Lee County, Fla., Suffers Foreclosure Glut
Just a few years ago, there was a rush to buy property in sun-drenched Lee County, Fla. Bidding wars were common for homes that hadn't even been built yet. But those days are over, and the real estate market there now is clogged with thousands of unsold homes. The decline is so extreme that people are looking for ways to walk away from their properties.
When condominiums went on the market at the gleaming new development of Cape Harbour in Cape Coral, Fla., a few years ago, so many people wanted to buy that the owners had to sell them by lottery. The fact that the towers hadn't been built yet was viewed as a minor concern.
"It was very exciting," recalls real estate agent and resident Robin Speronis. "In the second high rise that went up, all the units were sold within hours."
By the time the tower was finished, the real estate boom had ended, and today many of those same condos are unsold or in foreclosure, Speronis says.
A Nasty Real Estate Hangover
Even more than most parts of Florida, Lee County on the Gulf Coast partied through the real estate boom of a few years ago, and now it's suffering from an especially nasty hangover. More than 19,000 homes are now on the market, and prices are tumbling.
In February, the Fort Myers-Cape Coral metropolitan area had the highest foreclosure rate in the nation, according to Realty-Trac. It slipped to No. 5 in March. The number of homes sold fell from 955 in March 2006 to 445 in February, while the median sales price fell to $211,500, from a high of $286,500 in May 2006.
"It was a classic case of a real estate bubble, where the market builds and builds and builds, until the point that it's overbuilt, and then it collapses," says Shelton Weeks, professor of real estate at Florida Gulf Coast University.
As in the rest of Florida, much of the fervor was driven by speculators who snatched up condos and houses as fast as they could be built, expecting that the days of easy money would last forever. In some condo towers, three-quarters of the units were bought by outside investors hoping to flip them, Weeks says.
Weeks says he even had undergraduate students who waited tables for money who were able to get mortgages to buy and flip properties.
Backlog of Unsold Homes
As prices have fallen back to earth, owners have increasingly found themselves owing more than their properties are worth, and are walking away from them, helping to create a backlog of more than 19,000 unsold homes — about six times as many as two years ago.
Marcus Netto, 47, has to work two jobs to pay the mortgage, maintenance and taxes on the two Fort Myers properties he owns; he also has a time-share in Orlando. But he has to dip into savings to cover his expenses.
"I got almost $4,000 every month (in costs)," says Netto. "That's a lot of money for me. I don't make that."
Although Netto could sell his properties, he is unlikely to receive as much as he owes on them, so he is hoping to arrange short sales. That means finding a buyer and persuading his lenders to accept whatever price they offer. Banks sometimes agree to short sales as a way of avoiding foreclosure, even though they absorb a loss.
Walking Away from Properties
For banks, the number of forecosures and short sales is a big problem.
Even some buyers who can afford their mortgages are opting to quit paying because they owe too much, Speronis says. With prices falling, some amazing deals are now on the market, and owners figure they can better themselves by purchasing another home and walking away from their existing properties, she says.
With so many deals to be had, bargain-hunters are beginning to come into the market, including many from Europe and Canada, trading on the favorable currency exchange rates. Moreover, few new homes are being built. As a result, the huge inventory of unsold homes may be stabilizing or even shrinking a bit, says Russ Weyer of Fishkind and Associates, a consulting firm.
But prices will probably keep falling for a while longer, Weyer says.
Waiting for the Bottom
The problem is being aggravated by the downturn in the economy. With real estate development at a halt, construction jobs are disappearing, and the county's unemployment rate now stands at 6.5 percent. As a result, many construction workers are leaving the area, meaning more homes on the market and even lower prices.
The continuing glut of unsold homes has a psychological effect on buyers, says Florida Gulf Coast University's Weeks.
"We have a lot of folks who are here and interested in buying who would take some of this inventory off the market," Weeks says. "But nobody wants to be that first mover. They would all like to wait until they're sure we're at the bottom."
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RENEE MONTAGNE, host:
This is MORNING EDITION from NPR News. I'm Renee Montagne.
STEVE INSKEEP, host:
And I'm Steve Inskeep. Good morning.
A county in southwest Florida achieved a distinction earlier this year. In February, Florida's Lee County had more foreclosures than any other place in America. It's the same pattern we've seen elsewhere. Prices rose rapidly just a few years ago, and now many people owe more than their homes are worth. But in Lee County, the decline is so extreme that some people are walking away from their properties.
NPR's Jim Zarroli has more.
JIM ZARROLI: If you want to understand what's happened to Florida real estate, you can start by visiting Cape Harbour. It's one of numerous gleaming new developments that have popped up in recent years. There's a pair of condo towers overlooking the Gulf of Mexico, a shopping area modeled on a Mediterranean village, and a sun-drenched marina packed with boats bobbing gently in the water. Real estate agent Robin Speronis says three years ago, people lined up to buy property here.
Ms. ROBIN SPERONIS (Real Estate Agent, Florida): It was very exciting. In the second high rise that went up, all the units were sold within hours. It was a lottery. They were almost lined up overnight to get their lottery tickets in order to - the opportunity to purchase a condo.
ZARROLI: If you were lucky enough to own a home in Cape Harbour, like Speronis and her husband, people were offering tow or three times what you paid for it.
Ms. SPERONIS: In 2005, we saw what was going on. We sold it. We made over $300,000.
ZARROLI: How could you know what was going on in 2005?
Ms. SPERONIS: Because we went through it in Massachusetts in the late '80s, early '90s. So when they offered about $600,000 for my property that I paid 260 for in 2000, I'm like, sure. You can have it.
(Soundbite of laughter)
ZARROLI: The couple traveled for a few years. Then they returned to Cape Harbour and bought another place. Only by then the boom was over.
Ms. SPERONIS: You've got your laundry room over here, dining room, living room, kitchen.
ZARROLI: Today, Speronis takes me through an empty condo next door to her own. The owner couldn't sell it, and now the bank is seizing it. Of the 24 units in this area, Speronis counts at least four that are in foreclosure or heading there. Another has a lien for nonpayment of condo fees, and the owners of yet another are in bankruptcy.
What's happened here has happened all over Lee County. In 2005, almost 30,000 new homes were built here, twice as many as the population growth warranted. Today, there are 19,000 unsold homes - six times as many as two years ago.
Professor SHELTON WEEKS (Real Estate, Florida Gulf Coast University): It was a classic case of a real estate bubble, where the market builds and builds and builds until the point that it's overbuilt, and then it collapses.
ZARROLI: Shelton Weeks, professor of real estate at Florida Gulf Coast University, says much of the real estate fervor in Lee County was driven by speculators. He says in some condo towers, as many as three-quarters of the units were bought by investors. Weeks says he even had students who were buying and flipping houses. When the boom ended, so did their real estate careers.
Prof. WEEKS: Unfortunately, most of those folks ran into some significant difficulty about 12 to 18 months after that peak.
ZARROLI: They're people like 47-year-old Marcus Netto. Today, he's driving me around Fort Myers to see the remnants of his real estate empire. Three years ago, he moved here and bought a townhouse. He also bought a condo as an investment and a timeshare in Orlando. Then Netto's wife left him, and his mortgage rate readjusted upward. He now has to work two jobs to pay all the mortgages and taxes he owes.
Mr. MARCUS NETTO: I got almost $4,000 every month. That's a lot of money for me. I don't make that.
ZARROLI: But he also can't sell any of his properties. They're not worth what he owes. So Netto is trying to arrange short sales, basically a way of getting the bank to absorb the losses on his properties.
Real estate agent Robin Speronis says a lot of people in Lee County are looking for ways to bail out of their mortgages. Speronis says prices have come down so much that some people are even choosing to abandon their properties because they can get a better deal somewhere else in the area.
Ms. SPERONIS: I talk to buyers every day that are paying their mortgage, that can afford their mortgage, but are not going to pay it anymore. They're going to buy a house, either a foreclosure or something that's really low in price, and once they get the loan for that, they're going to stop paying on the other property.
ZARROLI: The result, she believes, is going to be more and more foreclosures coming on the market. The glut of bank-owned properties is beginning to draw bargain-hunters. That, combined with the fact that few new homes are being built, means the huge inventory of unsold homes in Lee County may be starting to shrink. But Fishkind and Associates, a consulting firm, says prices probably haven't hit bottom yet.
Shelton Weeks says the backlog of unsold homes is affecting market psychology.
Prof. WEEKS: We have a lot of folks who are, I think, are here and interested in buying that would take some of this inventory off the market, but nobody wants to be that first mover. They would all like to wait until they're sure we're at the bottom.
ZARROLI: And the problem's being aggravated by the economic downturn. Real estate is a major industry in Lee County, and with construction at a halt, unemployment is 6 and a half percent, well above the Florida average. So many construction workers are leaving, which means fewer buyers and more abandoned homes.
With a flood of baby boomers heading toward retirement, Lee County will inevitably recover from the real estate crash. But with so many homes on the market, that probably won't happen anytime soon.
Jim Zarroli, NPR News. Transcript provided by NPR, Copyright National Public Radio.
