Miami and the South Florida market were amongst the hardest hit areas when the real estate market collapsed. From its high point back in 2006, home values have depreciated by close to 50%. That means if you were unlucky enough to purchase a $500,000 home in the last few years, chances are pretty good that you could only sell it for about $250,000. Besides directly affecting new homeowners, the general real estate malaise has driven down the value of homeowners who bought their homes a long time ago and faithfully made their mortgage payments every month.
Because their is such a glut of properties in Miami that are under water (owing more on the mortgage than what you could sell the property for), the laws of supply and demand kick in. If someone can buy your next door neighbor’s distressed property for a bargain price, your property loses value. That is the insidious part of the housing meltdown. Those who took out high mortgages and did not have the earning capacity to pay adjustable mortgages that suddenly rose through the roof, have a 2 pronged dilemma. First, they have insufficient income to pay the contractual obligation they agreed to when signing up for a mortgage to buy their dream house. Second, the mortgage they took out is now much higher than the value of their home.
In Miami, approximately 42% of single-family homeowners arer considered under water. That means if they were lucky enough to find a buyer, they would have to take a substantial loss on their investment. If you owe the bank $300,000 on a mortgage and the market will only command a sale of $175,000, than you will be $125,000 short when the bank asks for its money at settlement. Unless you can make certain arrangements, you are legally responsible for coming up with the $125,000 shortfall.
Back only 4 or 5 years ago, there was a tremendous spurt of building in Miami, particularly luxury condos along Miami and Miami Beach. Investors and homeowners snapped them up for very little down and then the market collapsed. A loss of equity that might reach 6 figures was enough for people to walk away and lose their $10,000 deposit, leaving the lender with another distressed property in its portfolio.
The crisis continues to this day as more than 60% of all new sales in Miami and the South Florida area are either foreclosures or short sales. While banks were very generous when they lent out money, they now are very hesitant to take big losses on short sales.
Buyers are in a great position as they can snap up luxury properties at a huge discount. Sellers on the other hand are bearing the brunt of the housing market’s collapse. In Miami, there is little hope of a quick recovery. There is still a big glut of foreclosures and potential short sales on the market. Until the inventory is cleared out, it will be a definite buyer’s market.
