Real Estate in Florida - A Study in Physics

What goes up must come down. Remember this law of gravity? If you send something into the air, it must eventually come back down. How far up it goes determines how fast it will fall. This is the case with real estate in Florida, particularly along the west coast.

Boom has turned to bust

Housing prices were rising at a record pace, in some cases double or more in 2-3 years. This was the best time for real estate investors in Florida to buy. Or was it? When the peak arrived in mid-2006, the market never saw a plateau. It started dropping, and hasn't stopped yet. People have mortgages that are higher than the value of their house. Homes that had a lot of equity now have little or none. Foreclosures have sky rocketed.

Interest-only mortgages-great in the short term

When looking for a mortgage, first consider a couple of things. How long do you plan to live in or own the subject real estate? Will the market value increase in this time frame so you can make a profit at the closing table? These are things that many people never take into consideration when buying real estate. Interest-only loans are great in the short term, 2-3 years maximum. If you can re-finance the mortgage after a year, then it is a great thing. But, right now, many people have the interest-only option, and can only afford the lowest amount. This leads to increasing the balance of the mortgage, instead of reducing it, with each payment made. That is because there is no money applied toward the principal. So, in the very short term, the interest only loan is ok. If you plan on making it your homestead for life, then find a more conventional real estate loan.

Flipping real estate in Florida

Five years ago, one could purchase a home dirt cheap, fix it up, and resell it for a good profit. As the years went along, the law of physics became more evident. The asking prices were higher, so the after repair prices were higher. Now the property has nearly doubled in the selling price from the original price. People can't afford to buy a house because of this staggering increase. Flipping has almost come to a stand still. A house that was a 'fixer-upper' with a market value of $100,000.00 now has a price of $140,000.00. And if it needs $20,000.00 worth of repairs, it will have exceeded the market value, rendering it useless to an investor or flipper. It is a shame, because it is a lot of fun.

Taxes and Insurance are resistant to the laws of physics

When the real estate market in Florida was zooming upward, the taxes and insurance did not keep up the pace. This is because property taxes are based on the market value of the home. Then the taxes are reduced by a homestead exemption for people owning 1 house. There is also an exemption for keeping your house, a 'save our homes' break. But as the resale prices went up, counties decided to re-assess these properties, every year. They used to just build in a small factor for sheer market value adjustments. Now that county property appraisers statewide are actually appraising these properties, and going on actual sale prices in a comparable area, the taxes have doubled-in 3 short years. Insurance is based largely on what it would cost to replace the house in the event of a catastrophe. The appraised value also plays into the equation by placing a price on the home. These two large pieces of the Florida real estate owners pie are getting too much to handle, and will resist dropping anytime soon.

Florida has a lot of houses for sale

Real estate professionals in Florida will tell you that the prices are beginning to level off. Every street has at least 1 house for sale. Some have every one for sale. The more competition there is, the lower the price goes. With the real estate for sale inventory the largest ever, the prices just keep dropping. For some property owners, it is a wait and see game. For others, which have been slapped with the highest tax and insurance bills ever, they have given up. Foreclosures are the highest they have ever been. Low-interest and interest only option ARM's have been adjusted to the point of breaking. And with no equity in the house to refinance, the mortgagee gives the house back to mortgagor. So many in fact, that some of the smaller, sub-prime lenders have filed for bankruptcy, or just closed their doors. It is a real estate buyer's market right now. You can certainly find one that suits your needs, and for a pretty good price.

Real estate in Florida has been through a lot of changes over the years. Development, both residential and commercial, has hurt the market. The new housing market has almost dried up, like the land and lots that were cleared for new houses. But, barring any natural disasters, it will come back to life. Buying and selling real estate in Florida is fun and challenging. Do your homework-now more than ever. Don't be a victim of gravity on the real estate market in the future.