Florida Copes with Slump in Condo Market
STEVE INSKEEP, host:
Now for many people their biggest investment is their home, and today we have a report from Florida, which leads the nation in the number of foreclosures. Many of them are the result of shaky subprime mortgages - we've heard a lot about that. But that is not the only factor in the state's high rate of foreclosures.
If you think it's a good time to buy real estate in Florida, NPR's Greg Allen has a condo in Florida he'd like to sell you.
GREG ALLEN: The Miami skyline tells the tale - dozens of construction cranes loom over downtown. This year and next, construction will be completed on some 25,000 condominiums. Many are already spoken for and as soon as they're ready, buyers will be expected to settle on their properties.
But rather than a happy occasion, it's a day many are dreading. That's because most of these contracts were written at the peak of the housing boom, when demand was high, prices were steadily appreciating and financing was cheap. But now in Miami, Las Vegas, California and other once-booming condo markets, the party's over.
There's a glut of units on the market and prices are stagnant or falling. Rick Sharga is with RealtyTrac, a company that compiles data on foreclosures nationwide. He says condo buyers often rely on non-conventional loans that carry more risk, especially in a market like this one.
Mr. RICK SHARGA (RealtyTrac): They may take out adjustable rate mortgages, they may take out option arms, they may take out negative amortization loans. And very often they're leveraging all of their purchases against some other piece of real estate. So, again, if any one of those cards falls, the whole house of cars falls down with it.
ALLEN: In Miami and elsewhere, the condo boom was fueled by speculators, investors who might buy one or a dozen units with an eye toward flipping them. Selling for-profit, in many cases even before the condo is ready for occupancy. Jack Winston follows the Miami market for Goodkin Consulting.
Mr. JACK WINSTON (Goodkin Consulting): We anticipate that in the Miami market alone that almost 70 percent of all buyers are investors or speculators.
ALLEN: Winston says many of these speculators now find themselves unable to qualify for financing. Left on the line are their down payments, typically 10 or 20 percent of the purchase price. In Miami, that could be 200, even 300, thousand dollars. That's leading many condo buyers to look for a way out, calling attorneys like Michael Schlesinger.
Mr. MICHAEL SCHLESINGER (Attorney): In the last three days, I've had 53 calls from as far reaching as Panama City to the Keys. And all of them are the same questions: can I get out, can I get my deposit back, what's it going to cost.
ALLEN: Schlesinger says condo buyers can get out of their contracts only if the developer has taken too long or made material changes contrary to what was agreed on.
Mr. SCHLESINGER: The hardest areas are the ones that just can't afford this close, and they come to me and the contracts are fine. There's no material change. Ninety percent of the time, they have to eat their deposit. There's not much I can do.
ALLEN: In those cases, Schlesinger says, clients have little option but to walk away from their deposit. How many condo buyers will do so is a hot topic in Miami. Analyst Jack Winston says many investors view real estate like stocks, and if the market drops you sell.
Mr. WINSTON: In real estate, the analysis is that your first loss is your best loss. The alternative is to put more money, as they say, good money after bad, into the same home. It will not be unusual that people will walk away from deposits of that size.
ALLEN: Fallout from the bust in the condo market is just beginning in Miami and expected to peak some time next year. All this is prompting banks and mortgage companies to tighten guidelines and begin using much more scrutiny in deciding who they give loans to.
Greg Allen, NPR News, Miami.