"Blood in the water" in Florida property market

By Tom Brown

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.