Miami Angel Properties » miami shadow inventory

Miami Year in Review 2009

Ross — Tue, 12 Jan 2010 01:03:27 +0000

Home Flippers Return

This year marked the return of property investors flipping foreclosures in anticipation of quick profits. Due to the volume of foreclosure cases making their way through the courts and banks, it was an opportune time to take advantage of the disorganized lending institutions and court system.

The year started out with the presence of a few established investment groups, which grew exponentially as investors on the fence jumped in. Although the banks set unrealistic reserve prices and few properties traded at the Miami Dade public auctions, there were many successful short-term trades executed with returns of 30 to 40 percent.

One particular sale at the Miami Dade public auction epitomized this chaotic market. A large estate in Coral Gables with an estimated market value of $4.0 million was being auctioned off by the Clerk of the Court. The summary judgment against the owner was over $5.0 million, while the lender’s representative at the auction set the reserve at $2.3 million. Two individuals stepped up and registered to bid. The first offered $90,000 and the lender’s representative countered at $100,000. Then, the second investor raised the bid to $110,000, and the lender’s representative stopped bidding. The Clerk confirmed the bid three times and subsequently closed the sale at a price of $110,000.

Lenders Sell Discounted Notes – Developers Seek Bankruptcy

This was the year that local, national and international lenders unloaded multiple distressed notes and condo projects to investors. According to the Condo Vultures Bulk Deals Database, during the past 18 months bulk buyers acquired more than 2,200 new or renovated units consisting of approximately 2.7 million square feet.

There were several high profile condo projects that traded hands during the year, which included the sale of the Caribbean Miami Beach to New York based Melohn Properties, and the purchase of a $261 million note for 244 units in the luxury 900 Biscayne Bay by a Cayman Island entity. In October 2009, Starwood Capital Group also became a major player in the South Florida condo market with their purchase of Corus Bank.

Corus’s portfolio included about $1.0 billion in loans secured by condominium projects in South Florida. What is evident is that investors are confident enough that if we are not already at bottom in the condo market, that we are close enough to find it attractive to purchase these assets at 30 to 50 percent less than replacement cost.

During the year several lenders allowed developers to sell condos at prices for less than what is owed on the construction loan. However, in August, Cabi Downtown Developers, the builders of the 849-unit Everglades on the Bay in Downtown Miami, filed for Chapter 11 Bankruptcy protection. Although certain lenders may decrease the debt owned by allowing the sale of individual units to take place, it does nothing to significantly reduce their exposure in a deteriorating condo market, which is most like the case with Everglades on the Bay.

Looming Shadow Inventory Grows

According to data released by First American CoreLogic, there were 1.7 million bank REOs and homes facing imminent foreclosure that had not yet hit the market at the end of the 3^rd quarter 2009. This is consistent with the Miami market where we experienced an approximate 10 percent increase in the number of mortgage foreclosures over the 56,656 foreclosures that were filed in 2008.

If you consider the sales of distressed properties in Miami last year alone, you will note that our shadow inventory is massive as tens of thousands of distressed properties need to be released on the market.

Unfortunately, at the current sales pace in Miami, it could take up to three years to work through of this looming shadow inventory of distressed properties. If you combine this with the 24,500 existing residential properties plus an estimated 10,000 new condos visibly on the market, it represents a backlog of more than five years.

Enthusiastic Investors Return

This year we experienced a surge in second home and investment property buyers of Miami real estate. In part because of a weak U.S. Dollar, which is 20 percent lower against the Euro since March 2009 alone, in part because of low interest rates, in part because prices have collapsed, and in part due to large investors scraping up bulk condominium deals in fractured condo projects.

With prices of Downtown Miami condos dropping to the $200 to $250 per square foot range, international investors leaped back in the market as all cash buyers. Due to a lack of financing available in the majority of condo projects, buyers that required financing were practically shut out of the market.

Another factor that propelled the market was the investor appetite for bank owned properties, which created an unprecedented level of competition. At the beginning of the year, Fannie Mae could barely give away the property. Then by mid-year, you had to be prepared enter the ultimate fighter foreclosure ring with fifty competitors.

Jingle Mail – Strategic Defaults Increase

According to several recent studies and data published by the Mortgage Bankers Association, the percentage of home owners that are strategically defaulting on their mortgages is rapidly increasing. Although I do not possess any factual data collected on strategic defaults of home owners in South Florida, I can speak from my experience on the street.

What we consistently hear from people is that due to their (i) under-employment, unemployment and/or declining income situation, (ii) underwater properties, and (iii) “everyone” is doing it attitude, that the percentage of home owners that are choosing not to pay their monthly mortgage is much higher than reported in these studies.

Unlike some states where the lender has recourse to a borrower’s non-related mortgaged assets, in the state of Florida, a mortgage is secured only by the property. If one chooses to default, you only have to surrender the property.

Has Miami Hit Bottom?

Although median sales prices continued to erode throughout 2009, the sales of existing homes and condos significantly increased by 50 percent over the previous year. While we appear to have hit a plateau with the median sale price of bank REO properties in the past few months, the median sale price of short sale properties continues to decrease [see chart below].

With such a low median sales price of bank owned properties, it is clear that the majority of the bank REO sales this past year have been in the affordable lower priced segment. As such, the next shoe to drop will most likely be within the luxury market segment. This is further supported by the fact that the luxury segment has also received minimal government intervention.

The Gravy Train – Government Subsidization

The U.S. Government threw the housing market, homeowners and the financial industry, several life lines throughout the year. Direct efforts to prop up the ailing housing market included the First Time Homebuyer Tax Credit and Home Affordable Modification Program. Additional efforts included historical low interest rates, unlimited capital support for Fannie Mae and Freddie Mac, and the Federal Reserve’s purchase of nearly $1.5 trillion of mortgage-related assets.

It has become clear that the U.S. Government policy of direct intervention in the housing market is the main factor that influences the current and future direction of the real estate market. Therefore, as long as this market remains on taxpayer and Government life support, real market forces like foreclosures will play only a secondary role. Additionally, due to the upcoming November elections this year, the involvement of the government in the real estate market is likely to continue.

Are you looking for a Miami or Miami Beach investment property at a deep discount? Are you looking for a discounted short sale or bank owned property? Ross Milroy of Miami Angel Properties, LLC may be reached at 305-673-5300 or info@miamiangelproperties.com.

* The data used to generate this chart/data is gathered from the Multiple Listing Service (“MLS”) and the Miami Dade Clerk of the Courts. The data in the MLS is deemed reliable but not guaranteed. The sales prices are the actual median sales prices of all single family, condos or townhomes that closed during 2009 and are published in the MLS as of the date of this post.

Distressed Pricing

Ross — Sat, 21 Nov 2009 21:38:07 +0000

During the real estate boom from early 2002 through late 2007, the concept of “distressed” pricing was foreign to homeowners and real estate practitioners alike. The question today is not whether distressed real estate should be included when considering comparable sales, but to what extent?

There are several schools of thought in today’s distressed real estate environment. I consider the following to be relevant when pricing to either buy or sell in today’s market.

The first is the principle of substitution. If you have the ability to purchase a discounted short sale or foreclosed property, why would you pay retail? So long as there remains a pipeline of distressed homes in the market, the “new” market will continue to be the distressed properties.

The second school of thought is the lack of financing for the average buyer. Many think that once financing becomes more readily available, that the market will stabilize and pricing will return to normal.

Unfortunately, one has to also consider the creation of jobs and the positive affect that this will have on consumer confidence and spending. Therefore, once the unemployment rate begins to move downward and the credit situation improves, we will see a return to normal pricing.

So is distressed pricing here to stay in Miami? In the short term, yes, especially if you need to sell. However, in the long term, jobs will be created, the shadow inventory of distressed properties will disappear, and we will return to normal pricing.

Miami’s Shadow Inventory

Ross — Fri, 26 Jun 2009 00:11:22 +0000

Today’s headline in the local Miami business journal read “Judge grapples with her discovery of 15,000 unserved foreclosure cases.” I also read an article on CNBC.com titled “Rebound In Housing Hampered By Slowdown in Short Sales.” So what is the story here?

According to public records, in Miami-Dade County there were 26,731 foreclosures filed in 2007, another 56,656 foreclosures were filed in 2008, and an additional 29,833 foreclosures have been filed through May 2009. That’s over 110,000 foreclosures filed within the past two-and-a-half years! We have a HUGE shadow inventory of foreclosed properties out there that very few people in the real estate business want to acknowledge, let alone share with the general public.

I keep wondering where are all these bank owned properties? I think there is only one explanation. These thousands upon thousands of distressed properties are being held on the banks balance sheets. TALF, TARP, stimulus, mark-to-market, call it whatever you wish, but the banks are playing a simple game with the market, and apparently, the FDIC, Federal Reserve, OTS or Comptroller, have nothing to say about it.

So let’s consider some additional facts. According to the Southeast Florida Multiple Listing Service, since January 2008 there have been a total of 22,583 properties sold in Miami. Out of this number, there were only 6,624 bank owned or REO properties sold, a mere 28% of total sales.

Now in all fairness not all foreclosure filings ever end up in a foreclosure sale. There are many that are modified, some are sold in pre-foreclosure, many are caught up in legal snafu’s, a few are dismissed, many have not been served or processed, but c’mon, where are the other potential 50,000 plus bank owned properties that should be on the market?

Yes, I am in the business of selling real estate, but I also like to work and make decisions based on facts and reality. Do you know how many times I have heard the same story lately, “we have multiple offers, send us your highest and best offer?”

The banks are playing the real estate market, and so far they have clearly earned the gold medal.

No related posts.