Distribution Notice: Although this page is copyrighted, you may use any part of this page free of charge providing: (1) you send me an email with a link to the use, or you send me a hard copy of the use and (2) you properly credit the use of the material to "Mike Morgan, J.D. - Morgan Florida Real Estate" If you use an excerpt from this page, I reserve the right to add an explanatory comment or revoke permission to reprint.

Real Estate and Housing Industry Outlook

September 2, 2007

Morgan@MorganFlorida.org

”Florida’s going to have a sonic boom when this happens.”

Governor Crist commenting on the real estate boom coming to Florida

Quote of the Week – I swear to you, I didn’t make that up.  We all thought Jeb Bush was in outer space during his term.  Well, his successor has obviously been drinking Bob Toll’s Kool-Aid.  Crist made this comment out loud in a room full of 550 real estate agents.  And you thought only David Lereah could pull of this kind of mega-hype. 

Crist was talking about the sonic boom he predicts for the Florida real estate market if the property tax issue passes on January 29.  Unfortunately, if it passes as it is, it spells disaster for Florida, with local governments forced to cut budgets by as much as 20%.  Schools will suffer, health care will suffer, fire and police protection will suffer . . . and anyone considering moving to Florida will think long and hard about alternatives.

This week . . .

WCI – The Ghost Ship and The Pirates

Market Conditions – Overview

Incentives – Toll’s Platinum Club and WCI Rewards

On The Road – West Coast, Mid-Atlantic, Florida

The Numbers

Condo Numbers

Condo Bust Poster Child

Florida Condo Markets

Ginn Sued - Ponzi Scheme Alleged

Florida Woes – Impact Fees and Homeowners Insurance

Sales Tax Numbers – Spillover?

Vulture Funds or Hawk Fund

Downgrades

International Bank Spillover

Heard From Across the Pond – SIVs

Mortgage Industry Spillover

The Sharks

Current Bal Harbour Prices -

Mark to Model – 0.000…0006.  There are 138 zeros in front of that six!

Bail Out

Prior Weeks Outlook Reports - Click Here

Rear View Mirror Quote of the Week – “Grade: F. I am really disappointed in your performance . . .”  This wasn’t our friend Bob Toll dishing out nonsensical, off the cuff grades on housing markets.  This was Ed Leamer, and Ed’s no slouch.  He’s an economics professor at the University of California and he heads UCLA Anderson Forecast.  In his paper presented at the conference this week in Jackson Hole, Leamer had some tough love for Bernanke and company.  At the conference we heard for continued housing problems, with some attendees seeing another 50% drop in prices.  But here’s the kicker.  Leamer sees no recession!  If you believe that, you must also believe in the Tooth Fairy and the Easter Bunny.  Let’s face it.  The Fed and all of the other geniuses are forgetting Economics 101 – Supply and Demand.  We have far too many houses.  We have more houses than we have people to live in them, and builders are still building.  As we take the largest engine of the economy offline, we will have a recession.

Rear View Mirror Article of the Week – Normally, I wouldn’t even bother with something like this, but since the Wall Street Journal ran it front page, it needs to be noted.  Michael Corkery and James Hagerty of the WSJ combined there efforts to produce a front page article that might have meant something a year ago, but was nothing more than a remnant space filler today.  The article was letting us all know that investors are defaulting on home loans.  WhoopieDoodles.  Surprise, Surprise, Surprise.  These two reporters have consistently taken a rear-view mirror approach and provided data that simply doesn’t add up.  Why is this important?  If you’re relying on the WSJ for information you can use to evaluate the housing and real estate markets, be careful when you see material from Corkery and Hagerty.  Last week, in the WSJ Sunday edition run in local papers nationwide, Corkery put out a piece that could only be summed up as a high school attempt to piece together a bunch of factoids into an article.  You’re not really sure what he’s trying to say, and if you understand anything about the housing market, you’d realize Corkery has no clue what he’s talking about when it comes to the heart of housing and real estate issues.  So be careful when you see something from Corkery or Hagerty.  If you want information that is relevant, insightful and accurate, follow Vikas Bajaj in The New York Times and Mara Der Hovanesian in Business Week.

WCI – The Ghost Ship and The Pirates – You could make a movie about this one.  Let’s see . . . Icahn wanted the company at $22.  Ackerman and Starkey throw a Jack Sparrow hissy-fit declaring the company is worth more . . . even though they were selling stock for less.  Icahn gets control of the Board and the stock is now less than half of the $22 price.  Who’s on first? 

Who’s running this ship?  Icahn, the new Captain, didn’t even show up for the annual meeting.  Granted, not much takes place at these meeting, but with the public exposure this saga has been through, you’d think the Captain would make an appearance to show his support.  So who’s running the ship?  Is it the old crew that turned down $22 while they pulled down huge compensation packages and partied like there was no tomorrow, or the new crew . . . that have no clue what they’re doing or where they’re going.  If you haven’t seen the bios of the guys Icahn put in place at WCI, take a moment to laugh if you’re short and cry if you’re long.  It seems to me like the new crew thinks there is booty and plunder to be had . . . and old crew is hiding it.  NOT.

But there is still enough juicy fruit for the new crew to pick off, at the expense of shareholders.  I should qualify that, because it will not be easy to pick off any of the fruit here . . . unless the debt holders look the other way.  After what they just agreed to, anything is possible.  In the end, WCI goes bankrupt or the debt holders get crushed and slashed by Icahn’s crew.  There are no other options.  None.

On the conference call Jim Dietz boldly declared he would have a CO by the end of August . . . or maybe early first week of September.  Well, Jim . . . no CO and the month has ended.  I will be making a trip to Bal Harbour on Friday, but from what I hear . . . there will be no CO this week . . . and no CO in September.  I will post pictures this coming week! 

Market Conditions – We are in the slowest period of the year in Florida and nationwide for residential home sales.  The last two weeks of August are dedicated to vacations and getting kids back to school.  It might not be fair to report on what I have heard from across the country this past week, so let’s give it a couple of weeks.  Looking beyond this current period, overall, two words can sum up the residential housing market – MORTGAGES and INVENTORY.  Or maybe I should say, lack of mortgages.  A perfect example is the suspension of operations at First Magnus.  No more mortgages.  First Magnus operated in all 50 states.  I’ve discussed this issue enough during the last few weeks, so we will give it a break this week.  It’s bad and getting worse.  If you would like more color, call me. 

Incentives – I haven’t spoken about incentives for several weeks.  Nothing much has changed when it comes to the creativity of incentives.  Everything from trips to Vegas to free cars.  But something that has been quietly slipping into the industry is courting of real estate agents again.  While at one point, some builders cut commissions and discouraged real estate agents, now they have clubs for agents like Toll Brothers’ Platinum Club and WCI’s Rewards. 

On The Road – This week I am on the West Coast, and I will update clients accordingly.  Let me just say, I have not found anything to lead me to believe things are getting better.  To the contrary, things are getting worse.  And as I sit here in a wonderful coffee shop in Seattle, I can only think how familiar the cranes look to what I’ve seen in Florida, Arizona, Nevada and California.  The signs look the same too . . . Condo Close-Out, Pre-Construction Condos, New Townhomes for Sale, Lease to Own, Office Space, Retail Space and on and on.  Sure Seattle is probably one of the best markets in the country, but it has not entirely escaped the greedy side of the real estate bubble.  The single family residential market here is sound, but that is simply because the public builders developing huge communities had no place to build homes in this market.  I expect a crunch in the Seattle condo market with some terrific opportunities for my Hawk Fund clients.  I will be in the Mid-Atlantic region this month, and next month I will spend 2-3 weeks traveling within Florida to develop a detailed report on builders and markets.  If you are a client with specific requests, please call me.

The Numbers – Existing home sales down to annual pace of 5.75 million and inventory of homes up to 4.59 million (9.6 month supply) . . . if you believe the numbers.  Remember, the inventory does not include builder inventory and flipper properties being temporarily rented out.  As I have said all along, the builders could stop building for an entire year.  In fact, that would be the best thing that could happen for the housing market.  The longer they keep building supply that outstrips demand, the harder the crash and the more builders we see go BK.

New Home Sales Up 2.8% - I guess it depends on how you read this number and what went into it.  If it is a blip up because builders have been selling homes at less than replacement cost, we have a problem.  Builders need to make a profit, right?  If it is a blip up because of a reporting error that will be adjusted next month, we have a problem.  If you’re going to rely on numbers, don’t you want to be 100% positive they are accurate?  If it is a blip up because buyers are moving to more attractive incentives from builders versus what existing home sellers can offer, we have a problem.  It doesn’t help the housing market if we are just moving inventory from one side to the other, with no overall adjustment.  So no matter how you slice it, we have a problem that is not going away until the builders stop building.

State and Regional Numbers – Clients that want spreadsheets and numbers for state and regional markets should call or email me.

Condo Numbers – I read a piece that popped out at me this week. In 2003 there were 41,900 condo units delivered nationwide.  In 2006 there were 102,800.  Economics 101.  Either we had a population explosion, or we were invaded by a small foreign country that decided to move in, or we forgot the basics of Economics 101.  It gets worse.  In 2008 more than 15,000 condos will be delivered in Miami-Dade, Broward and Palm Beach counties.  And another 15,000 in Florida’s Gulf Coast and Orlando MSA markets.  So when I tell you the vulture fund guys buying this stuff are too early, trust me.  In many markets we will see condos selling for 30 cents on the dollar within the next 12-18 months.

Condo Bust Poster Child – Do you remember this from last year:  One of my clients asked me to pick the company that has screwed up the worst.  Well, that was a real tough question.  For condos, I picked Corus.  For residential homebuilding, I picked TOA.  For the rental markets, I picked Tarragon.  Not bad, ayh?  But Corus is the focus for the moment.  Nonperforming assets spiked a tad.  Well, maybe tad is not the right word when you go from $620,000 to more than $200,000,000.  That’s not a typo and you don’t need glasses. It is not $2M.  It is not $20M.  It is two hundred million.  But here’s the kicker.  The number will probably be at least double this quarter.  Glickman’s note to shareholders said it all.  He warned of greater impact on earnings . . . if markets don’t improve.  When you’ve banked it all on the tower condo market in Florida, California and Vegas, you have no hope of markets improving in time to save you.    

Florida Condo Markets – We’ve heard enough about Miami, yes?  If not, call me.  I made a trip to the Orlando area recently.  The only difference, is a different twist on the fairy tale.  The Miami hype is . . . the next Manhattan.  Orlando has Mickey Mouse and Fairy Princesses.  All the experts have been telling you Orlando is different.  In October 2005 I put up the warning flag about what was going on in Orlando.  More condo conversions than any other region in the country.  In fact, more condo conversions than any other state in the country.  I warned about the towers being built without concern for location or demand . . . just like Miami and many other frothy areas.  But it was a bit different here, because the builders created a Disneyesque Fairy Tale, and hundreds of thousands of folks bought it.  A recent Orlando Sentinel survey finds that more than 28 of the downtown condo projects are in limbo.  In fact, only 15 of the 40 projects in the survey have broken ground, and none have broken ground since the Sentinel ran a similar story six months ago.  But even 15 is too many!

MLS numbers in Orlando are no different than Miami, with a multi-year supply of condos and prices crumbling daily, as flippers compete with each other for buyers that simply do not exist.  There will be buyers, but not at these prices.  The buyers will step up to the plate at prices 30-50% below current prices.   In this market, you need to distinguish between resort and retirement area condos from downtown condos.  Big difference.  There is much more demand for resort/retirement area condos from around the world.  But this is not the case for downtown condos in Orlando or Miami or Tampa. 

Ginn Sued (Ponzi Scheme Alleged) – There was an interesting lawsuit filed in a U.S. District Court in Michigan by a group of 19 folks that bought property in two of Bobby Ginn’s communities in Florida.  It’s interesting that 99 Michigan residents bought property in these communities.  It is interesting that one of the claims is how Ginn Company inflated prices to make people think prices were actually going up.  It is interesting that there are allegations of a Ponzi scheme in the lawsuit.  Ginn is no stranger to controversy when it comes to developing communities and resorts.  I’ve had first hand experience with the Ginn team, and I can attest that it is an unusual experience to say the least.  In fact, I warned one buyer not to buy a piece of land at Ginn’s  Preserve.  A few months later, the client calls me to tell me he bought the lot anyway.  He bought a quarter acre lot for $400,000.  Now he wanted to sell it.  I told him he would be lucky to get $100,000.  This is one of the same communities involved in the lawsuit!  And this is not the last story you will hear like this.  I’ve heard from a few dozen attorneys that are polishing off the elephant guns with a variety of public and private developers in their sites.  I’ve also heard from a few of Ginn’s financial backers.  We might just see some opportunities to pick off a few choice properties from the Ginn portfolio as debt holders grow more anxious for accountability.

Florida Woes – Impact Fees - I have written about property tax and homeowner insurance issues for quite some time.  The picture is not getting better. In fact, it is getting worse, with Governor Crist all but giving up.  I have also written about impact fees, but now this problem is raising its head again.  Impact fees are what builders pay the county and state, so the governments can build schools and roads, and provide services, etc.  Builders pay a fee for each home they build.  Impact fees in some counties are more than double what they were just a few years ago.  Here are fees for three counties for a typical 2,000 square foot home.  The first column are current fees, the second column proposed fees and the third column the percent increase.

Indian River    $9,978          $16,951  (72%)

St. Lucie       $9,033          $12,963  (45%)

Martin           $11,499         $24,654  (114%)

Here’s another example of impact fee problems. In Marion County impact fees were $2,212 in 2005.  In 2006 fees were increased to $9,624.  This past week the county rolled over to the bark of the builders and voted 3-2 to slash impact fees.  Unfortunately, no matter how loud the builders bark, we have a state law in Florida that calls for concurrency.  So even if the builders find a way to pay off the local officials, they still can’t build houses without meeting concurrency.  This means roads, schools, fire department, police, etc. etc. etc. 

If Florida is truly going to benefit from Baby Boomers, they need to start planning appropriately.  We have no income tax in Florida, but we still need to provide the services offered in other states.  Our Governor is slashing property taxes with no plan for replacing the lost revenue.  Our state is the only state that provides for homeowners insurance at discounts to market prices, and operates without a realistic safety net.  For the Baby Boomers, North Carolina, South Carolina and Georgia are becoming more popular and competing harder for the business.

Florida Woes – Homeowners Insurance – The Florida Legislature has authorized the sale of nearly $30 billion in bonds to cover its exposure to a catastrophic hurricane.  The State of Florida is now the largest property insurer in Florida.  To put this into perspective, this bond authorization  is almost three times as large as the $11 billion California issue that stands as history's largest municipal debt sale.  But Florida is not California, and I can’t even fathom how they would repay $30 billion outside of a bankruptcy ruling of pennies on the dollar.  Another consideration is whether $30 billion will even cover the cost of a Category 5 hurricane hitting a populated residential and business center. 

Sales Tax Numbers – Yet another sign of the spillover on a macro level with California and Florida reporting declines in sales tax revenue for Q1 2006 v Q1 2007.  Wait till we see Q2 numbers!  Nationwide, sales tax revenues are falling and they are falling dramatically in some of the formerly hot housing markets.  If you believe we are not headed for recession, someone better tell the consumers.  Let’s look into my favorite crystal ball . . . St. Lucie County, Florida – ground zero for the excess of the housing bubble. They have seen a double digit drop in sales tax revenues YOY.  That’s scary when you pile on the 6.6% unemployment rate and four year+ supply of homes on the market. 

Sales tax, property taxes, homeowners insurance, hurricanes . . . and more.  Florida problems seem to be on auto-pilot and our politicians all seem to be focused on how much they can bank and profit from special interests.  Jeb Bush left office quietly, only to suck up some very lucrative consulting projects.  He left behind problems that will take a decade or more to clean up.  As I just discussed in the preceding section, counties are raising impact fees to pay for infrastructure and services.  But counties also rely on property taxes and sales tax.  Florida’s new property tax proposals mean huge cuts to county budgets.  Now think about the loss of sales tax revenue as we watch our local and state officials continue to spend without regard for the future.  And just when you think we’ve heard it all, think about the loss of real estate transfer taxes that have fattened the Florida budgets for the last few years.  In fact, the real estate transfer taxes have been a drug of sorts for local governments.  Budgets have swelled with the housing boom, and no one prepared for the bust we are not seeing.  Counties were dishing out raises and funding new projects as fast as they could dream them up.  The same greed that motivated builders and flippers, infiltrated the minds of our local officials.  I had to laugh when Martin County dished out 10% pay raises to firemen.  But the icing on the cake was 12 weeks of paid vacation, a huge salary and package of perks to an inept county manager.  If you think these are isolated examples, think again.  

Vulture Funds – I’ve received several calls from firms that have set up vulture funds.  These guys have billions of dollars and they are anxious to put it to work.  My response has been the same to all of them . . . keep your powder dry.  Unfortunately, there are guys out there selling “deals” to the vulture funds.  The selling brokers are all too happy to pocket huge commissions, and the vulture guys are all too happy to show nifty printed brochures of magnificent looking towers to their investors.  Sounds familiar?  It should.  It is the next tier down in the bubble.  First it was the developers and retail brokers selling to consumers/flippers.  Now it’s the developers and greedy “research and consulting” brokers selling to greedy managers of vulture funds.  The vulture fund managers don’t earn any money if they let the money sit in Treasuries, so they are now buying real estate . . . way too early and paying far too much.  But by the time their investors figure it out, these guys will have pocketed millions in fees and bonuses.

There have only been a few projects and few pieces of land I have recommended over the past few years.  Good waterfront is still my favorite investment opportunity.  When I say “good” waterfront there are list of things I look for, because there is more “bad” waterfront on the market than good.  My list of things to look for in waterfront property is critical to making an investment decision.  One word of advice when looking at “waterfront” property is caution – EXTREME caution.

As for the condo towers, residential land and communities, office space, etc., I am still watching like a hawk, not a vulture.  Vultures eat dead, decaying, stinky, road kill.  Hawks eat savory birds, tasty fish and succulent small animals.  And hawks patiently wait for the choicest morsels.  When the timing is right, the hawk strikes with speed and accuracy.  If you’re a hawk, call me.  If you’re looking for a tasty $200M tower, I can help you.  If you’re looking for a sweet $2M piece of waterfront land to build on or bank, call me. 

Downgrades – Fitch downgraded several builders this week, and you can bet there are more downgrades to come from Fitch, S&P and Moody’s.  Alex Barron, Senior Analyst with Agency Trading, put out a note with some interesting comments about the Fitch downgrades.  Alex pointed out where Fitch missed the mark and why.  One common thread I see with ratings agencies, is they have no clue what is going at ground zero.  They are always late to the party, and they always look in the rear view mirror.  Sure, you might think they don’t need to know what’s going on at ground zero, but here’s a perfect example of where Fitch and others totally missed the boat.  Fitch thinks JVs and land holdings are a positive for builders.  I have been talking about impairments for two years now.  Let’s face it, the builders have only taken a fraction of the impairments they need to take . . . and will be taking over the next 12 months.  The bigger mystery answered only when the builders reveal what’s going with the JVs.

International Bank Spillover -  If you were with me last year, you read this:  “We’re going to see huge problems in the mortgage markets.  This will be across the board in subprime, Alt-A and prime.  The level of controls and checks and balances in each of these groups has been ignored.  Greed has replaced rational thought.  And if you think it is an isolated problem, think again.  My friends in the fancy offices in New York, Europe and Hong Kong tell me they are making a killing on mortgage pools.  And here’s the kicker . . . They all seem to know this is a train wreck, and they all plan on jumping with huge bonuses before the train hits the wall.  Call me Chicken Little, but the sky is falling on the world banking system here and for the banks abroad that are sucking up these high yield pools of toxic waste.” – July 2006

Germany - A few weeks ago I discussed some of the international melt downs.  And then we heard the talking heads on TV tell us that the worst was over.  The why this week did Germany’s SacshsenLB dismiss its CEO and entire Board?  And why are German prosecutors opening an investigation? 

Germany – Deutsche Bank is the name I hear over and over and over.  It is like a bad song I can’t get out of my head.  Other than Corus, I don’t think a day goes by where someone doesn’t bring up DB. They are number one in foreclosures in Florida.  They are a huge lender or advisor or whatever they want to call themselves for Florida developers, builders and condo towers.  And you know it’s all over when they throw a party for 500 executives in Barcelona and pay Mick Jagger $5M to sing the swan song.  I wasn’t there, but I heard Mick had a fat lady sing as well. 

England – Barclays tapped the BOE again for short term funding this week.  It blamed a “technical breakdown.”   Last week Edward Cahill resigned from Barclay’s.  He was in charge of SIVs and get this, SIV-lites.  I think Mr. Cahill had a technical breakdown. More on SIVs below. 

Canada – Coventree, a niche investment bank and at least two dozen Canadian funds sought to secure bank credit lines. 

Holland – Yeah, I thought this was crazy too!  NIBC, a Dutch bank, is being bought by Iceland’s Kaupthing Bank.  Go figure. 

Heard From Across the Pond – I’m not the economic expert, but I now have people from all over the globe calling and emailing me for ground zero feedback that they can plug into their formal analysis.  Some of these people pay me for my time, while others exchange information that I want.  Here’s something I heard this week that will be front and center before the end of the year . . . SIVs

SIV stands for structured investment vehicles and, as expected, they are highly leveraged.  From my friends on the other side, I hear the German government is now investigating SIVs and their cousins.  The German banks may have truly nuclear exposure to SIVs, but they are not alone.  Once again, no one knows just how bad the problems are, because they cannot mark this stuff to market.  In fact, I hear they can’t even unravel what’s in this stuff.  So if you don’t know what you have, and you don’t know what it’s worth . . . what do you even look for, and when???

Mortgage Industry Spillover – If you were with me last year, you also read this:  “I find it hard to believe no one is talking about how huge the spillover will be to our economy on a macro level.  As the housing crisis implodes, we are first going to see job losses in the real estate, housing, construction, mortgage and legal industries.  But this will be followed by industries that rely on the spending from these folks.  Real estate agents will not be buying fancy cars and eating out every night.  Mortgage brokers will not be spending insane amounts of money buying every spot on the Internet and running annoying TV commercials.  And it doesn’t end there.  Folks, we are in for the worst recession since the Depression.” – October 2006

Let’s fast forward to this past week. The mortgage industry announced the loss of more than 25,000 jobs in August alone.  Some numbers show about 50,000 layoffs in the mortgage industry this year.  But as I have said many times before, liars can figure but figures don’t lie.  The reported numbers only capture folks on the weekly payrolls.  At ground zero, we deal with mortgage brokers and their associates every day that are “independent contractors,” so they do NOT show up in the numbers.  And they have been the first to go out of business or look for other work.  Conservatively, you can multiply the 50,000 jobs lost by five to get to a more accurate number.  Personally, I think even that is low.

The Sharks – Mara Der Hovanesian who put together the cover feature, Bonfire of the Builders for Business Week, followed up with a great article this week on Mortgage Mayhem.  I don’t think there is a reporter in the world right now as tuned in as Mara.  If you haven’t seen the Bonfire of the Builders issue, it is a must read.  It is also a must read to follow all of Mara’s real estate and housing pieces.  Forget about the rear view mirror stuff you hear from analysts like Dan Oppenheim, Stephen Kim and the likes.  And forget about the nonsense the WSJ puts out through third tier reporters like Michael Corkery.  We all know where we’ve been, and don’t need to hear it again and again and again.  In all due respect to Stephen Kim, he did give us some forward looking advice this week in a goofy article written by Corkery, when he said the builders were a buy if you want to hold for a year or two.  Talk about doubling teaming the virtues of useless.  The problem with this ka ka, is he’s been saying it for the last two years, and the builders are in for a lot of pain during the next 12 months.  I’m still not sure why this guy has a job.  He’s been wrong for three years, and now he’s telling you to buy and hold for two years.  Why not buy in 3-12 months when the builders really take it on the chin? But back to the sharks . . .

The attorneys I hear from are primarily interested in the mortgage fraud and predatory lending aspects.  Sure, the construction defect guys are out there, and the guys trying to get people out of sneaky contracts, but the real meat is on the mortgage side.  The “F” word is powerful . . . fraud.  It carries a hammer of treble damages, punitive damages and criminal charges.  Since most of what I discuss with the attorneys that call me is confidential, it is best if you read Mara’s article in the August 20 & 27 issue of Business Week on page 33, as well as the segments in her Bonfire of the Builders features.  And remember  . . . this is only the tip of the iceberg.  The sharks will do more to help homeowners with mortgages, than Bush can ever dream of doing.  If Bush and Washington politicians were not so deep in the pants of the builders and mortgage companies, this is the route they would take.  They would throw thousands of people in jail for mortgage fraud and predatory lending.  And they would strip these clowns of the huge profits they have made preying on consumers. 

Did you know?  Over the next five years about more than five million Americans will see their mortgages go up by more than 50%.  And almost two million will see there mortgages double. 

Current Bal Harbour Prices – Starkey and Dietz will be eating a lot of crow, as Bal Harbour listed prices continue to fall.  Even though we saw a few dropped listings this week, we actually saw two new listings.  It’s scary to think these buyers are expecting to get a mortgage with their properties listed for sale.  Some contract buyers are totally out of touch with reality, both in terms of financing and selling prices.  Here’s this week’s example.  Unit 406 was listed this week for $1.3M, even though a unit 11 stories higher is asking just $75,000 more.  I would peg the clearing price of unit 406 somewhere around $800,000 today . . . and it is anyone’s guess a year from now. 

Mark to Model – In July and August, we yet another wave of the Super Storm that is headed our way, when we started to hear about problems with marking portfolios to models, instead of market.  Well, I’m surprised we haven’t heard more about this.  Maybe when the boys return from the Hamptons and the Islands this coming week.  But here’s a preview.  There was piece in The Economist last week that was just floating out there on a cloud.  A dark cloud, but still floating.  Here it is:

Goldman Sachs said its funds were hit by moves that its models suggested were 25 standard deviations away from normal.  In terms of probability that translates into a likelihood of 0.000…0006.  But get this.  There are 138 zeros in front of that six!

Nufsaid.

Bail Out – I saved this for last, since it is the biggest non-news of the week.  First, the “bail-out” Bush and others are talking about involves less than 5% of the potential foreclosures we are facing.  Second, if he bails out people with mortgages they can’t afford, how about credit cards, auto loans and home equity loans used to finance jet skis, ATVs, pools, etc.  And how about the folks that lost money in options and commodities because they didn’t understand the risk.  Let’s get real.  If Bush and Bernanke want to help homeowners, go after the mortgage companies, banks and builders that participated in predatory lending, mortgage fraud and misrepresentations.  That still leaves millions of flippers in dire straits, but gambling is gambling.  I think a lot of the rhetoric we heard this week was cleared up Friday night and Saturday.  There is no bail out.

Disclosure:  Of the stocks referenced today, I have short positions in TOL and a put position in CORS.

Mish's Blog:  If you haven't been following Mike Shedlock on Global Economic Analysis, here is a link to his blog - http://globaleconomicanalysis.blogspot.com/ It is a great read on a macro level where Mish (Mike Shedlock) zooms in on micro issues as well.

Mike Morgan, J.D., CRS, GRI
Morgan Florida Real Estate
Morgan@MorganFlorida.org 
772-260-5448

Additional Data and Information: I offer my services to a variety of clients, including builders, portfolio managers, hedge fund managers, REITs, private investors, etc.  My clients receive additional information and data that does not appear in my free Internet version. If you are interested in more detailed data or color on any of the areas highlighted in my Outlook and Update, please email or call me.  Morgan@MorganFlorida.com - 772-260-5448

Consulting and Project Fees: The first hour of consultation is billed at $1,500.  Additional hours are billed at $450.  Clients may also purchase 30 hour blocks of time at $350 per hour and 75 hours blocks at $300 per hour.  Fees for research and field projects vary depending upon the scope of the project. 

Real Estate Tours: $10,000 for the first day.  $3,500 for second day.  For longer and more extensive tours, call to discuss.

Broker Services: I offer the same block of time fee structure if you are a buyer . . . and any commission I earn as your Broker is returned to you at closing.  For example, if you purchase a $5 million property with a 2% commission, you will receive $100,000 at closing to be applied to the purchase or a check to you.  The same holds true if you are a fund looking at a $100 million condo tower.  I will do the ground work, research and follow through on the closing.  If the commission is 1%, you receive $1,000,000 at closing.

Helping Families with Disabilities - My passion is helping families that have a family member with a disability.  20% of your fees go directly to this project.  Of course, we are always in need of a few solid people to support our larger projects.  If you're one of those, please call me to discuss what we are doing.