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Nothing But the Dead and Dying In My Little Town

I track macro housing indicators in my housing reports, and the big picture is bleak for sure. But I wanted to get a hands on feel of what the market is doing on a micro level here where I live in South Florida. So I went out to do a little housing research this weekend in "my little town". I found out that you can get a 3 bedroom, 2 bath house, with a garage and about 1,700 square feet of living area, on a lake in many cases, in a gated community, with full recreational amenities like pool, tennis, and clubhouse, for $125,000 or less.

Prices are now down by more than 60% from the peak, and the supply of units is still crushing. I found 24 3 br 2 ba with garage in one 6 sq. mi. area for under $125,000 in West Boynton Beach, my old neighborhood. These properties would have sold for the low to mid 300k range in 2005, and in fact, some did sell for that price. I know because I was one of them. Many of these are now priced in the $100-110K range, and some are even asking less than 100K. This was in one of the hottest retirement community markets in the country from 1990-2005.

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Above is a picture of the zip code where I sold my house in June 2005 (33467). I got $335,500, which was about 10% above the median price of 295,000. The price peak was about a year later at just under 330k, but look what happened to the sales volume from the time I sold my house. It collapsed from about 250 sales a month to around 100. At the same time, the number of listings continued to balloon, so if you got your price in 2006, you won the lottery. In 2005, everybody got those prices. In 2006, very few got lucky, and in 2007 the collapse started. With a median sale price now at 116,700 we're starting to see a return of buying interest, but a lot of this is from investors again, buying the properties to rent them. At 110k, you can make a few bucks renting these things, but the problem is that the supply of rentals is also astronomical. There are 162 single family homes for rent. This does not include apartment complexes. At the same time, there are currently 815 MLS listings for sale in this zip.

So is this market beginning to recover? Eh, not likely. Inventory is still too high for the level of sales, which is still well below normal. And I have no idea what the shadow inventory is. And what will happen as more mortgages reset? All of the 5 year option ARMs that were issued at peak volume in 2005, just hit the wall last year. Foreclosures are on the slomo train. I suspect that this market could get slammed yet again.

Prices are already below the levels of 10 years ago. How much lower can they go? My guess is that they will reach the levels where they were when I bought my house at the bottom of the last real estate recession in 1991. That's another 20-30% down. But I don't really know.

Stratospheric insurance rates probably responsible for 10-20% of the total loss in value. It costs around $2400 a year to insure a house now worth $100-120k.

Municipalities are in deep trouble as lagging property assessments collapse. Primary residents have homestead exemptions of $50k on the value leaving a taxable value of just $50-75k in some cases, less in others. Lower priced housing, particularly massive older condo complexes that dominate communities like Deerfield Beach in Broward County now have countless thousands of units where the taxable value is ZERO! Houses that generated up to $6-7,000 a year in taxes in 2005 and 2006 could fall to as low as $1500 in 2012. Condos that generated $2000 will drop to zero.

Florida has constitutional restraints on how much the cities can raise tax rates to make up the revenue shortfall. Municipal governments and school systems face complete collapse over the next 24 months. Florida is a basket case now, and it will get worse.

If you want to do a study of your neighborhood go to http://www.zillow.com/local-info/ enter your zip, and click the More Metrics link in the left sidebar. Have fun, and by all means, report back to us. You can get the total number of current listings in your area at Realtor.com. Just do a search for all listings in the zip code.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in XHB over the next 72 hours.