Notes from CRA meeting - 9/23

Well, it was a very interesting, at times depressing, CRA workshop meeting yesterday. We got involved in a discussion with an expert about the housing situation in Lake Worth and the entire south Florida region - Dr. Ned Murray of Florida International University. I re-posted a summary of the seminar I attended back in May of this year. Dr, Murray attended that symposium andi t was revealing to hear his opinion of where we are now, as of late September 2008, versus where we were in May in terms of the housing market and residential real estate values, etc.

Please take time to read the post below as I think it may have gotten lost in a flurry of posts when originally made. There were plenty of other alarming tidbits from that seminar, besides Dr. Murray's presentation.

The most upsetting revelation Dr. Murray made last night was that we are not out of the dark economic woods yet, and in fact, are deeper into the abyss than he thought we would be at this point in time. It turns out that, according to his analysis of the statistics, the foreclosure juggernaut has now moved to an outer ring of effect. Most of the junk mortgages are being digested by the market in one way or the other - the new wave, one that keeps on increasing, includes those households that have prime mortgages with good interest rates. There is now a secondary surge of those households affected by the downturn in the residential market - usually two income families where one has either lost a job or is not working for a reason out of their control (health, children rearing, etc.). He told us that the three county south Florida market mortgage delinquencies are at record levels - today! Meaning another wave of foreclosures is on the way.

Other data are just coming out now in the form of the 2007 Housing numbers from the U.S. Census Bureau. Since they were just released yesterday, Dr, Murray hadn't had the time to digest the numbers yet, but he did offer a few insights from the results as well as other findings.

• More than half of homeowner households are paying over 30% of their income for housing costs - 30% is an industry standard.
• We are still a tourism economy in South Florida and becoming more of one - most new jobs are in the lower paying service sector.
• We experienced 60% per year appreciation in housing values in each of the three years leading up to the housing bust. This led to increased expectations (irrational) about future increases and the possibility of "free money" in the form of your home's equity. Lenders were all to quick to feed those expectations, as we are finding out now.
• Transportation costs as a percentage of household income can be as high as 15 to 20 percent - sometimes approaching the 30% standard related to housing costs - due to the price of gasoline and the impact of longer commutes to work from "affordable" housing markets.
• As a region, South Florida lacks high wage earners. Our demand comes from forces external to our region.
• The region's "second home" market is growing significantly - fueled by wealthy households in other locations looking for vacation properties. These include well-healed foreign interests.
• Rents for the Lake Worth area: The average 2 bedroom rental unit in Palm Beach County goes for $1180 per month. Compared with the median Lake Worth income, that is an affordability gap of $204. This also assumes that the apartment is in livable, up-to-code condition - which is not a given in Lake Worth.
• The median sales price for a single family home was $305,000 in 2007. It is now $265,000 - that is still a gap of $85,227 in relation to a sales price that would be affordable related to the Lake Worth median income.
• Down payment requirements, in addition to already stiffer credit standards, have increased from 5% during the boom times to 20% or more today.
• Condominium units are actually selling o.k. in this market and have a median sales price of $73,500 - a 100% drop from last year.
  
• Some rental conversions to condos are also selling, but these are former rental flats - condition and lack of on-site management can be issues.
• The above condo sales prices leave out condominium fees that can be as high as $300 or $400 a month.
• People need cash so they are selling to market "bottom feeders" - soon "vulture funds" will be coming in and buying up packages of properties and wait for the next market up turn.
• Usually a strong economy will help mask the impact of these sorts of corrections in the market - that is not the case in today's economy.
• CRAs and other government and non-profit agenci4es have to be more proactive - thinking "out of the box."
• Stressed the importance of collaboration with planning departments in terms of reserving areas for transit oriented development and unified land development codes. It could be a time for REAL neighborhood revitalization.
• Have to reach out to corporations - encourage employer assisted housing.
• Cannot get rid of industrial land as that is an area where higher income jobs can be produced. Success achieved in Miami/Dade around the design district by film and entertainment development companies.
  

Conclusions:

We're in a heck of a mess. When I say "we", I am referring to the entire region of which Lake Worth is a part. Nationally, talk of the $700 BILLION bail-out underlines the whole severity of the situation. But, as with the Chinese sign for crisis - there are equal parts danger and opportunity. The danger is a road that we want to avoid at all costs, but it can also be a motivating factor to come together, roll-up our sleeves and get out of our own ways. With the economic trajectory in a dive, the time is now to set a standard in Lake Worth about what image is acceptable, who we really are and what part of the market are we going to pursue to make sure we have a City to call home once all is said and done. Our next guest at the meeting, Mark Barone, may be part of the answer. More on that later. In the meantime, think of ways that Lake Worth can chart its course through these choppy economic seas - instead of being engulfed by wave after wave across the bow.