"Blood in the water" in Florida property market

CAPE CORAL, Florida Tue Aug 14, 2007 10:10am EDT

Mauro Alvarado works on a new development on the Steinhatchee River in the town of Steinhatchee, Florida June 13, 2006. With a bloated inventory of unsold homes and a growing number of homeowners forced by mortgage delinquencies to sell -- thanks to the subprime crisis and ensuing credit crunch -- Florida's once warm clime for property has turned stone-cold. REUTERS/Mark Wallheiser

Mauro Alvarado works on a new development on the Steinhatchee River in the town of Steinhatchee, Florida June 13, 2006. With a bloated inventory of unsold homes and a growing number of homeowners forced by mortgage delinquencies to sell -- thanks to the subprime crisis and ensuing credit crunch -- Florida's once warm clime for property has turned stone-cold.

Credit: Reuters/Mark Wallheiser

CAPE CORAL, Florida (Reuters) - Phone books that were delivered but never opened rot away next to empty driveways and overgrown lawns, telltale signs that once-booming southwest Florida is now the center of the U.S. housing storm.

Until two years ago, middle-class retirees vied with property speculators for houses and apartments in Cape Coral, a town near Fort Myers on Florida's sun-drenched Gulf Coast. Now almost every other house on some of its streets has a for-sale sign outside.

With a bloated inventory of unsold homes and a growing number of homeowners forced by mortgage delinquencies to sell -- thanks to the subprime crisis and ensuing credit crunch -- southwest Florida's once warm clime for property has turned stone-cold.

Linda Setterlund, 61, owns a pristine three-bedroom, two-bath, Cape Coral house that has been on the market for about a year.

At a reduced asking price of $183,900, she said the house had been priced to match what she and her husband owed on it, after moving in three years ago with a 30-year fixed mortgage.

Setterlund said she and her husband had decided to leave the area to join family in Tennessee, but their decision was also prompted by growing real estate taxes and skyrocketing homeowner insurance rates after an active 2005 hurricane season.

"They're saying that we're heading for a recession but I think we're past that," said Setterlund, referring to the housing glut and its effect across much of south Florida. "I think we're headed more into a depression."

Setterlund and other local residents, many of them retirees from the Midwest, complained of low wages in the Fort Myers area, where leading employers include the Publix supermarket chain and the school board.

There was a nearly 27-month supply of existing single-family homes on the Fort Myers market last month compared to a three-month supply at the height of the local boom in housing in August 2005, according to Denny Grimes, a top real estate agent in Fort Myers.

At the same time, more than 40 percent of single-family homes were listed at prices below $250,000 versus just 18 percent at the market peak.

"There's a lot of blood in the water and there's a lot more to come," Grimes said.

OVERSUPPLY IN "WORST" MARKET

Making things worse, Grimes said builders were still churning out new housing units at big discounts in and around Fort Myers, where many investors bought houses during the recent boom market without ever considering the long-term cost of holding properties.

Fort Myers "is by far the worst housing market that we're in," J. Larry Sorsby, executive vice president and chief financial officer of home builder Hovnanian Enterprises Inc., told Reuters.

Hovnanian bought the largest home builder in the Fort Myers in August 2005 just as sales in the city were starting to dry up.

"They were the last one aboard the Titanic," Grimes said.

Ever the realtor, Grimes said now may be the time for buyers to seek opportunity in adversity, since Fort Myers housing prices have fallen back to levels where they could already offer buyers the potential deal of a "lifetime."

"The best time to buy is when the sellers fear tomorrow is worse than today," said Grimes.

While business is slow for Grimes and other real estate agents, it has been booming lately for Jonas Elliott, a so-called "short sell" specialist at Southwest Florida Home Buyer Services in Fort Myers.

Elliott specializes in buying properties from banks or other lenders that are at a risk of foreclosure, usually at a large discount, and then "flipping" them at a profit.

"In this particular county I have about five years of good business," Elliott said.

"I'm so inundated with properties I couldn't tell you," he added. "We have a ton of inventory, a ton of new properties coming into inventory."

Noting that losses on local properties had hardly been limited to medium-income retirees or "snowbirds," traditional residents of towns like Fort Myers escaping the harsh winters of the U.S. Midwest and Northeast, Elliott said one current customer of his was about to swallow a $1.5 million loss on four properties he could no longer afford to finance.

"That's a hefty sum of change," said Elliott.

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