This is the first in a two-part series.
Just a few years ago, there was a rush to buy property in sun-drenched Lee County, Fla. Bidding wars were common for homes that hadn't even been built yet. But those days are over, and the real estate market there now is clogged with thousands of unsold homes. The decline is so extreme that people are looking for ways to walk away from their properties.
When condominiums went on the market at the gleaming new development of Cape Harbour in Cape Coral, Fla., a few years ago, so many people wanted to buy that the owners had to sell them by lottery. The fact that the towers hadn't been built yet was viewed as a minor concern.
"It was very exciting," recalls real estate agent and resident Robin Speronis. "In the second high rise that went up, all the units were sold within hours."
By the time the tower was finished, the real estate boom had ended, and today many of those same condos are unsold or in foreclosure, Speronis says.
A Nasty Real Estate Hangover
Even more than most parts of Florida, Lee County on the Gulf Coast partied through the real estate boom of a few years ago, and now it's suffering from an especially nasty hangover. More than 19,000 homes are now on the market, and prices are tumbling.
In February, the Fort Myers-Cape Coral metropolitan area had the highest foreclosure rate in the nation, according to Realty-Trac. It slipped to No. 5 in March. The number of homes sold fell from 955 in March 2006 to 445 in February, while the median sales price fell to $211,500, from a high of $286,500 in May 2006.
"It was a classic case of a real estate bubble, where the market builds and builds and builds, until the point that it's overbuilt, and then it collapses," says Shelton Weeks, professor of real estate at Florida Gulf Coast University.
As in the rest of Florida, much of the fervor was driven by speculators who snatched up condos and houses as fast as they could be built, expecting that the days of easy money would last forever. In some condo towers, three-quarters of the units were bought by outside investors hoping to flip them, Weeks says.
Weeks says he even had undergraduate students who waited tables for money who were able to get mortgages to buy and flip properties.
Backlog of Unsold Homes
As prices have fallen back to earth, owners have increasingly found themselves owing more than their properties are worth, and are walking away from them, helping to create a backlog of more than 19,000 unsold homes — about six times as many as two years ago.
Marcus Netto, 47, has to work two jobs to pay the mortgage, maintenance and taxes on the two Fort Myers properties he owns; he also has a time-share in Orlando. But he has to dip into savings to cover his expenses.
"I got almost $4,000 every month (in costs)," says Netto. "That's a lot of money for me. I don't make that."
Although Netto could sell his properties, he is unlikely to receive as much as he owes on them, so he is hoping to arrange short sales. That means finding a buyer and persuading his lenders to accept whatever price they offer. Banks sometimes agree to short sales as a way of avoiding foreclosure, even though they absorb a loss.
Walking Away from Properties
For banks, the number of forecosures and short sales is a big problem.
Even some buyers who can afford their mortgages are opting to quit paying because they owe too much, Speronis says. With prices falling, some amazing deals are now on the market, and owners figure they can better themselves by purchasing another home and walking away from their existing properties, she says.
With so many deals to be had, bargain-hunters are beginning to come into the market, including many from Europe and Canada, trading on the favorable currency exchange rates. Moreover, few new homes are being built. As a result, the huge inventory of unsold homes may be stabilizing or even shrinking a bit, says Russ Weyer of Fishkind and Associates, a consulting firm.
But prices will probably keep falling for a while longer, Weyer says.
Waiting for the Bottom
The problem is being aggravated by the downturn in the economy. With real estate development at a halt, construction jobs are disappearing, and the county's unemployment rate now stands at 6.5 percent. As a result, many construction workers are leaving the area, meaning more homes on the market and even lower prices.
The continuing glut of unsold homes has a psychological effect on buyers, says Florida Gulf Coast University's Weeks.
"We have a lot of folks who are here and interested in buying who would take some of this inventory off the market," Weeks says. "But nobody wants to be that first mover. They would all like to wait until they're sure we're at the bottom."