by Mark Scheinbaum
American Reporter Correspondent
Boca Raton, Fla.
September 20, 2006
FORECLOSURE NUMBERS ARE WARNING SIGNS FROM U.S ECONOMY
BOCA RATON, Fla. -- Drive by your favorite section of Palm Beach County and keep in mind that recently-released figures show that one in every 250 homes you pass is in foreclosure.
All of South Florida hugely exceeds national averages on foreclosures, but so far Palm Beach County's go-go, hot, flipping, speculative, and irrationally exuberant market takes the cake with foreclosures four times the national average.
But wait! All can’t be doom and gloom if on the same day we were told by a national mortgage trade association that new mortgage applications are up for the first time in three months nationwide? What gives?
First, a disclosure. I am not a Realtor and I don't play one on tv, yet I hold the distinction of being the first person in my entire Palm Beach County neighborhood to actually "go to contract" and sell his house this summer - the first sale in four months in my area. I credit a veteran realtor who has lived in my own neighborhood for 17 years, and an experienced real estate attorney with making things happen in what others called an "impossible" sales environment.
So, using some basic solid investment caveats, let me apply some thoughts to real estate for those of you who see a buying opportunity in times of "distressed prices" and "motivated sellers."
First, numbers are just numbers: A closer look at some reports indicates that perhaps more than 60 percent of houses and condos "in foreclosure" may never actually foreclose. There are work-outs, forbearance, sales, auctions, re-fi's, etc. Examine each case carefully.
Next, the "flipping" of three or four years ago may no longer be possible. There are so many apocryphal stories that one wonders if the flippers were telling the truth at all. In South Florida, real estate "winners" are the loudest neighbors at the pool and the clubhouse. People who got hosed and lost their shirt are as quiet as a 53-year-old charged the senior discount price on the Early Bird buffet line at Golden Corral.
Think about it. The new American dream was putting 5 percent down on a $280,000 condo and with a "simultaneous closing" six months later - meaning, to have found some sucker to buy it at $325,000. Oh yes, don't stop at one deal, do this four or five times and smile.
A number of practical procedures involving financing, title and escrow make many of these stories dubious, but even with the benefit of the doubt, things have changed. Many builders, developers, sales agencies, and lending institutions no longer allow booming real estate markets to become the personal ATM of wealthy speculators.
Part of the problem is that many of these "big shots" weren't that wealthy after all. Carrying two, three or four mortgages at a time when insurers such as Nationwide have raised insurance premiums 100 percent or more left them stretched to their credit limits.
It might seem alarmist, but the number of foreign nationals involved in the "flipping" game also raised issues of money laundering, off-shore illegal funds being repatriated, and violations of various Patriot Act rules.
There are many more variables to consider, which is why the real estate lawyer and full-commission (you get exactly what you pay for) realtor should be part of your real estate "investment team." Just keep in mind that the silver lining in this cloud still involves caution.