Collapsing Florida Real Estate Market Means More Delayed Projects, And More Buyers Who Want To Cancel Contracts
The New York Times reports that Standard & Poor’s has cut the credit rating of America’s three largest homebuilders–Miami-based Lennar, Pulte, and D.H. Horton–to “junk” status. Even worse off is Fort Lauderdale-based Levitt, which is rapidly closing down its operations. The company’s stock price is down more than 85% and is teetering on the brink of bankruptcy. Here is an article about Levitt’s future, including an interview with Mike Morgan, a sharp observer of the Florida real estate market. (Big investors pay him thousands of dollars for his advisory services, so I am always happy to see him give some of that advice for free in interviews.)
Also in trouble is Coral Gables-based Bank United, whose stock has dropped from the low 20’s all the way down to 7.9 in the past sixth months on worries that home buyers who used its aggressive “option-ARM” mortgages are not going to be able to keep paying their mortgages once their interest rates reset and their monthly payments shoot upwards.
What this means for Florida real estate is that these companies will probably find it increasingly difficult to get financing, which in turn means that their projects will be delayed. It also means these troubled companies may be forced to start liquidating at any price their inventory of houses and condos, making the decline in local housing prices worse.
The Florida real estate world is in chaos these days. Sellers are having huge problems finding buyers, forcing dramatic price cuts. It’s no longer possible to buy a Florida condo and then flip it for a quick profit. Right now the issue for many investors is simply cutting their losses. Thus, I am not surprised that many of my real estate investor clients are seeking to renegotiate or to cancel their contracts, while still getting their deposits back.
This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.
Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. A significant portion of his practice is devoted to issues arising under condominium purchase agreements. He can be reached at 305-789-0072 or jared@beckandlee.com
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Agree with the assertion, though my feeling is the market problems extend far beyond developers. What lies at the heart of the bubble burst and current fall-out is a culture obsessed with living beyond its means. Many bought more house than they needed – and an industry blinded by dollar signs in its eyes let them – not just to keep up with the Joneses, but outdo them.
I just finished a new novel that satirizes all this: Florida’s current real estate market woes. Written by an industry insider and painfully funny. It’s called “Ocean Raton” – you should check it out.
Well said, Charles. And thanks for the book recommendation – it’s going on my holiday reading list.