Site (and Sight) Unseen: Florida Real Estate Update (October 23, 2008)

Site (and Sight) Unseen: Florida Real Estate Update (October 23, 2008)

Is it a time to buy for Canadians in the U.S.? Last week I received, with my local newspaper, an advertising brochure  with articles advocating that you run out to buy now because Florida property is on sale. The brochure included stories on short sales and cross border trusts, and appropriate advertisements from home builders, real estate agents, and even a Canadian bank with Florida branches (though no mention of non-recourse mortgages as a means of U.S. estate tax avoidance, which I suspect are no longer easy to get). Florida property is definitely cheaper than it was a couple of years ago and you can bet that the intensity of the sales pitches will increase dramatically, but whether you must run out now/later/not to buy is a call you’ll have to make yourself. Here are recent Florida real estate related stories and data that will help you get a feel for how things are going on the Florida real estate front and if there is enough ‘blood in the streets’ to rush out to buy.

Site/sight unseen!

Selling/buying real estate in auctions has increased dramatically in the past few years, but you usually had to be there in person to bid. Now you can bid on the web at  as described in “A home page for bidding on foreclosures”Just because you can do something, it doesn’t mean that you should do it. You’ll be at a significant disadvantage relative to the seller and to other bidders, who may know the area well, may have seen the condition of the property and may have had a chance to fully investigate other loans on and liens against the property. Watch out for the alligators and the swampland!

Stories: Are we there (at the bottom) yet?

2240 SF ocean front condo in Highland Beach bought in 2005 for $782K was sold in foreclosure for $290K. And $238K bought $530K (2006) home in Wellington’s Olympia from Palm Beach Post’s “Strapped borrowers flood credit counsellors”

Collateral damage:“responsible condo and homeowners are increasingly being hit with special assessments and higher association fees to cover the growing cost of those who are not meeting their obligations because they have lost their homes.“ and “More than 60 percent (of community associations) said that banks and mortgage lenders holding title to homes or units are not paying regular fees or other assessments.” from Herald Tribune’s “When foreclosure is finished it is time for neighbours to pay”  (For Florida, that’s business as usual; non-homesteaders have been and are continuing to pay heir homesteader neighbours’ property taxes for years)

More than half of Florida’s renters and more than half of south Florida’s homeowners pay more than 30% of their gross income for housing costs from Miami Herald’s “Housing costs eat up Floridian’s wages” .

In the year ending May 2008, “23.6% of all international purchasers of U. S. residential real estate were Canadian. (Miami property prices , by the way, dropped 35% during that year.) That is up from 11% a year earlier” but “Can you carry that second property?” (example given is $18K/yr expenses on $250K condo) and are you getting value for money given the amount of use you expect, or renting makes more sense from Financial Post’s “A Canadian home invasion” (The Canadian dollar, now under $0.80 U.S., will like slow things down.)

Canadian builders in Florida are retrenching. “Florida real estate brokers, meanwhile, are painting on happy faces, chirping that the market is on the cusp of a rebound…Don’t believe it,” says Greenberg (Minto Development‘s CEO)… For the time being the Florida real estate scene is very, very ugly. But it will recover” from Ottawa Citizen’s “Battening down the hatches”

In BusinessWeek’s “Vultures in Miami’s real estate market” “Condo boards are trying to keep the stairwells of their half-empty buildings clear of vagrants. Landlords are renting out units at daily rates to makers of porn films.” “You’re not going to see a new condo go up in this town for seven years, minimum,” says Zalewski. “The common Joe can’t get a mortgage, and a 40% downpayment is becoming the rule for anyone who can. But if you have the cash, you can feast like a king.”

In the NYT article “Home prices seem far from bottom” Bikas Bajaj opines that due New York, Florida and California prices have further to fall due to higher mortgages, still higher than historical price to rent rations (in Miami 22 vs. historical 15), and in New York due to the implosion of investment bants et al.

In Palm Beach Post’s “Auction could set floor for condo-clogged West Palm” “The developer of The Edge condominium will hold a bargain-basement auction next month on 41 unsold units – with some listed at a 70 percent discount from their regular asking prices.”


Not just Florida, but for U.S. real estate, the recent news has not been great. The July S&P Case-Shiller Index  shows that the most inflated U.S. markets of Miami, Phoenix and Las Vegas continue in free-fall of about 2% for the month and 20-30% down from previous July. Miami and Tampa, the Florida cities included in the index, were respectively, down 29% and 20% over the past 12 months, and down 7% and 1% in last 3 months. In about 9 of the 20 cities covered by the index, prices appear to have flattened over the past 4 months, but most of these have dropped 5-15% over the past year (except for Denver, Charlotte and Dallas which dropped <5% in the past year). Few are ready to call it a bottom, except those who are in a real estate related business. The August Case-Shiller numbers will be out next week.

For another measure to assess whether real estate prices have bottomed, WSJ’s June Fletcher asks it is “Is now a good time to buy a home?”  (note she is talking about a home, not a vacation home). Her answer is a (very tentative) yes for those meeting a set of criteria like: access to credit, fat cash reserves, not overexposed to real estate, secure job and prepared to hold at least two years (are there lots of people meeting these criteria?). Then she quotes a recent Credit Suisse report that “nationally, the ratio of median home prices to household incomes will return to their historical average of 2.86 in another 18 months.” The WSJ had more extensive and very interesting historical data of this ratio from the Credit Suisse report  showing the current value of the ratio at 3.3 from which a further drop of 14% would be required to reach the historical 2.89 average value; and this is a national, not Florida, figure (real estate is very local) and this ratio was as low as 2.7 in 1991 (that’s a further 8% drop, and are we in better or worse economic situation that in 1991?).

Property Tax Challenge

On the property tax front, I have no news except for an interesting article forwarded to me by Ken Kania, who you recall has a constitutional challenge against SOH under way in Federal Courts. In this February 2007 article in the Journal of Multistate Taxation and Incentives Richard Franklin does a thorough review of how Save-Our-Homes came about, why it is constitutionally problematic and suggests some possible “solutions” to this ‘elephant in the house’. His predicted constitutional challenges are under way. You can read his article at “Has Florida’s ‘Save Our Homes’ law reached its constitutional limits?”

Interestingly even though Florida’s homesteaders, who were expecting to transfer more of the tax-load to non-homesteaders with recent legislative changes and drops in property values, many were surprised to see property tax increases this year as described in Herald Tribunes “Obscure Florida rule hits property tax cut”. This occurred even as non-homesteaders’ property taxes dropped with falling valuations. But don’t feel sorry for old homesteaders for having their taxes increase by up to 3%, because many are still paying less than half of what their non-homesteaded neighbours are for identical properties.

Of course if the property price blood bath continues and values fall another 30%, we’ll be back to the lower (still discriminatory) property tax gap, as compared to old homesteaders, that existed in 2000-2001. But this would not only put the properties of all those who bought since that time-frame below their purchase price, but many would be below the outstanding mortgage against the property. Not a pretty picture. Many Floridians are counting on the Federal bailout to stabilize real estate prices, but much of the root of the problem originated in Florida and can only be fixed in Florida. A good place to start would be by welcoming out of state buyers (like the millions of boomers who hope to retire shortly after the stock markets recover) with fair property taxes. I am not holding my breath on property tax changes; the stock markets should recover before Florida property values and way before we’ll see equitable taxes.

A final tax related article, that you may find of value as a reminder, on estate rather than property tax topic, is Jamie Golombek’s “Cold realities of southern estate tax” Unlike in Canada where you just have to worry about capital gains taxes, if you own U.S. property you may have to pay estate tax depending on the size of the estate. While Americans have a $2M exemption at this time, for Canadians it is more complicated. So if you have, or expect to have an estate lager than $2M Golombek recommends some advanced planning. (You can read about this in more detail in Robert Keats’s book “The Border Guide” that I refer to under the Further Reading tab at this website.)


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