Market bottom and Real Estate Inventories in South Florida

With my limited resources, and as almost anybody in this country at this time, I try to get some feelings about where the market is at this time and where it is headed.

Since we hesitate to believe the assessments of the realtors main organizations, which historically tend to be overly optimistic, and inject some hope within its members and the public at large, one of the simple but effective tool that we can use is our access to the MLS.

The multi-listing system, while it does not cover the entire of real estate commerce, is however sufficiently inclusive that we can interpolate its results and get generally reliable information.
Of course, there are people who do not use an agent to buy or sell a property. There are properties which have been withdrawn from the MLS but are still available for sale; there are expired listings wating to be placed again on the system.
But these are factors that are permanents and should not affect specific findings, opinions, or judgments.

It is very simple. I just take a note at specifics times of the quantity of homes available for sale in my main areas of interest. I split them between condos and single family homes.

The comparison in the active listings for sale between certain dates should give us an idea about how the inventory of properties for sale is evolving throughout the last months.

The last time I had compared these inventories was May 15, 2009. I had evaluated the changes since March 19, 2009, a period of about 8 weeks, or 2 months. I saw evident signs of inventory reduction.

I had all but forgotten about the whole thing. But then, on June 10th, 2009, it occurred to me that it would be worth to do the same comparison one more time. So I just pulled out all active listings on the MLS in the same locations. And guess what? The same trend continues. Correct me if I am wrong, but except the Brickell Avenue area, there is not one neighborhood or city in South Florida where the inventory has not gone down. OK, I might be exagerating since I didn't really cover all locations. But whatever I looked at confirmed these findings.

So again, I am asking:

Is this the bottom of the market?

Does this constant reduction in the listings announce the long-due recovery?

Prices are still falling, but at a much slower pace. In many area they appear to be stable. Of course that some foreclosure sales are being made at surprisingly low prices, but these are not the whole market. And in some of the most desirable areas, (like the beaches which are my specialty areas), I can feel some pressure on the prices.

How can I explain this? Perhaps less available bargains than ever during the last year or so? Less "steals" to offer to my buyers?

We can't deny that new construction is at a standstill all over South Florida. In the last two years, only the completion of some projects has added new properties on the market. New projects are almost non-existent.

The flow of out-of-town buyers, investors, new first-home-buyers must have done its job of eroding the inventory. It will go on. The assistance that the Federal authorities are putting in place to help middle-class homeowners is starting to show. Prices have made real estate more affordable.

Perhaps not as affordable as we would hope. We can't forget that the real price is the price at which a buyer can afford it without getting in trouble. Sacrifices have always been done in order to achieve the American dream of home ownership. But you still have to feed your family, pay your water, electricity and a minimum of inescapable expenses. (let's not talk about health-related bills which for many people have become another unattainable dream). If you can pay your mortgage, taxes and maintenance fees after saving as much as possible on the rest, then the property is affordable.

Fannie Mae has traditionally ruled that housing expenses for a homeowner shouldn't exceed about 30% of his gross income. That should be the criteria to determine a reasonable market price.

But all this is not what we really want to talk about.

We are analyzing the inventories of active listings of properties for sale.

There is a factor that we cannot ignore. Foreclosures and short sales can and will increase in the immediate future, due to the end of banks "moratorium" on foreclosures but, so far, we haven’t seen a sensible effect on increasing real estate inventory. Or perhaps the acceleration of market normalization would be much more evident if these new foreclosures wouldn't be feeding the market.

This comparison is significant. Not a lot of economics and theories. Just cold facts. As much as 10% less homes for sale in less than three months.

Are we reaching bottom? I am starting to give it some serious consideration.

These are the inventories of condos and homes in some of the most important areas of South Florida.

	As of March 19, 2009	As of May 15, 2009	As of June 10, 2009
Aventura Condos	1864	1769	1724
Bal Harbour Condos	270	283	255
Brickell Area Condos	810	714	772
Hallandale Beach Condos	1320	1260	1202
Hollywood Condos	1477	1608	1554
Fort Lauderdale Condos	2903	2918	2870
North Bay Village Condos	304	303	298
Pembroke Pines Condos	1096	971	926
Sunny Isles Condos	1495	1401	1367
Surfside Condos	189	172	168
Weston Condos	331	309	278
West Palm Beach Condos	2732	2510	2470
Aventura Homes	54	47	47
Coconut Grove Homes	156	156	152
Coconut Creek Homes	231	172	153
Coral Gables Homes	607	555	535
Coral Springs Homes	720	568	503
Hallandale Beach Homes	124	114	111
Hollywood Homes	1477	1288	1199
Fort Lauderdale Homes	1902	1733	1676
Miami Beach Homes	492	469	454
Pembroke Pines Homes	837	654	609
Surfside Homes	70	73	67
West Palm Beach Homes	1841	1665	1601
Weston Homes	545	487	473

More about banks and bailouts

Dec. 24, 2008

I read in the South Florida Business Journal:

BankUnited Financial expects $327M loss, gives cautions about future

BankUnited Financial Corp., the holding company for the largest bank based in Florida, expects to lose at least $327 million in the fourth quarter and warns of "substantial doubt" of its ability to operate as a going concern if it fails to raise capital.

In a notification of late filing with the Securities and Exchange Commission on Tuesday, the Coral Gables-based parent of BankUnited (NASDAQ: BKUNA) also acknowledged that the SEC’s Miami office began an informal inquiry into the company in October.

Bank United said it could not file its financial statements for the fiscal year ended Sept. 30 by Dec. 15, the SEC's usual 45-day window, because of adverse market conditions and an additional review of complex accounting and disclosure issues. That review is examining the company’s regulatory issues, liquidity and capital.

One discovery made by the bank is that it misclassified $449 million from securities sales as investing cash flows when they should have been classified as operating cash flows. The mistakes were made over a two-year period that ended Sept. 30, 2007.

The bank said it would restate its consolidated statement of cash flows if the mistake is determined to be a material event.

However, that accounting change would not impact cash, net income or earnings per share, the bank stated.

Bank United said it expects to file its annual report with the SEC sometime in January.

In a research note to clients Wednesday, Raymond James associate analyst Michael Rose said BankUnited appears to be in a "race against the clock in its efforts to survive." He maintained an underperform rating on its shares that encouraged investors to sell.

After signing a cease and desist agreement with the Office of Thrift Supervision in September, BankUnited has been working with federal regulators, who placed restrictions on its business practices and set a Dec. 31 deadline for the bank to raise its capital-to-asset ratios.

BankUnited, which previously said it was seeking $400 million, continues to seek more capital through an asset sale or an equity investment. The bank stated that if it does not raise the money by the end of the year, it doesn’t expect to meet the capital ratio requirement and could face “various enforcement actions regarding the bank” from federal regulators.

“We are in negotiations with a fund to raise capital and restructure our balance sheet,” BankUnited stated in the filing. “We cannot assure you that these negotiations will be successful. If such negotiations are not successful, there is substantial doubt about our ability to continue as a going concern.”

Philip van Doorn, senior banking analyst for The Street.com Ratings in Palm Beach Gardens, said BankUnited faces significant challenges in raising capital. It would be unlikely to receive federal aid, and it is hard for a potential investor to evaluate the bank's finances when it's having difficulty preparing financial statements, he said.

"A potential acquirer looking to expand its deposit footprint into BankUnited's territory might find other opportunities to acquire one or more healthier institutions," van Doorn said. "The potential acquirer could also wait until BankUnited or another local institution fails, so they could scoop up deposits and branches on the cheap, without being forced to take on the failed institution's bad loans."

After losing $209 million over the first three quarters of its fiscal year, BankUnited's holding company said it expects a loss of $327 million in its fourth quarter ended Sept. 30. That loss would be greater than the $261.6 million loss its BankUnited savings and loan subsidiary reported to the Federal Deposit Insurance Corp. for that quarter.

However, BankUnited cautioned that the holding company’s loss could grow “substantially larger” when it completes an analysis of how much it should reserve for loan losses to cover its payment option adjustable-rate mortgage portfolio.

These types of loans, where borrowers can pay less than the monthly accrued interest and let the balance grow, were major factors in the downfall of Washington Mutual and Wachovia Corp. this year.

“If the final earnings analysis results in a material level of additional losses and we are unsuccessful in our negotiations with a fund to increase capital, there is substantial doubt about our ability to continue as a going concern,” Bank United stated in its filing.

Bank United’s liquidity improved, as it had cash and equivalents of $1.2 billion as of Sept. 30. The bank’s management stated it believed there are enough liquid assets to meet the potential demands of customers “in an environment where financial institutions have experienced unexpected withdrawal rates.”

However, the holding corporation has a potential liquidity issue after pumping $80 million into the bank during the fiscal year and the cease and desist order prohibiting it from taking dividends from the bank. As of Sept. 30, the holding company had $28.4 million in liquid assets against $5.3 million in annual administrative expenses and $16.2 million in corporate debt that can’t be deferred.

The Bank United holding company has sufficient liquid assets to meet its obligations for about 16 months, but it can’t be assured that it can make debt payments once those assets are depleted, the company stated.

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It seems like centuries ago, when I was called one day by a representative of Bank United who announced me that from that day on I wouldn't be able to send Bank United any more mortgage transactions.
I was at that time working as a mortgage broker, doing what I could to work honestly in an environment that I didn't seem to understand very well.

Bank United needed at least a deal every month, in order to accept to work with me! (or was it three deals? I don't remember exactly)

My frustration didn't last more than a few minutes, though.

I had in my lenders portfolio hundreds of other banks competing for my small business. Thousands of programs, conventional programs, Alternate-A, A-minus programs, B-lenders, C-lenders, sub-prime, hard lenders, you name it. A dizzying array of ways to lend money to all sectors of society; good credit, fair credit, bad credit, zero-down-payment, foreign national buyers, refinance, jumbo loans, investor loans, each lender with hundreds of possibilities.

The new denominations given to these new categories, as I understand it now, were some of the gimmicks used by many lenders to label and package their mortgage loans for sale to US and international investors. (do you mean suckers?)

I have been a bank manager in my youth. I thought I knew something about lending money to people and businesses. I have even studied this as a career.

I remember that there was a basic consideration when I was taught to underwrite, authorize or deny a loan: the borrower's capacity to repay the loan. Another element was the extent of the hard assets of the client, as well as the verification of the guarantees given by the borrower.

I guess the teachers of my generation didn't know anything about how to become a multimillionaire in a much easier way.

I wasn't a very successful mortgage broker during that period, I confess. It was the only time in my life when I wasn't one of the best at what I was doing.

Reading this kind of news is not a sweet revenge. Just a recollection.

Welcome to the Bailout era.

Henry B. Nathan is a Florida Real Estate Professional. Please visit my website: http://www.condo-southflorida.com to search for

Florida Condos, Hallandale Condos, Aventura Condos, Hollywood Condos, Sunny Isles Condos