becoming an insurance company, owned by the state. It has become the largest insurer in the entire state!

Foreclosures have hit record highs in SW FL and the nation for that matter. But, FL is leading the entire nation. Lee county had over 730 foreclosures in the month of May.

AND NOW… for our next amazing – dizzying feat………

Collier county commissioners are seriously requesting a BUILDING MORITORIUM for the entirety of Collier county until such time that they and the state can get comfortable with their ability to manage the growth in all aspects.  Understand this is very unlikely.  I think it would take 4 of 5 commissioners to vote for it.  How likely is that?

What are the ramifications here?

• Values of existing properties would soar, for one thing.
• Oh yeah, the local economy would be completely tanked. Undoubtedly, without the stats to prove it, real property construction is the largest engine of the local economy.

But here – finally – is what I just thought of….. All realtor B.S. aside. Based on what I just detailed above…….

NOW is the time to come to aid of your buyer and should be.. would be…. wanna be…. buyers…..

Honestly, the mere threat of a building moratorium will light up the Naples market and pricing. Likely S. Lee sales and valuation would be helped too but I doubt if all of Lee would be positively affected. Whether a building moratorium ever actually materializes or not, there is great $ to be made in the Naples market.

Let's talk about this...... give me your thoughts, comments, critique......

Moratorium... is that possible in SW FL?  Surely not, you say....

The Collier County commissioners asked planning officials to bring back an ordinance in July that would shut down the building industry until county government can prove to the state that Collier’s capital improvement plan is financially feasible.  Holy Crap!  

Could they?  Would they?  This would be economic death to the building/developer business in Collier county.  It wouldn't last forever though.  They (commissioners) would make "deals" and, of course, anything holding permits or where impact fees were already paid would still get to be built.  

• That would pick up the real estate market in Collier county, huh? 
• Since there is about a 3 yr. supply available now -
• It would be the best thing that could happen to the resale general real estate market in Collier county except for one thing.......
• Real estate development construction is undoubtedly the number 2 industry in the county.  That would be 2nd only to tourism. 
• What does the economy do when all the people that actually live here are all put out of work and or out of business? 
• How does that work out for ya?

Tell me what you think about this... Can it happen? 

Today - the governor signed legislation that does 2 things - both of which are good for the insurance consumer......

1. legislation that does not allow the state run insurer (citizens) to raise rates for another year and;
2. Other private companies cannot create a "shell" company to do business in FL. and then not include their profitable results in other state operations.....

Both these are positive and have been agreed to for quite some time.  This is not the overall answer - just like - the tax reform proposal that is supposedly agreed to - isn't a viable solution.  But, it is better than nothing... what do you think?

Word is – we have a deal – the "politicos" have made a typically political arrangement.  Certain factions are very upset and time will tell......

These are the Cliff Notes on the new state legislature property tax proposal:

A two step approach – with the 1st step to become effective as soon as signed into law and the 2^nd step to be passed by voters in the general election to be held on January 29, 2008.

The 1^st step will effect the 2007 property tax bills that will be due Nov., ’07.

This would require municipalities to reduce their taxation --- based on a formula – not to be detailed here – it appears that both counties in SW FL would be forced to reduce by 9%.  That means the tax bills reduced by that amount.

The 2^nd step will become effective for tax bills due in Nov., 2008 – if the voters pass a resolution to change the homestead and save our home exemptions like:

The homestead exemption of $25,000. would be replaced with: 75% of the 1^st $200,000 (taxable value) being exempt. Then 15% of the next $350,000 would be exempt. That would reduce the tax base on a $500,000 home from $450,000 (current) to $305,000.  This would represent a savings of about $150,000 of taxable valuation.

Well, that’s the deal….. As usual – the politicians have made an adjustment that allows them to go home and do their “chest pounding” but it really doesn’t make a huge difference to the citizen paying those taxes - that are helping to kill the economy. This is a republican majority legislature controlling this issue which of course offends the sense of sensibility (pun) of the democrats.  And, they may be able to actually stop this entire package.  Think about that.... the party of the "working man" doesn't agree with a plan that allows the greatest benefit to the person with a lesser valued home.....

We are looking at a maximum change for ’07 of no more than 9% where these same taxes have doubled in the past 4-5 years.  I would say this is a lot like “spitting in the ocean”. I am sure it matters but it is really hard to prove…..

SW Florida property insurance has become one of the 3 areas I call the critical mass.  The critical mass areas are: price of the property, annual property tax costs, annual insurance costs. 

Many home buyers are not eventual home owners because they either

1) cannot afford to pay all 3 or 

2) insurance is not available in an amt. to satisfy the mortgage needs or

3) insurance is so expensive that with property tax and mortgage - it is not possible...

Many readers will say something close to - I thought all the property buyers in SW FL were 2nd home rich boomers....  If that were all the buyers this market ever dealt with, the whole region would implode.

SW Florida is primarily controlled by 3 insurance companies.  Those 3 companies are insuring over 50% of the homes.  Because they have such an enormous market share, they are killing the consumer with their methods that are being allowed by the state department of insurance.  The state touts its' activities on behalf of the resident but in reality is trembling in fear from the threats and innuendos of the big three insurers.

I have decided to seek out insurance companies wanting to start writing property insurance in this area and companies that are rated to beat these "big 3" companies that are beating up the homeowners of SW Florida.  This may not be a broad based solution.  However, it may be a small step in the right direction.  This will allow me to develop an independent agency, for this area, with companies that will insure property (homeowners) at more reasonable rates while still providing excellent coverage.  Unfortunately, that doesn't happen fast enough.   I am probably 30-45 days from having the office operation open.  And, I am possibly 6 mos. or more from having all the carriers we need. 

Auto insurance does not seem to be a problem.  The area is full of drivers that don't seem to be familiar with driving let alone traffic laws but, all the insurers want to write the car insurance.  Therefore, the rating is fairly competitive for the consumer.  That isn't the problem.  Property insurance is the problem.  That.... and service.....  The consumer has been abused by property insurers to the extent that people are accustomed to being abused about obtaining insurance coverage from an agent or company.  Irrespective of the ultimate cost, the agent works for you.  Of course, in the case of the big 3 captives - the agent doesn't work for you...  as an employee of that company, they work for the company and they are not allowed - by their employer - to be involved in representing you at the time of claim!  That's because the insurer wants total control of you, the insured, in that situation (which is of course wrong too).

Tell me what you are experiencing.... What you believe the needs are..... What your thoughts are.... and what you perceive the service problems are.... or have been for you......

As an FYI - I have over 20 years in this business both from a company and an agency ownership position.  I have a point of reference.  I know exactly what the big 3 do at the state level.  And, I know how the state is responding and it is not in a manner consistent with their mission nor is it consistent with their action and attitude for the 20 years prior to 2004.  I added my picture to this blog - not as promotional - rather as taking responsibility for my comments.

The data shown below is taken from the MLS. These results for the month of May '07 compare this month to prior years: 

Naples (W. of I-75)

As I have posted many times previously, we are virtually equal to May '06. 

HOWEVER - I don't have all the Lee County numbers but it didn't make a "break even" with '06.  It is will be the lowest May in the new millennium.

You can look at this many ways.  It depends on your point of view, I guess.  This is the 1st time since '05 that we have not shown a decrease (Bonita - Estero & Naples) from the prior year.  Yet, Lee Co. totals are the lowest May sine - apparently - 1999.

The FL chief economist, Fishkind, yesterday published, "the worst is over".  I almost agree with that.  Don't let that fool you into thinking the blood letting is over.  It isn't.

It simply means we have likely found the bottom of this market cycle.  Even according to him, it will take 18 months to reach any kind of normal market from here.  For example: new home starts by developers are less than the number of new home closings.  That is a positive sign. It will take 8 or more months of that to absorb their inventory - at huge losses.  The resale market is currently showing over a 2 yr. supply that must still be absorbed. 

An interesting fact:  Cape Coral (Lee Co.) reports issuing only 77 building permits in the month of May.  They are searching archives to try to determine when the total was that low.  They know it has to have been prior to 2,000!  Now that is finally a reduction that will have a direct affect on the market glut - inventory in the Cape.

According to a notice published by FL State Senate President, Ken Pruitt, and House Speaker, Marco Rubio, the following areas of property tax relief have what they call "substantial agreement".  This is important as the state legislature prepares for their June special session on this issue. 

www.myfloridahouse.com

www.myflsenate.gov

• The cuts - finalized - will be effective on bills sent out with 11/07 due dates 
• A change in the homestead exemption would require a constitutional amendment.
• City and County tax cuts take place based on a formula of the amount their taxation has grown in the past.
• Future increases would not exceed personal income growth.
• School funding would be exempt.
• The homestead exemption would be a percent of the home value - then tiered based on the total value.

These are important areas of agreement prior to the new legislative session opening.