2007: Florida’s top real estate issues

What were the top real estate stories of 2007? The slowing home sales market tops the list, followed by Florida-specific concerns – property taxes and property insurance – along with troubles in the mortgage market and, finally, a proposed Hometown Democracy constitutional amendment that could go before voters in 2008. Here are the issues that shaped Florida’s real estate world in 2007 and a glimpse at what the New Year holds.

Home sales: Bad to worse, yet turning around?

Home sales slowed to a crawl in 2007; though some areas of Florida fared better. It’s a single story with multiple causes – the perfect storm. News stories in 2007 have, independently, pinned the blame on real estate investors with more money than common sense; mortgage brokers and banks willing to give a homebuyer more money than he can possibly pay back; and homebuyers who did not the time to read the mortgage terms associated with the biggest financial deal of their life.

Florida, along with a handful of other states, had the dubious honor of being at the epicenter of the home sales slowdown. In the October monthly sales report from the Florida Association of Realtors, the year-over-year number of home sales fell 29 percent, though price declines were more modest at 8 percent. While much of the mainstream media focuses on the drop, however, the figures more accurately reflect how out-of-control the real estate market was during the now-past boom years. Currently, Florida home sales compare favorably to five years ago. And over a five-year period, Florida housing prices have actually risen more than any other state except Hawaii, even with the recent price declines – up 96.23 percent in Florida, according to OFHEO, the government agency that tracks home price changes.

As the year ends, buyers have a bountiful inventory to choose from and demand exists. Many buyers fear, however, that prices will drop a bit more, making a current purchase ill-advised if they can wait it out. While that stance comes more from anxiety than actual fact, the market will turn – slowly, doggedly, yet evenly – barring any new housing-related crises, such as the mortgage meltdown that peaked in August.

Wild cards impacting the market in 2008 include:

• Business tactics: The word’s getting out – it’s time to buy. Mortgage interest rates remain historically low and much of the media, once focused on housing market woes, now seems to be picking up on some bright spots. A few Florida cities may already be seeing the early signs of a turnaround, and if buyers sense the market has bottomed out, those waiting for a better deal will jump in quickly, afraid to miss the trough. If that happens soon – a big “if” – the rebound could be quick, just as the slowdown seemed to happen overnight.

• Foreclosures: Subprime lending also empowered a number of homebuyers to purchase a home they could not afford once adjustable mortgage rates moved higher – in some cases, dramatically so. As ARMs adjust higher in 2008 and later, more homeowners could lose their home, adding inventory into a system that already has more homes for sale than buyers. However, actions by the federal government to save borrowers, banks or both could moderate the impact of foreclosures.

• Mortgage rates: In December 2007, 30-year fixed-rate mortgages were close to their lowest level in two years – 6.14 percent on Dec. 21. Most experts predict a slight rise in 2008 but within reasonable levels that won’t deter homebuyers. But mortgage rates always impact home sales and any significant increase could throw cold water on a recovering real estate market.

• Developer bankruptcies: Bonita-based WCI Communities is struggling; Miami-based Levitt and Sons went under. Financial troubles within the home construction industry present challenges to buyers under contract, homeowners living in unfinished developments, and financial institutions stuck with assets worth less than the money they lent. A strengthening real estate market will boost struggling builders, but a few could still face bankruptcy before the market regains its footing.

• Condominiums: Condos in many Florida cities proved a flashpoint for investors who sometimes buy and trade real estate as if it’s stock, willing to put down more money than a property is worth, sure in the knowledge that someone else will come along and pay even more. But the last person holding the deed when the market stalls is left with property worth far less than they owe the bank – and thousands of condo owners, including some developers, now find themselves “upside down.” In some Florida cities, this industry should struggle for a while even after the market rebounds.

• Legislative changes: A Jan. 29 ballot approval of property tax portability could entice Floridians who wish to move up or down to jump into the market. Lawmakers generally agree that not enough has been done, even if the amendment passes, and during the 2008 session of the Florida Legislature, which begins March 4, 2008, other initiatives are expected, notably those that offer more relief to businesses and non-homesteaded homeowners. Property insurance and housing affordability are other issues that could be impacted by legislative changes.



Topics: condos, development, economy, Florida Legislature, foreclosures,
home sales, interest rates, mortgages, mortgage rates, real estate investing, trends

Property tax relief: Is it here yet?

The problem: As property values skyrocketed, property taxes – a percentage of property value – rose with them. Most local governments, flush with new tax money, spent it. Homesteaded owners, protected by Florida’s Save Our Homes constitutional amendment, saw only slight increases, which were viewed as unfair by non-homesteaded owners who picked up the slack. Commercial and non-homesteaded property owners balked and demanded property tax cuts.

Possible solutions (pick one): A constitutional amendment approving property tax portability to be voted on in January. Or a citizens amendment being promoted by House Speaker Marco Rubio. Or an amendment that will be created by Florida’s Taxation and Budget Reform Commission. Or new laws created by the 2008 Florida Legislature that expand the property tax reform laws passed during a June 2007 special session. Or the result of a court case involving a property tax reduction plan approved at that same June session.

Or none of the above. Or, perhaps, all of the above.

Each property tax reform initiative developed so far has had one group waving the flag of passage, while local governments and civil servants quickly form an opposition team, with many teachers, firefighters, health care professionals and others saying any property tax reduction will surely result in a cutback of services. Some homeowners may look at the potential tax savings – perhaps only hundreds of dollars a year – and turn a sympathetic eye to these government servants. Consequently, passage of a constitutional amendment reforming property taxes, which would require approval by 60 percent of voters, could become a challenge.

But the fight for property tax reform will continue even if the final solution remains unclear. FAR, as the forefront protector of Florida property owners, considers relief the lynchpin of its 2008 legislative efforts, and the association will remain in the thick of things until a solution is found. FAR strongly backs passage of Amendment 1 on the Jan. 29 ballot (http://www.floridarealtors.org/LegislativeCenter/TopInitiatives/index.cfm)

Topics: property taxes


Property insurance: Improving but not there yet

One year ago, property insurance topped FAR’s list of real estate stories for the year, but things have improved – slightly. In January, a special session of the Florida Legislature boosted the state’s reinsurance fund, lowering risk for insurers. But savings were less than promised, so the state started carrying a bigger stick when insurers requested rate adjustments. Add to the mix a legislative change in the state’s insurer, Citizen’s Property Insurance Corp., that froze rates and expanded coverage, and Florida property owners now have a few more affordable choices.

A key component of the ongoing battle, however, cannot be legislated or changed. While the state has experienced two years without having a hurricane that hit land, another blow will again send insurers packing even though they enjoyed highly profitable years. Lawmakers and regulators could still tinker with the rules to encourage greater savings, even as the big insurers continue to limit their risk, notably in coastal areas.

Topics: property insurance
 
 
Mortgage market meltdown

Rising home values convinced mortgage lenders that their risk was limited. If a homeowner puts no money down and loses a home to foreclosure, banks recoup their investment and more if the home went up in value. But when home prices started to decline, the lenders’ risk increased – even on mortgages issued under the old rules.

In the heyday of the seller’s market, mortgage lending looked like the old West, with gamblers and gunslingers running wild and turning a profit. Now that the dust has settled and the gunslingers have moseyed into the sunset, here’s what’s left heading into 2008:

• Tightened lending standards: The subprime mortgage meltdown that peaked in August caught industry experts by surprise. Mortgages became harder to get as lenders raised their credit standards. Barring unseen complications, most credit-worthy borrowers should see a brighter 2008.

• Financial bankruptcies: Homeowners aren’t the only ones facing bankruptcy; some lenders are also in trouble. In some cases, mortgages became impossible to get as lenders halted operations. Washington Mutual and Countrywide cut back their mortgage businesses significantly; H&R Block backed out; Citigroup reported troubles; and the list goes on.

• FHA resurgence: With subprime mortgages harder to the find, the federal government plans to expand mortgage programs under the FHA, and bills to do so are already working their way through Congress. FHA Commissioner Brian Montgomery hopes his agency’s programs “fill the void” as the subprime market continues to unravel.

Topics: foreclosures, mortgages
 
 
The undemocratic Hometown Democracy

Hometown Democracy is a citizens’ initiative to amend the Florida Constitution that, if approved by voters, would require all local comprehensive land-use plan changes to be put to a referendum-like vote. That would force Florida citizens – rather than the local leaders they elected to office – to make decisions on thousands of complicated land-use planning issues. Hometown Democracy has the potential to greatly impact Florida’s real estate industry.

A bright spot appeared in 2007, however: A law now allows voters to rescind their signature from any proposed citizens constitutional amendment should they have second thoughts; and Associated Industries of Florida has been working with a coalition of businesses and associations to prevent the proposed Hometown Democracy constitutional amendment from appearing on next year’s general election ballot. The new law gives signers of a petition 150 days to cancel their first signature; for more info, go to: (http://www.fbnnet.com/hometowndem/Form_DS-DE_19R_Petition%20Revocation_Final.pdf).


© 2007 FLORIDA ASSOCIATION OF REALTORS®
 
Topics: constitutional amendments

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