Archive for the ‘Florida Real Estate’ Category

Florida Real Estate Market Update

January 5, 2010

If you have been debating about the right time to re-enter the Florida real estate market, the confusing signals being sent by the market don’t make it any easier for you to decide whether now is the right time to buy a new home in Florida.

There are important trends that you should consider on the positive side.

A significant number of homeowners have refinanced to take advantage of lower interest rates.  Refinanced homes are critical because they result in lower monthly payments to help distressed homeowners resulting in fewer additional homes being added to the market for sale that are going though some part of the foreclosure process.

Northern Florida has a stronger economy and job base which has contributed to a lower number of foreclosures as compared to elsewhere in the state.

Property taxes have gone down not due to the laws passed by the Florida legislature, but because lower home values for the past three years are now reflected in the annual property tax bills.

Some of the major realty organizations are offering home buyer price guarantees to encourage prospective buyers like you that may be currently on the fence.  One realty organization is trying to address your concerns about the market dropping further by offering to waive the selling side commission if a qualifying home you buy goes down in value after your purchase it and it has to be resold again.

If you satisfy the requirements, though the end of 2009 you could qualify for an $8,000 first-time home buyer tax credit from the US government.

One of the biggest reasons you should consider re-entering the Florida real estate market now is the fact that mortgage interest rates remain near historic lows.  The amount you will save in your monthly payment if you wait for further home price declines might be more than offset by higher interest rates.

On the negative side, the following would suggest that now is not the time to come back into the Florida real estate market and that you need to remain on the sidelines at this time.

Some of the most troubled areas in Florida still have up to 16 months worth of home inventory.  It’s not just the quantity of the homes in that inventory that is the issue, but the mix is also important.  A significant portion of that supply is already at some stage of the foreclosure process and includes everything from short sales to homes already taken back by the bank.  These homes take a lot longer to close and more importantly they distort the competitive market analysis data when they sell.  New home buyers and their realtors can end up spending weeks trying to convince bank appraisers that traditional homes being purchased are worth more than a comparable short sale home that recently sold in the same neighborhood.  In this environment where the home inventory is mixed many experts continue to forecast falling Florida housing prices through the end of 2010.

Homes moving through the foreclosure process in Florida are managed through the court system.  That can increase the amount of time it takes for a distressed home to move through the system and be taken out of the existing home inventory.

The Florida unemployment rate is closing in on 10% with almost 900,000 unemployed workers.  While the state had limited success bringing in new companies through the mid 1990’s, it has struggled recently to attract new businesses and continues to be heavily dependent on the tourism and housing industries.  Florida’s narrow job base still faces a significant challenge to support what is costs to own a home in the state. While it is impossible to present all the current information about the Florida real estate market that you need to make an informed decision on when to re-enter the market, the above items should give you plenty to consider as you weigh your options.

As you think about it please remember that each Florida market is a local market and you have to look at it that way when considering your decision.  Each market has its own housing supply, price levels, employment base, and foreclosures in the pipeline.  Some of those markets are going to come out of the current downturn a lot faster than others.  And if there is one thing that the recent market boom taught us is that once everyone is talking about the recovery it probably too late for you to re-enter the market at a reasonable price level.

As a result, the best thing that you can do to pick the right time to re-enter the market is to work with a local Florida realtor to get the data that you need to make an informed decision.  If you don’t want to research all of the above items, at least take the time to find out the inventory mix of traditional homes for sale compared to those that are in some part of the foreclosure process in your area.  My suggestion would be for you to wait until homes in the foreclosure process have fallen to less than 20% of the total home inventory in your price range before coming back into the Florida real estate market in your area.


Michael Letcher is a Fortune 500 executive and a licensed Certified Public Accountant.  His on-line guide helps Florida realtors find low cost new Florida homeowners insurance for their clients.  Learn more at =>


Florida Home Mortgages – What Would Happen if Everyone Defaulted?

January 3, 2010

Most of us are not interested in talking about Florida homeowners insurance.  Even though the Florida property insurance market is still in a state of chaos, we would prefer to pay our bill and forget about insurance until the bill comes again in the mail next year.

So it’s no wonder that when a story ran in the Florida media earlier this year about two key financial rating agencies (A.M. Best and Demotech) threatening to downgrade the ratings of dozens of Florida homeowners insurance companies unless something was done about the Florida Hurricane Catastrophe Fund shortfall, no one paid any attention.

If these rating agencies follow through on their threat to downgrade Florida home insurance company ratings, the impact would be disastrous for all homeowners in the state.

Let’s start with a look at how this potentially lethal situation was created.

The Florida Hurricane Catastrophe Fund (Cat Fund) charges all Florida home insurance companies a premium for reinsurance – which is insurance for insurance companies.  It is a simply a mechanism that allows insurance companies to be reimbursed by the Cat Fund, once claims from a major Florida hurricane event exceed certain levels.

To address rapidly rising Florida homeowners insurance costs, the Florida Legislature passed laws in 2007 that increased the obligations of the Cat Fund by an additional $12 billion over previous levels.  That move made the Cat Fund directly responsible for up to $28 billion in losses and led to some modest reductions in Florida home insurance rates.

The change in the Cat Fund seemed like the right thing to do at the time, but there were problems with this approach.  The Cat Fund relies on the full faith and credit of the State of Florida to be able to issue bonds at reasonable interest rates to cover the cost of major storms.  That ability to borrow is what allows the Cat Fund to charge less for the reinsurance than insurance companies would have to pay in the private market for this coverage – and in theory at least would lead to lower insurance rates.

In perfectly functioning bond markets, this approach might have worked successfully for many years.  However, our current financial crisis has changed all of that.  Even the most credit worthy governments across the country cannot borrow all that they need from the bond markets.  The Florida Cat Fund is no exception.

As the Cat Fund looks at the $28 billion in exposure that it faces, it has publicly acknowledged a shortfall against that responsibility of an estimated $18 billion.

That shortfall means that it is very possible that after your Florida home insurance company satisfies its primary claim obligations after a hurricane, it can’t rely on the Florida Cat Fund to reimburse it for losses above those levels.  In plain English, that means that some Florida homeowners won’t have their hurricanes paid in a timely fashion.

So why are the financial rating agencies concerned about this shortfall?

When the rating agencies issue their ratings on Florida home insurance companies they know that both you and your bank rely on those ratings to help predict the financial ability of your insurance company to pay your claim promptly and satisfactorily.  These rating agencies factor into their ratings the quality of the reinsurance contracts among other things – regardless of whether those contracts are purchased in the private market or from state agencies like the Florida Cat Fund.

When the rating organizations assess the $18 billion shortfall in the Florida Cat Fund, they question the reliability of the reinsurance being provided and they know that there is an increased chance that the insurance company won’t be able to meet its obligations.  That is why they have threatened to downgrade the ratings of all the Florida home insurance companies that rely on the Cat Fund.

So what happens to you in May of 2009 if this downgrade happens?

You will face nothing short of a major disaster – even if you pay your mortgage in full every month.

Here is how this shocking scenario would play out if nothing is done to address this.

The Florida Legislature does not address the Florida Hurricane Catastrophe Fund shortfall in its current 2009 session.

AM Best and Demotech lower the ratings of all Florida homeowners insurance companies in May of 2009.

When your mortgage company or bank finds out about these rating downgrades, it will let you know right away that you need to find a new more highly rated insurance company or else you will be found to be in default under the provisions of your mortgage.

Because all the Florida home insurance companies are required to buy certain layers of reinsurance from the Cat Fund, you won’t be able to find even one company that will satisfy your Florida mortgage lender.

Your Florida mortgage company will take action to protect the lien that it has on your home by putting forced placement insurance coverage on your home at about 4 times the amount that you had been previously paying for your Florida homeowners insurance – so if the homeowners insurance that you had been buying from your company that had its ratings downgraded was $4,000, the bank will step in and buy a forced placement policy from a company of its choosing that is now going to cost you $16,000 per year!

And here’s the worst part.

You’ll pay four times more than the cost of your traditional Florida home insurance and you won’t recover any money for your home or personal effects if you have a major Florida hurricane claim.  Forced placement coverage only covers the unpaid balance of your mortgage and it will be paid directly to the bank, not you!

You will be financially on the hook for paying your bank the cost of that $16,000 a year policy every month until you are able to find a replacement Florida homeowners insurance company that has a rating that is acceptable to your mortgage company.

During this period of turmoil all Florida real estate transactions will come to a complete stop – which will further worsen the housing crisis in Florida.

This downgrade in the insurance company ratings is expected to happen by May 15, 2009 if the Florida Legislature does not adequately address the shortage in the Florida Cat Fund – with only two weeks remaining before the start of the 2009 hurricane season.

Unless you feel like $16,000 is pocket change to pay just to protect your lender’s interest in your property, now is a perfect time to let your Florida Legislators know that you want them to fix the mess that they created in 2007!


Michael Letcher is a corporate executive and a licensed Certified Public Accountant.  His on-line guide can help you find affordable Florida home owner insurance.  Get all the secrets to low cost Florida insurance in his free newsletter at =>

South Florida Rental Real Estate – The Real Truth

January 3, 2010

It’s never been easy to be a landlord.

I thought I was ready for the challenge when I purchased a new rental home in Port St. Lucie, Florida in 2005.  After three years of high taxes and insurance, declining prices, and foreclosures, I thought I’d seen it all.  Nothing could have prepared me for what I faced when my most recent tenant moved out in August of 2008 as the financial crisis worsened.

I thought I was up to the task when my tenants asked if they could terminate their lease in August of 2008 on my Port St. Lucie rental home.  After all, I’d always been able to find new tenants before without the help or expense of a realtor.  Worst case I thought I would miss out on two months rent.  I couldn’t have been more wrong about that.

I was determined to stay positive and to get this home back on the South Florida rental market as soon as possible.  Before I met the tenants on August 29th for the handover, I had already purchased two on line advertisements, priced the monthly rent at the average of my competition, and the calls were already starting to come in.

My spirits were even higher when I saw that the tenants were leaving the property in excellent condition.  It was extremely helpful that I have the best girlfriend on the planet who was able to re-paint this home from top to bottom in only 3 days.  Within only two days of re-taking possession of the home, we were already showing it to prospective new tenants.

My confidence in my own ability to rent this home quickly, faded almost immediately.  The South Florida real estate market was already in turmoil suffering from both low home prices and low rents.  That was made significantly worse in the fall of 2008 as many financial institutions teetered on the brink of collapse.  Despite that fact that the calls continued to come in, it didn’t take long for weeks to stretch out into months.

There is a happy ending to this story but it is not a quick one.  The home finally rented to a great family who started a new lease on February 1, 2009 – It took me five months of continuous daily marketing to finally get this home rented.  Those five months without a tenant cost me thousands of dollars in lost rent and in extra utility bills.

As a Florida landlord who continually wants to do things better, I pay very close attention to the marketing methods I use and how effective they are.  But instead of talking about what forms of rental advertising work the best, I’d like to share with you statistics that I collected over these five months of trying to rent the home – information that provides the real truth about just how miserable the South Florida real estate market really is.

There were a total of 106 leads that came in through either phone or email where someone expressed an interest in renting the home.  That’s about one lead per day for 3 out of every 4 days.  Out of those 106 leads, 59 of them vaporized for no apparent reason, so let’s focus on the remaining 47.

About 36% of the remaining prospects didn’t want to pay the two months of security deposit I was asking for.  Many stated that they had not been required to pay any security where they were currently renting.  This was very predominant in St. Lucie County.  Callers from Dade and Broward County were used to the two month requirement as were those who called to inquire from outside of Florida.  Smart Florida landlords know that security deposits are an essential requirement and that even with two months security there is still a good chance of losing money if a tenant drags out the eviction process.

A staggering 23% stated that either their own home was in foreclosure, going to short sale, or that they were renting a home that was being foreclosed on.  An additional 17% reported either filing for bankruptcy, losing their job, or both.  These numbers are frightening and point to the worst economic downturn that we have ever witnessed during our lifetimes.  This also led me to question whether the foreclosure rate on homes is a lot higher than the 1% to 2% range that I read about in the Florida media.

The numbers are also disappointing with regards to the poor job Florida landlords are doing as this economy worsens.  About 8% reported that their current landlord was not making necessary repairs on the homes they were renting and several homes were no longer safe to live in due to the presence of mold.

Last but not least, for you big government types out there, I want you to know that two callers asked me to falsify the actual amount of rent that I was charging so that both the tenant and I could overcharge the federal government for Section 8 housing.  It is a felony to do this.  Those were short conversations that ended with me hanging up.

Here is the most shocking information about the poor condition of today’s Florida real estate market.  Out of those 106 phone calls or emails that came in over the five months, only 13 turned into actual showings.  Those are terrible numbers – less than an average of three showings per month.  And this means that you should expect that only 1 out of every 10 people that you speak with will want to come see the home in person for a showing.

Finally the competition I faced trying to rent this home was staggering.  I was competing with at least 100 similar homes on the Florida Multiple Listing Service and another 100 homes available in the newspaper or online during the five month period.

Now that you know all the facts about the current South Florida real estate rental market be very careful if you are thinking about sticking your toe into these turbulent waters.  The crisis in the Florida real estate market is far from over.


Michael Letcher is a Fortune 500 executive and a licensed CPA.  His on-line buyers guide can help you find low cost South Florida homeowners insurance for your home.  Get all the secrets to affordable Florida insurance in his free newsletter at =>