Justin Dalmolin remarks on the Miami foreclosures dip, fundamentals stay grim

FOR IMMEDIATE RELEASE
Miami, Florida, United States of America (Free-Press-Release.com) August 31, 2011 -- The number of newly scheduled auctions on foreclosed properties in Miami were down 21 percent to 679 from October, real estate research firm PropertyShark.com said. According to RealtyTrac, total foreclosure activity in Miami fell 37 percent in November from October to 6,473 filings.

RealtyTrac compiles the total number of properties with at least one foreclosure filing -- default notices, auction sales notices and bank repossessions -- reported during the month.Subprime lending, speculation and overbuilding were rife in Miami during the boom years of 2002 to 2006, generating first towering price spikes followed by steep declines and a surge in foreclosures.

Miami's supply of existing housing is above average at 32.5 months, which will cause the market to lag a broader housing recovery, according to research from UBS analyst David Goldberg.Miami right now has an especially elevated supply because it is a slow time of year and because the city has a lot of multifamily development, which has long cycle times and takes even longer than single-family development to stop during a downturn. An average city in normal times has about 6 months supply, Goldberg said.

WCI Communities Inc WCIMQ.PK, which declared bankruptcy in August, was known for its luxury Miami condos. KB Home (KBH.N), Ryland Group Inc (RYL.N) and Lennar Corp (LEN.N) are the largest active public builders with the heaviest exposure to the state of Florida, according to a research note from Raymond James analysts Buck Horne and Paul Puryear.

FIRST, WORSE

But even a sustained increase in short sales would not alter the fundamentals on the ground in Miami, said Cleveland, who does not see the dip in November's foreclosure numbers as a trend. Neither do Bill Staniford, chief executive of PropertyShark.com, or Rick Sharga, a vice-president at RealtyTrac. Miami has experienced similar volatility before, Staniford said, and if the broader economy continues to weaken, causing job losses that result in more defaults, then Miami's foreclosure numbers will likely snap back.Cleveland said he is still seeing a constant flow of foreclosures."All the information we're getting is that it's only going to get worse before it gets better," he added.

A significant but under reported source of foreclosures comes from homeowners who realize they can let their current home go into foreclosure and buy another one, even in the same neighborhood, for much less. They essentially buy hundreds of thousands of dollars in equity in exchange for a hit to their credit, Cleveland said.

"Miami is not going to turn around for three to five years," said Justin Dalmolin, a Florida-based real estate lender who runs a $60 million fund, Global Capital Advisors Group LLC.He says Miami's foreclosure problem is much worse than it seems, although its true scope is as yet unknown.The numbers are not reflecting a huge number of future foreclosures that will likely pass directly from developers' hands into those of the banks because they are units in condo buildings that developers never managed to sell.At this point, such units are in limbo. Developers are trying to rent them out. Banks do not want to take them back. But the rental market is not strong enough to support all that product, DalMollin said."It's an iceberg," he said. "We're at the tip."

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