July 20 (Bloomberg) -- In the middle of the biggest glut of condominiums in more than 30 years, Miami developers keep on building.
The oversupply will force prices down as much as 30 percent, the worst decline since the 1970s, and help push Florida's economy into recession as early as October, said Mark Zandi, chief economist at West Chester, Pennsylvania-based Moody's Economy.com, who owns a home in Vero Beach, Florida.
``Florida is the epicenter for all the problems that exist in the housing industry,'' said Lewis Goodkin, president of Goodkin Consulting Corp. and a property adviser in Miami for the past 30 years, who also foresees a recession. ``The problems we have now are unprecedented and a lot of people will get burnt.''
Thirty-seven new high-rise condos and 20,000 new units are being built in Miami's 1,040-acre downtown, where sales fell almost 50 percent in May, according to the Florida Association of Realtors. The new units will join the 22,924 existing condos in Miami-Dade County that were for sale in April, according to Jack McCabe, chief executive officer of McCabe Research & Consulting LLC in Deerfield Beach, Florida. That's the most unsold units since McCabe began tracking sales in 2002.
``Have you been to Miami lately?'' Florida Governor Charlie Crist said at a homebuilders' conference last week in Orlando. ``It's like we have a new state bird: the building crane.''
Construction Jobs
While the housing industry is responsible for 10.6 percent of the nation's jobs, in Florida it accounts for 20 percent, Zandi said. Florida construction jobs fell 2.9 percent in May to 626,200 from the peak in June 2006, according to the U.S. Bureau of Labor Statistics.
The national housing industry's weakness prompted Federal Reserve policy makers this week to cut their forecasts for U.S. economic growth for the next two years.
The economy will grow by 2.25 percent to 2.5 percent in the fourth quarter of 2007 from a year before, compared with a range of 2.5 percent to 3 percent the Fed predicted in February, the board said in a report to Congress.
Florida's robust economy of 2001 to 2005 was driven by the thousands of well-paying jobs related to the real estate market and homeowners who used home-equity loans to pay for items such as boats and big-screen TVs, McCabe said.
``All those jobs are going away now, and we're seeing the trickle-down effect in declining sales in big-box retailers and home-furnishing manufacturers,'' McCabe said. ``Florida is headed to a recession.''
Puig Bankruptcy
Puig Development Group, a closely held company that converted rental apartments to condos, filed for Chapter 11 bankruptcy protection on May 29. The Hialeah, Florida-based Puig and its subsidiaries controlled 2,900 units in Florida, including 980 condos, worth about $210 million, said Ronald Glass of Atlanta-based GlassRatner Advisory & Capital Group LLC, chief restructuring officer for the Puig properties.
``Puig got a little overzealous and a little overly optimistic, and was caught when the market slowed,'' Glass said.
Florida banks have already quit making loans to Miami condo developers, said Kenneth H. Thomas, a Miami bank consultant and a lecturer at the Wharton School at the University of Pennsylvania in Philadelphia.
``South Florida lenders were the first to put money into the condo market, they were the first to see the oversupply and they were the first to get out,'' Thomas said.
Because of the lag time between making construction loans and closing sales on completed condos, loan problems showed up for Florida lenders in first-quarter bank statistics from the Federal Deposit Insurance Corp. in Washington, Thomas said.
Overdue Bills
Florida banks posted a 43 percent jump in the first quarter in loans no longer paying interest compared with the last three months of 2006, while the number for banks nationwide rose 13 percent, according to the FDIC.
Loan payments that were one to three months overdue to Florida banks increased 30 percent in the first three months of 2007 from the fourth quarter of last year. The same number for banks nationwide fell 1.8 percent, the FDIC said.
Angel Medina Jr., who runs the Southeast Florida operations of Regions Bank, a division of Birmingham, Alabama-based Regions Financial Corp., said Regions has financed projects by two of Miami's biggest condo developers: Related Group of Florida, headed by billionaire Jorge Perez, and Ugo Colombo's CMC Group.
The bank hasn't financed any Miami condos in the past 18 months because development is ``too aggressive,'' Medina said.
I found this article fascinating because it shows in a microcasm what has happened to the housing market over all. It is just more severe in this case.



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