Boom of condo crash loudest in Miami (how mortgage fraud helped create the bubble)

[El Pinko]

This story is a bit dated (in fact, the Orlando Sentinel has already taken the piece down, so I had to link to a blog that has it still up), but it is extremely illustrative of the kind of fraud that created all the illusory rise in housing prices. The whole article is really worth a read. Back in 2005, I told my stepdad, a GOP pig, that I thought houses were way overvalued and that it was a speculative bubble bound to crash big-time, and he insisted "they're not overpriced if there are people willing to pay that much. That's the wisdom of the "free" market - it always knows best and sorts out the winners from the losers" or some such bilge. I'm sure he still believes that, and doesn't think this fraud-ridden industry needs any regulation...




Multiple construction cranes fill the skyline off Brickell Avenue in downtown Miami, where the nation's most glutted condo market can be found. Orlando has 4,440 condos listed for sale; Miami has 23,000. (SUSAN STOCKER/SOUTH FLORIDA SUN-SENTINEL / August 7, 2007)


http://thehousingbubbleblog.com/?p=3323

Boom of condo crash loudest in Miami

.....

Many told a similar story: They had a friend who made $100,000 flipping a new condo, and they planned to ride the same wave of escalating prices. All they had to do was put down $60,000 on a $300,000 pre-construction unit and resell it when the value climbed to $400,000 -- before the building opened, and before closing and mortgage payments, maintenance fees, insurance and taxes kicked in.

That meant anyone could risk $60,000 and pocket $100,000 without actually buying anything.

.....

From 2001 to 2005, Beschel said his group bought about 50 pre-construction condos, sometimes 10 or 12 at a time. They would pay about $300 a square foot and, once the building sold out, return the condos to the developer, who would resell them at $350 a square foot. The difference between the original contract price and the new one -- $100,000 on a 2,000-square-foot unit -- would go to Beschel's group, minus a commission.

"The developer would take his commission, and we'd take our profit and everybody was happy. When the market was cranking, it was a brilliant business model," Beschel said.


This was standard operating procedure throughout the condo canyons of Miami's Brickell avenue...

[Doctor Cynic]

1. I need to ask anyone in Miami

Have all those condo projects fallen silent? There are too many examples of construction sites falling silent during an economic crash.

Meanwhile, in Vancouver, we've been seeing the biggest ever condo boom on the waterfront and soaring prices. It's not uncommon to buy 400 sq ft condos in the hottest parts of town. They've been telling us that the demand is genuine and is not a bubble, and so far the US property crash isn't been felt anywhere in Canada (except among banks that bought those assets). I wonder when and how the Vancouver boom will end...

[El Pinko]

3. Canada is probably just behind a bit...

Prices are already freefalling in the UK as well, and unless there has been significant wage growth in Canada to support high home prices, chances are that it is a speculative bubble there too, and eventually prices will fall back to trend.


When I lived in Miami, I could not fathom just who was going to live in all those high-priced condos going up. They said that the demand there was genuine, too - it was not, not by a long shot.

[Doctor Cynic]

5. There are unique circumstances in Canada, though

In Vancouver, the upcoming 2010 Winter Olympics is fuelling this boom, and as more wealthy immigrants from Asia move in, demand keeps going up. It's also important to include the boom in natural resources which has caused huge inflation in the construction sector.

It's the same thing in Calgary, Edmonton, and Saskatchewan, but much worse as that's where all the oil is. There are horror stories of homeless people with $20/h jobs, and teenagers dropping from school to make $15/h just at McDonalds.

Many manufacturing cities in Ontario and Quebec are being crushed by the rising Canadian $, the difficult times in Michigan and upstate NY, and outsourcing to China. But Toronto and non-manufacturing cities continue to see inflating prices. It's nothing like what happened in Florida or Arizona, though.

If the US continues to enter recession, there's a possibility that one part of Canada will suffer recession while another continues to boom at a slower rate. This has created a huge headache for the interest-rate-changers.

[El Pinko]

6. Maybe. In Miami, they said that wealthy S. Americans & Europeans were snapping up all the condos...

...but it turns out that a huge percentage of the "buyers" were scammers like those covered in this article. I know this - don't trust what real estate agenst tell you about the housing market. They're the worst spinners around.

[Greyhound]

4. Don't know about BC laws governing real estate transactions, but have you

factored in the rise of your currency (or fall of ours) into the equation?

I don't think it is unreasonable to state that a significant percentage of Canada's economy is completely dependent on America's economy. As ours sinks, it will be felt all around the world, but even more so in Canada. Couple that with the inevitable loss of business that you attracted because of your formerly (comparatively) weak currency and go from there.

[TheMadMonk]

8. 400 sq ft? Sure you didn't drop a zero. 4 squares is a bedsit. nt

[JohnyCanuck]

9. Living small can be 'cleansing'

TheStar.com - living - Living small can be 'cleansing'

December 15, 2007

Gail Swainson
Real Estate Reporter

The city – its coffee shops, restaurants, clubs and theatres – indeed, all of Toronto, is Kathleen DeSouza's living room.

And it's a good thing, too: her 341-square-foot condo barely affords enough room to turn around in, never mind entertain.

But what DeSouza has lost in size, she figures she has gained in price and location, location, location.

Her Battery Park condo in Liberty Village, at Strachan Ave. south of King St. W., places her front and centre for everything the Entertainment District has to offer.

"And it's close to downtown, so I can ride my bike or take a streetcar wherever I want to go," DeSouza says. Even though things are a bit cramped while her sister is visiting, "size really isn't an issue," she says. "I don't get too attached to stuff."

DeSouza has learned something all buyers of pint-sized condos discover all too soon after the move-in: how to live large on the small.

SNIP

Toronto realtor Brad Lamb says that as prices continue to spiral upward, compact apartments will become the norm for the lion's share of first-time buyers.

Lamb's small-condo projects include gläs at King and Spadina, which has 410-square-foot units, and Worklofts, at Dundas St. E. and Carlaw Ave., which features 450-square-foot suites.

"There's a very, very large interest in small apartments," quips Lamb, owner of Brad J. Lamb Realty Inc. "There is a massive market for it because affordability is a real issue in Toronto."

http://www.thestar.com/printArticle/284729

[TheMadMonk]

12. 5000 plus books. electronics workshop, woodworking shop, observatory.

Nope. Not gonna fit. I'll stick with my 3/4 acre and 15 min walk to the middle of Bendigo. All above services on hand. Patronage of same essentially zero.

[ursi]

2. ...and there's been alot of mortgage fraud ...it's so overwhelmingly huge that

there is no way to go after all of the perps involved.

[JCMach1]

7. The US needs to Ban Credit Reporting and return to Due Diligence

People were gaming the system...

[trof]

10. I came close to 'flipping'. Surprisingly easy.

I'm retired, living on S/S and a small pension.
I also have a fairly substantial IRA as a result of a cash lump-sum conversion of a company pension plan.

In 2005 and 2006 the condo craze was in full swing on the Alabama gulf coast. Friends had made some big bucks 'buying' at pre-construction prices for as little as 10% down and then reselling at much higher prices a few months later.

One condo had changed hands 10 times before the owner who actually took possession had a key to the front door. And every seller made money. Very tempting, but I was reluctant to cash out that much of my IRA.

And then I heard about 'The Deal'.
You didn't need 10% in CASH. A letter of credit would be perfectly acceptable. I didn't have enough cash to be comfortable with such a risky 'investment', but...I DID have a hell of a lot of equity in my home. Several hundred thousand dollars worth.

After a cursory review of my net worth, a local bank would be happy to issue a letter of credit based on the equity in my home. The pre-construcion price of the smallest unit in the proposed condo project I was considering was $300,000. So for a $30,000 letter of credit I could buy in. The annual fee to the bank for this was negligible.

I thought about it for a few days and then chickened out. Just more risk than I was comfortable with.
Good move.

The project was never completed.
The developer is in bankruptcy and being sued by all of the buyers.
And the bottom has dropped out of the condo market down here.
whew

[ProfessorGAC]

11. You Ducked At Exactly The Right Time

Way to dodge the bullet!
The Professor

[SoCalDem]

13. UGLY UGLY UGLY..Tear the suckers down.. n/t

[ima_sinnic]

14. don't worry, the ocean will be swallowing them up soon enough (nt)