It’s June in Florida

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“You can get wood. You can get brick. You can get stucco. Boy, can you get stucco.”

– Groucho Marx

In the Florida land boom of the ’20s, promoter Carl G. Fisher hired a huge, lighted billboard in Times Square in New York. It advertised that “It’s June in Miami,” a claim that was fraudulent 11/12ths of the year. In June, it was just too bad.

South Florida is entering its fourth year of a property slump. Places sell for about half of what they brought three years ago. The retail building across the street is half empty. Signs are everywhere: “Office for rent.” “Ocean front lot for sale.” “Commercial space available.” Here in Delray Beach, the sun is shining. The grass is growing. Waves caress the shore. But our hotel is nearly empty. Many restaurants on Atlantic Avenue are closed. The streets are so quiet the city seems like a ghost town. Then again, it’s so hot and sweaty, even the ghosts wilt.

But the ghosts talk:

“There was nothing languorous about the atmosphere of tropical Miami during that memorable summer and autumn of 1925,” wrote Frederick Lewis Allen in 1931. ” The whole city had become one frenzied real-estate exchange. There were said to be 2,000 real-estate offices and 25,000 agents marketing house-lots or acreage…the city fathers had been forced to pass an ordinance forbidding the sale of property in the street, or even the showing of a map, to prevent inordinate traffic congestion.”

The boom of the 1920s came to an end in 1926. Henry S. Villard, reported what he saw two years later:

Dead subdivisions line the highway, their pompous names half- obliterated on crumbling stucco gates. Lonely white-way lights stand guard over miles of cement side-walks, where grass and palmetto take the place of homes that were to be… Whole sections of outlying subdivisions are composed of unoccupied houses, past which one speeds on broad thoroughfares as if traversing a city in the grip of death.

For three years, Florida’s property market died, even as the rest of the nation danced the charleston. It did not recover until after WWII – 20 years later. And now, it is out of season once more in Florida. The subject of today’s note is why it may never be high season again.

There are no houses for sale here. A house is a tangible thing. Its paint peels. Its roof leaks. Its a/c needs to be replaced. But a home is an agreeable abstraction. So great is the local realtor’s distaste for tangibility, that houses have all been replaced by mansions, estates, compounds, retreats, and most importantly, by ‘homes.’ We find, for example, a “spectacular Palm Beach Estate Home,” with a separate 2-bedroom oxymoron – a “guest home.” It must be a house for guests who refuse to go home. Or perhaps a home for people who refuse to be guests. And if we looked for a home in the country, we would probably find one with a dog home in the back yard.

“This palatial home features over 20,000 square feet of living area,” says a current listing. “Built with entertaining in mind, this home features 9 bars, 2 walk-in wine coolers, 3 outside grilling areas, a 75′ pool surrounded by a 400′ marble dock and patio…summer kitchen with complete with outdoor fireplace…no detail has been overlooked.”

Well, maybe one detail. Who would want to pay $11.5 million for a jumped-up mock-Tuscan relic from the bubble era? Even in the best of circumstances, a major property bust can take decades to fix. In Japan, property collapsed after the stock market bubble popped in ’89. All around it, the world economy kept bubbling away. But Japanese property sank to the bottom anyway. Twenty years later, prices are still down as much as 80%.

The Hoover administration helpfully turned its back, neither causing the bubble of the ’20s nor attempting to repair it. This week, Sheila Blair, chairwoman of the Federal Deposit Insurance Corporation, admitted that the feds now are more involved. Too bad, again. Like Florida in June, government support is not always what it pretends to be. The New York Times:

“For 25 years federal policy has been primarily focused on promoting homeownership and promoting the availability of credit to home buyers,” Ms. Bair said. She mentioned some of the many subsidies home buyers get, including the home mortgage interest deduction and the ability to deduct property taxes.

She mentioned Fannie Mae and Freddie Mac too. Along with the other federal subsidies, the two agencies largely financed America’s real estate bubble. Now, with their help it could be a long time before the market recovers. Maybe forever. Fannie and Freddie stand behind $5.5 trillion worth of mortgages. More than $1 trillion of them were written during the height of the ’05 -’06 bubble. Those houses, many of them in Florida, are probably underwater now – worth less than the value of their mortgages. Most will go into default…leaving Fannie and Freddie, and indirectly the taxpayers, on the hook. The foreclosed properties will cause properties to sink deeper. And by the time the inventory is finally worked off, circumstances may have changed. Buyers may look to Cuba, Nicaragua or the moon for their retirement havens…leaving Florida to the ghosts forever.

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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Comments

  1. This year Florida – next year SE Qld.

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  2. The housiong property market has taken a bad hit

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  3. Comment by Rob on 21 June 2010:

    This year Florida – next year SE Qld.

    I hear Gold Coast and Brisbane are not travelling well at the moment.. Prices heading South now..

    Stillgotshoeson
    June 22, 2010
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  4. Gold Coast is a very different market to Brisbane. Proliferation of high rise units on the coast has always seen it to be a boom and bust type of market. Who wants an old unit when you can buy a brand new one next door?

    Miami looks just like the Gold Coast from what I’ve seen on TV. Will see firsthand in December, so will have a better feel for comparisons then.

    In my suburb, I keep an eye on the number of houses for sale at any one time, and it generally ranges from 65 to 75 houses. However, it’s the sort of suburb where the median house price figure is unreliable, due to the range of house prices. Houses have sold this year from $600K to $5.8M.

    Houses continue to sell, and like any house, if they are overpriced to begin with, they take longer to sell. I would say that Brisbane hasn’t had anything like the boom of Melbourne, and if the world dooesn’t fall off the cliff, I’d expect SE QLD to do quite well in the future, comparatively speaking. We have a lot going for us, and some markets within Brisbane will do better than others, particularly those close to the transport infrastructure projects that are underway at present, and due to be finished in a couple of years.

    Areas further from the city without good transport infrastructure will suffer more, IMHO.

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  5. “I hear Gold Coast and Brisbane are not travelling well at the moment” – Not interested in the Gold Coast, but as a Brissy boy, I won’t be heart-broken personally to get some sort of a buying opportunity maybe? Jeez, it has been a pretty long time between drinks after all! :)

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  6. Ned,

    If there is a crash of any description, have a look at Murrumba Downs, North Lakes, Mango Hill. There’s lots of buying opportunities there now, so hate to imagine what it will be like in this mortgage belt area if GFC Part 2 Tsunami makes it to Oz.

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  7. Have been looking forward to QLD in July, Ned… but it appears it’s going to be SEA; probably Singapore to Vietnam.

    Please keep us all advised about QLD property movements, Davo and Ned.
    If any significant downward movement occurs, it will encourage my FA to flynbuy, meaning I can then ride home. Don has put us off Cairns, totally… . A pity, as I’d hoped to do that Cairns to Brisbane ride this year… . :(

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  8. Hi Biker,

    If you are looking at purchasing here, do some research into the areas where some serious tunnelling is being done at present, and some starting next month.
    Inner northside works from Bowen Hills to Toombul and then on to the airport will basically be free flow traffic areas, either in toll road tunnels or restricted access roads.
    brisconnections.com.au are building most of these projects and it’s predicted that property values near these projects will increase significantly more than other areas of Brisbane.
    This apparently based upon evidence of similar rises in other cities near this type of work. Mid 2012 is the completion date of most of them.
    The Clem7 tunnel opened recently (named after an old Lord Mayor)and runs north south avoiding the CBD, and if it’s any indication of how much easier it will be to get around Brisbane, I can’t wait for these other projects to finish.
    Suburbs to look at on realestate.com.au would be Bowen Hills, Albion, Lutwyche, Gordon Park (still a bit sleepy this one), Wooloowin and my suburb Clayfield. All have easy access to the train system now, as well as buses, and all within 7 kms from CBD. Mostly older houses of course.

    People are critical of paying a toll for the new tunnel ($2.95 each way), but for me, small price to pay to not be sitting in traffic above ground.

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  9. Thanks Davo – Yes, I imagine that if we take a hit, that area could start to hurt. Tricked if I understand why there are a lot of buying opportunities there now though. By and large I wouldn’t think home owners would be starting to hurt. And I wouldn’t have thought those were suburbs investors would have rushed into. Maybe it’s a case of me simply being wrong – With the Kippa-Ring rail link proposal probably having presented some tempting bait to investors for a lot of years now.

    OK Biker – Cheers!

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  10. Hi Ned,

    6 rate increases would be hurting as most of those houses are fairly recent, first and maybe second home owners who got sucked in by the Kruddy giveaways. Also, no housing shortage out there. Have a look at realestate.com.au. North Lakes generally has 200+ houses for sale, Murrumba Downs 130+, and mostly your typical 4 bed lowset brick house. That’s 330+ similar houses either side of the highway. As for the railway, my kids will be long dead before that gets built I reckon. Been on the drawing board since 1888. Can’t see Anna the blight organising that.

    Cheers

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  11. No question about the levels of stock seeming high Davo. (I live in Pine Rivers and started noticing an increase in the numbers of properties advertised in the local papers a while back now.) But yes, if you are correct about it being genuine interest rate stress, then they just didn’t allow much margin for error at all.

    The railway – They’ll get it eventually I’d guess. But I’m not sure I’ve got time to wait for it either. :)

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  12. Thanks, fellas. It’s a minefield buying in an area you don’t know intimately (as I said to our youngest, prior to him abandoning his Montreal apartments plan!)

    Have a feeling that our criteria wouldn’t fit, unless you really _do_ have a very major meltdown, which I doubt. How do rents figure in all this?
    Ours are $350 – $450 per week in a much-sought-after beach suburb… .

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  13. I get the general impression that most Brisbanites who are into beaches, by and large figure it’s worth their while to drive to either the Gold or Sunshine Coasts rather than visiting a strictly local beach as such Biker.

    Rents – From a landlord’s perspective I’d imagine they are quite low. By and large one is probably a bit below the formula of a house costing $XXX,000 earning $XXX per week rent for example?

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  14. “…a house costing $XXX,000 earning $XXX per week rent…”

    Gotcha.

    And that’s a part of our own calculation. We’ve broken that loose rule once and it’s the rental that we’re subsidising (before tax claims… .)

    It’s not so much that we are into beaches… . Enjoy them, but our home property is 5km from the sea. We’ve simply found proximity to the ocean pays off in rent and capital gain.

    Your QLD property spruikers’ two main criteria _appear_ to be CBD and transport*, Ned. Nothing at all wrong with that… but our markets
    differ appreciably.

    * We get a lot of pitch from QLD. Only Nigerian and Ghanian women contact us more than QLD property salesmen…. .

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  15. We have a housing bubble and that bubble will bust or deflate eventually. When the oil price was at $150 per barrel everyone said to look at supply and demand factors. These factors are important but only part of the equation. Speculative investment is the main contributor to price point today. Just wait until the speculators pull out of SEQ property.

    Reply

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