Posted on Thu, Apr. 07, 2005
The specter of a South Florida real estate bust
This has the making of a ghost story.
As night snuffed out the last remnants of twilight in Fort Lauderdale, I looked up at the tall new residential tower by the New River and shuddered. It was a 31-story tower of darkness. Lights shone from no more than a dozen of the 315 condos. The rest were a study in black windows and empty balconies. As if the condo dwellers were phantoms.
But are they spectral beings? Or just speculators?
Speculation madness has gripped the real estate market in South Florida, particularly the high-rise condos going up along the beaches and in the old coastal urban centers. Real estate analysts estimate that anywhere from 50 to 75 per cent of our new luxury condos are being scarfed up by high stakes real estate gamblers.
Last month, Raymond James & Associates warned that ''anecdotal reports'' indicated speculators and investors accounted for 85 per cent of Miami high-rise condo sales.
No one actually knows, said Michael Y. Cannon, managing director of Integra Building Resources' Florida operation. Cannon, who predicted condo bust of the early '80s, said this time around the data is either sparse or a few months old and not of much use in market careening ahead at such reckless speed.
But Cannon knows that we're in the midst of a speculation epidemic. He calls it ''hyper flipperism,'' as buyers put up their 20 percent for condos under construction and try to flip the contracts, at a profit, before the buildings are completed. There are reports of condos changing ownership two or three times without an actual human being ever moving in.
OMINOUS WARNINGS
Robert Shiller, the Yale economist who warned that the late 1990s tech-fueled stock market was overheated, overpriced and in for a brutal fall, said Wednesday on National Public Radio that the U.S. housing market was now nurturing that same reckless abandon. He said the danger was particularly acute in what he called the glamor markets -- like South Florida.
And Shiller warned that this bubble, too, may burst.
Such talk casts a peculiar light over the raging debate about new residential construction in downtown Fort Lauderdale. The Broward County Commission reacted with something like outrage last month when the city commission requested approval for another 13,000 new housing units in the urban core. The county reduced the number to 3,000.
There were sharp words about so much traffic on the highways, so many more children in the schools and other stresses on the infrastructure if the city got another 13,000 units. But phantoms don't drive cars. Ghosts don't pack classrooms.
If those 13,000 new units were to be built, along with the 45,000 new luxury units coming on line in Dade County, the big problem might be avoiding speculators as they hurled themselves from the balconies of their overpriced high-rise condos.
HOUSING SOLUTION?
If nothing else, when the bubble bursts, South Florida will have a ready-made solution to its affordable housing problem. After the big bust in the 1980s, a regular Joe could land himself a luxury high-rise condo on Miami's Brickell Avenue for 60 grand.
I wonder if we're supposed to feel any sorrier for flippers snared in this real estate Ponzi scheme than, say, chumps who gamble away their paychecks at the Hard Rock Casino. But Shiller warns in his book Irrational Exuberance, updated to include the current real estate madness, that when they start abandoning their 20 percent deposits en masse, it could mean trouble for all of us. ''The bad outcome could be that eventual declines would result in a substantial increase in the rate of personal bankruptcies, which could lead to a secondary string of bankruptcies of financial institutions as well.
''Another long-run consequence could be a decline in consumer and business confidence, and another, possibly worldwide, recession.''
Suddenly, our little ghost story turns very, very scary.
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I'm old enough to remember the S&L meltdown. This time, with huge budget deficits, there' s just no way that the US gov't could afford to bail out the banks left 'holding the bag' i.e. forclosed real estate which can't be sold for prices which would cover the outstanding balances of the bad loans. How big is the systemic risk factor ?
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