Tue, Sep 18, 2007 - Page 9 News List

US mortgage crisis could generate both misery and opportunity

By Patrick Collinson  /  THE GUARDIAN , LONDON

Welcome to the world of foreclosure. One in every 80 homes in Florida is currently being repossessed by banks, as the subprime mortgage crisis rips through the Sunshine State. And while this means misery for evicted home owners, it spells opportunity to others. Sal Beloise, owner of Beloise Realty real estate agency in Clearwater Beach, said they had just put a house on the market that 22 months ago they got US$1.8 million for.

"Even though it's on the bay front, we'll probably end up with a sale price around US$1.1 million," he said. "At the top end, the properties selling for US$2.5 million to US$2.8 million are now going for US$2.1 million to US$2.2 million, while properties in the interior which had gone for US$600,000 to US$900,000 are going for US$450,000."

House prices in holiday centers such as Miami, Clearwater and Orlando boomed in the years running up to 2005, stalled last year and are now falling fast as the foreclosures work through.

"It was bizarre how it came to a halt at the end of 2005. For the past 23 months it has been like someone flicked a switch and said `no more sales,'" Beloise said.

Initially Beloise blamed it on overbuilding of condos and media reports (he cites CNN) predicting that the boom couldn't last. His guess was that cheap condos bought by investors -- those priced around US$300,000 would be hit, but family homes would remain unaffected.

But the truth was that every mortgaged household was being affected by a sustained rise in interest rates, which saw the Federal Reserve raise borrowing costs 17 times in succession between 2004 and last year.

"People who had adjustable [variable] rate mortgages saw their payments doubled or even tripled," Beloise said.

The financial pain didn't stop there. It is two years since Hurricane Katrina wrecked New Orleans, but its impact still reverberates around the Gulf -- home insurance costs have rocketed. A typical household in Clearwater now faces an annual hurricane and flood insurance bill of US$4,000, while for waterfront properties the premium can be as high as US$10,000 a year.

Hard-pressed mortgage payers also face fast-escalating property taxes.

"Taxes are levied on assessment, not on what you paid for the property," Beloise said. In his area they are charged at 2 percent on the value of the home, and after the boom it meant that an owner with a property valued at US$1 million was having to pay US$20,000 a year.

"The number one issue at the last election here was about lowering property taxes and the next biggest issue was about insurance costs," Beloise said.

Given the combination of oversupply, stretched affordability, rising interest rates and soaring insurance and property taxes, it is hardly surprising that Florida's property market went into freefall. But what has made this downturn different to others is that the foreclosures are turning up in every neighborhood, not just in low-income communities.

The victims may not like it, but there is now a small industry growing and feasting on the fall in prices. US real estate expert Danielle Babb has just published a book entitled Finding Foreclosure: The Insider's Guide To Cashing In On This Hidden Market.

"In the `old days' the foreclosures were usually in bad neighborhoods, sub prime and in bad condition. Today one in every 143 households in America is in foreclosure. This means that a lot of families who took really good care of their homes -- even upgraded [especially in Southern Florida] -- are now in foreclosure. These are where the bargains are because the neighborhood value is still strong," she said. "To get some really good values, [buyers] need to find home owners in distress -- and they can do that by using a site I use to find my own investments called Realtytrac.com. Once they search a zip code, they should look up the pre-foreclosure stage."

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