Credit Crunch Impact on the Miami Condo Market

Many of you have probably already heard about what happened on Wall Street on Friday. For those of you who didn’t, the Dow Jones Industrial Average posted its third-biggest drop of 2007. Much of the drop occurred in the final two hours of trading. The Blue Chip index dropped 281.42 points. Much of the sell-off was attributed to the credit squeeze that Wall Street is feeling as a direct result of lousy lending practices in the housing market that occurred in recent years.

There were 3 major stories that unraveled throughout the day on Wall Street. The primary story in the morning was that of Bear Stearns. The S&P downgraded Bear Stearns’ rating from stable to negative. That sent shares of Bear Stearns plummeting. It recovered by mid-afternoon but once again sold off as a Bear Stearns conference call began. The CFO of Bear Stearns, Sam Molinaro, was quoted as saying “It’s (speaking of the recent credit crunch) been as bad as I’ve seen it in 22 years. The fixed-income market environment we’ve seen in the last eight weeks has been pretty extreme”. Shares of BSC once again sold off.

The second story to emerge was the reduction of Alt-A loans by major lenders. For those of you who don’t know what Alt-A is, it is a category of lending that resides between prime and subprime lending. Wells Fargo announced on Friday that they would curtail Alt-A lending. Other large banks followed suit. Wachovia announced that it would discontinue Alt-A loans altogether.

A large portion of mortgage loans are categorized as Alt-A. The suspension of Alt-A loans by major lenders means that a bulk of the demand for housing could become nonexistent. A hedge fund representative in New York told me on Friday that subprime and Alt-A represented 40% of the loans in 2006. A local, reputable mortgage broker feels that this number could be as high as 60% in South Florida. The following chart from Credit Suisse illustrates the growth in Alt-A and subprime lending from 2002 to 2006. In 2002, Alt-A represented 5% of loan originations while sub-prime represented 6%. By 2006, Alt-A and subprime loans each represented 20% of the overall loan originations.

The third major story to hit PR newswires was that Wells Fargo would increase their prime 30-year Jumbo rate to 8 percent. Other major lenders followed suit. Last week, a 30-year Jumbo rate could be acquired for 6.875%. That’s a huge increase. Potential home buyers could be priced out of the market.

So why am I reporting this you may wonder. The impact on the Miami condo market is inevitable. Many of the speculators who acquired preconstruction condos 2-3 years ago fall into the Alt-A category. Even if these speculators plan to close on their preconstruction condo units, they may not be afforded that opportunity. Major banks have begun to shut off the valve to extend credit to even the most credit-worthy. If this happens then the fall-out on Miami condos could be grim at best. These practices, however, will return full circle to the banks who loaned money to developers. If banks shut off Alt-A loans then investors will be unable to close on condo units which will mean that developers will get back a larger percentage of the total units in the building. Developers will then be unable to make payments on the loan and they’ll eventually go bust. Banks who shut off the valves will push the pain onto the banks who made these loans. I know that Corus Bank, a publicly traded company, was a major lender to condo developers in Miami. (You’re welcome for that information).

The good news is that smaller banks will fill in the gap to lend money to Alt-A borrowers. The bad news is that interest rates quoted to home buyers will be higher. The higher rates will price out potential condo contracts holders who plan to close or will lead to higher foreclosure rates down the road. If I were closing on a condo within the next 60 days then I would definitely contact a reputable mortgage broker ASAP to have them lock you in at a good rate. Who knows where rates will be in upcoming weeks. I can definitely point you in the right direction if anyone needs guidance in this matter.

Many feel that a rate cut by the Fed is inevitable. We should see one very soon.

Follow-up: A late story emerged on Friday, after the markets closed, that Option One Mortgage Corporation is ceasing all loans “secured by condos in Florida”. Option One is a top-10 non-prime lender and subsidiary of H&R Block. I don’t even want to think about what will happen to the Miami condo market if other major lenders follow their lead. I’ll leave it at that.

Marina Blue – Closings to Begin Towards the End of September 2007

I was notified today that closings at Marina Blue are scheduled to begin towards the end of September. Marina Blue is a 60-story luxury high-rise building going up in the neighborhood known as Park West. The fantastic thing about Marina Blue is that every unit has a beautiful view of Biscayne Bay.

As closing dates approach, there are some great opportunities to own a condo at Marina Blue. As in other developments, there are investors who purchased condos at Marina Blue in hopes to flip them prior to closing. As everyone knows, the market has changed dramatically in the past two years and many of these speculators are content to accept a loss on their deposit to avoid having to close.

I received a phone call last weekend from someone who placed a one bedroom condo under contract at Marina Blue for $296,000 as a resale. The condo is on the 15th floor and has 845 square feet of interior space. He was still in his 15-day rescission period and wanted to know if I felt that he got a good price. I told him that he got a great price. In my opinion, anything under $300,000 is a solid buy at Marina Blue. The long-term prospects for that neighborhood are great. I feel that one bedroom condos at Marina Blue will easily rent for $1,700 per month.

Currently, there’s a one bedroom for sale at Marina Blue that is on the 17th floor. It is listed at $320,000. The condo has 845 square feet. I think this unit can be acquired for under $300,000.

There’s also a 2 bedroom at Marina Blue on the 9th floor that is listed for $455,000. This condo has 1,327 square feet of interior space. If you can get this condo for around $430,000 then I think that your long-term prospects are bright.

In the upcoming years, I feel that Park West will be the best condo neighborhood in all of Miami. It was developed to be Miami’s equivalent to Manhattan’s Park Avenue.

At the beginning of July, I published a post about the neighborhood of Park West and the four luxury high-rise buildings being developed in that neighborhood. The post was entitled “Pictorial & Video Review of The Fantastic Four in Miami“. Take a look at that post for more information about the Downtown Miami neighborhood of Park West and what it has to offer. You will also see some pictures and a video of Marina Blue as it stood towards the beginning of July.

Miami Condo Auction – Platinum Condominium – 20 Units Up for Auction in September

I was notified tonight that twenty condo units at Platinum Condominium will be auctioned off on September 20, 2007. Eight of those units will be auctioned “absolute”. This means that the condo(s) will be sold to the highest bidder. There are no minimums and no reserves.

This is major news! The 20 units up for auction at Platinum Condominium represent 16.8% of the overall units in the building. The are a total of 119 units in the building with 7 units per floor. I think 20%-30% default rates in other developments is not out of the question.

A few months ago, after Platinum Condominium began closings, I did a pictorial and video review of the building. You can view it by clicking on the following link: pictorial and video review of Platinum Condominium. Any information that you seek regarding this development will be found there. If for some chance, you have a question that isn’t answered there, then feel free to contact me.

For you Miami condo vultures, this might be a great opportunity to own a bulk of units at a really good price. If they can be acquired at a good price, you may even be able to rent them out with positive cash flow until the neighborhood turns around and sell them for a nice profit.

Those looking to buy a single condo at an auction at a good price, this may be your opportunity. I am very knowledgeable in the various floor plans at Platinum Condominium. My services are available to you to act as your representative at the auction. I will be attending the auction regardless. I will act in your best interests. If I walk out of that auction without one of my clients acquiring one condo then you can be assured that the prices offered were too high. I am completely comfortable walking away from that auction without one sale being made. The people who know me well know that I am not a tough or pushy salesman.

Contact me for more information regarding the Platinum Condominium auction.

• Unit 301 – 3 bedroom/3 bath
• Unit 501 – 3 bedroom/3 bath
• Unit 1001 – 2 bedroom + den/2 bath
• Unit 1101 – 2 bedroom + den/2 bath
• Unit 1201 – 2 bedroom + den/2 bath
• Unit 1404 – 1 bedroom/1.5 bath
• Unit 1602 – 1 bedroom/1.5 bath
• Unit 1802 – 1 bedroom/1.5 bath
• Unit 2002 – 1 bedroom/1.5 bath
• Unit 2102 – 1 bedroom/1.5 bath
• Unit 1705 – 2 bedroom/2 bath
• Unit 1905 – 2 bedroom/2 bath
• Unit 707 – 2 bedroom + den/2 bath
• Unit 1607 – 2 bedroom + den/2 bath
• Unit 1907 – 2 bedroom + den/2 bath
• Unit 2007 – 2 bedroom + den/2 bath
• Unit 2107 – 2 bedroom + den/2 bath
• Loft 103 – 2 bedroom/2 bath
• Loft 107 – 1 bedroom/1.5 bath