The top story for 2008? Two words: The economy.
Many of this year’s top stories are connected to the worldwide economic woes. While the current downturn is, to some extent, a correction of the overly-robust market boom, all weak markets have an inherent sensitivity to additional bad news, and federal officials must now tread carefully as they guide a return to stability.
Florida Association of Realtors chose the following as Florida real estate’s top stories in 2008:
Home sales turnaround while prices continue to drop
As 2008 draws to a close, Florida home sales read like a good news-bad news lineup. The good news: In recent months, the number of home sales each month continued to rise, and has done so long enough to make the rebound appear to have legs. It’s not a return to even a balanced market yet, but the first step will be a pickup in home sales and a decrease in the available inventory of homes. Single family home sales rose 5 percent in third quarter 2008 compared to the same quarter in 2007.
The bad news: Home prices continue to decline. While expected – prices remained strong for over a year when sales first stalled – the market needs to find a bottom before it can turn around. As sales pick up, price drops should slow, and some experts predict that will happen in 2009, perhaps by summer. In third quarter 2008, the median price was down 20 percent compared to one year earlier.
Foreclosures and short sales on the rise
In 2005, foreclosures and short sales were rare. In 2008, they defined the market’s low end.
In the third quarter of 2008, Florida was No. 1 in foreclosures, with an American Bankers Association report finding 90,000 homes slipping into foreclosure. The same ABA report finds that foreclosures in Florida stood at 7.32 percent at the end of September, while Nevada’s rate of 5.58 came in second. During the foreclosure process, many of these homes become a supply line for short sales since banks can save the cost of a foreclosure by cutting a deal now; but many also become hard to sell as yards overgrow and interiors decay, with neither owners, banks or local governments taking responsibility for upkeep. For Realtors, a foreclosure makes it tougher to market and sell a nearby listing. For homeowners, foreclosures drag down nearby property values. For local governments, foreclosures present a maintenance problem and drain on the property tax base.
Short sales are one solution for troubled homeowners. Short sales, however, created other unique problems in 2008. The first problem involved time between offer and reply, and anxious homebuyers sometimes waited months for a response – and many times, that bank’s response was “no.” The problem may have existed before last year, but no one noticed because so few homes sold by way of a short sale. In 2008, a virtual short-sale industry came into existence. Questions were raised about MLS wording, and about seller representation as governments and real estate associations worked out the details.
Going into 2009, expect more of the same, at least early on. As long as Americans owe more on their mortgage than their equity in the house, short sales and foreclosures will be a part of the real estate world.
Credit gets tighter
During the real estate boom times, lenders threw mortgage money at prospective homebuyers with a range of terms to keep borrowers’ costs down – no downpayment, or no principal payment, or skip a month if you wish, or some combination of those terms with a teaser rate for the first few months.
In 2008, however, homebuyers with great credit and 20 percent down found it challenging to get any kind of mortgage.
In a chicken-or-the-egg paradox, lenders tightened credit as the real estate market melted down, fearful that home values would drop further, and their collateral – the home – would eventually be worth less than the money lent. Fearful of yet another short sale or foreclosure, banks stopped lending. But tightened lending isn’t just a result of the real estate slowdown; it’s also a cause. As the market finds its footing, many reasonably-qualified buyers now find that they cannot get a loan.
Heading into 2009, there’s a glimpse of hope on the horizon. The federal bailout package aims to loosen the credit markets and make it easier to buy a home, and many experts expect that to happen. The FHA also introduced programs and boosted its guarantees, freeing up even more money, especially for first-time homebuyers. By the end of 2008, FHA loans became the mortgage of last resort for many homeowners.
Fannie Mae and Freddie Mac need federal bailout
American homeownership took off when banks gained the ability to sell mortgages and use the cash to loan more money to prospective buyers. While a local bank branch worked directly with a homebuyer, Fannie Mae and Freddie Mac worked behind the scenes to buy mortgage loans and sell them to investors. Officially called government-sponsored enterprises (GSEs), the two firms hold over the half the mortgages in the U.S., and investors deemed them too big to fail.
“Too big to fail” was put to the test in 2008, and the federal government bailed out Fannie and Freddie. It’s unclear what the ownership status of the GSEs will be once the dust settles, however – quasi-governmental, governmental, or highly-regulated private companies. The answer should reveal itself sometime in 2009.
Florida homeowners get property tax portability and more
Looking for good news relating to 2008? Read on.
On Jan. 29, 2008, Floridians approved Amendment 1, providing needed property tax reform. In approving Amendment 1, state homesteaded owners increased their property tax exemption and gained the power to port existing property tax savings from Florida’s Save Our Homes amendment to a new home. Businesses gained a yearly 10 percent tax assessment cap effective in 2009, and a $25,000 exemption for tangible personal property.
While additional property tax savings never made it before voters after the Florida Supreme Court tossed out Amendment 5, the victory of Amendment 1 remains intact. In the shadow of a slower housing market, the small wins can be forgotten, but the passage of Amendment 1 represents a victory for Florida homeowners and business generally, and to members of the Florida Association of Realtors specifically.
The Florida Budget and Tax Reform Commission meets
An imperfect process of budgeting, taxing and spending can create problems. Over time, those problems can get worse. To combat that, Florida created the Budget and Tax Reform Commission, which meets once every 20 years, and has great power to put proposed constitutional amendments directly before voters via the ballot box. The group met in 2008; they meet next in 2028.
Past-FAR President Nancy Riley served on the Commission, and it generated a number of amendment proposals that benefit the state’s real estate market. Amendment 3, which passed, allows Floridians to upgrade their property against hurricanes without paying a higher property tax; Amendment 4, which passed, creates a property tax exemption for conservation land; and Amendment 6, which passed, allows marinas and other waterfront businesses to be taxed at current use standards rather than highest and best use.
The Commission also approved Amendment 5, which would have significantly impacted property tax rates in the state and added to benefits from January’s Amendment 1, but the Florida Supreme Court removed the proposal from the ballot before voters had a chance to weigh in on the issue.
Mortgage fraud runs rampant
In the second quarter of 2008 (most recent data available), mortgage fraud grew by 45 percent nationwi
de. Florida led the way with one out of five cases located within the Sunshine State; and Miami and Tampa landed the top two spots nationwide.
Most reported fraud came directly from homebuyers who, in earlier years, overstated incomes, beefed up bank accounts, and, essentially, lied to secure a mortgage. Other culprits included some mortgage brokers who “did what it takes” to get a client mortgage money, even if that means tinkering with (lying about) the client’s financial history. And some fraud is committed for old-fashioned reasons of greed.
However, a few pundits argue that fraud hasn’t increased – just the number of times people get caught. With falling real estate values, lenders are closely scrutinizing applications and mortgage brokers more closely.
The Florida Legislature also did its part to correct problems, enacting a law (effective Oct. 1, 2008) to strengthen enforcement efforts. In Florida, law enforcement has greater powers to combat fraud; borrowers must be told, in writing, how much a lender pays a mortgage broker; Good Faith Estimates must disclose all possible fees from every party; and if loan terms change, the borrower must be notified no later than three business days before closing.
Source: Florida Association of Realtors