By Paul Owers
July 29, 2007
Mounting mortgage defaults across South
Florida threaten to hurt more than just those homeowners who lose
their properties to lenders.
Experts say foreclosures could drag down already sluggish
housing prices throughout entire neighborhoods.
"Homeowners that are being foreclosed upon aren't
spending their Saturday afternoons mowing the yard," said Greg McBride, a
senior financial analyst at Bankrate .com in North Palm
Beach. "So those people who are cutting the grass, trimming
the shrubs and fixing the gutters will suffer."
That's the worry in Plantation's
Jacaranda Lakes, where a foreclosed home is listed
at $485,000, down from $619,000 earlier this year. The roof is dirty, the
bushes overgrown. Neighbors trying to sell their properties could have a hard
time getting their asking prices, real estate agents say.
Jamie Kerzner, who lives down the street, is moving to North Carolina. She
originally listed her four-bedroom home at $699,000. It is now at $665,000.
"I have to sell," she said.
In a study published last year, two housing analysts
found that for every foreclosure within one-eighth of a mile of a single-family
home, property values decline by about 1 percent, and even more in dense
The study by Geoff Smith and Dan Immergluck is thought to
be the only comprehensive look at the effect of foreclosures on property values
and is based on Chicago
in 1997 and 1998.
Based on their study, the value of a typical Broward County home near one property in
foreclosure could drop at least $3,820. The county's median-priced home in June
was $382,000, according to the Florida Association of Realtors.
"One foreclosure may have a modest effect on nearby
property values, but with four or five foreclosures, you'll see a significant
effect," said Smith, director of the Woodstock Institute, a nonprofit
housing group in Chicago.
"You see neighborhoods start to decline."
Smith recommends that neighbors of foreclosed homes
postpone selling their own properties until the housing market improves.
Perfect foreclosure storm
The number of homeowners defaulting on their mortgages
and facing foreclosure is rising steadily across South
Florida, according to Realestat.com, a Plantation-based company
that provides local housing statistics.
Experts mostly blame the trouble on unconventional home
loans made to risky borrowers who bought houses and condominiums that shot up
in value during the housing boom from 2000 to 2005.
The number of Broward homeowners behind on mortgage
payments hit 1,484 in June, more than triple last June's 461. Palm Beach County's
late payments last month topped 1,000, nearly a fourfold increase from 259 a
year ago. Actual foreclosures doubled in Broward from last year but were flat
in Palm Beach County.
Experts say foreclosure filings and late-payment notices
are expected to peak this fall, leaving lenders with a glut of properties to
Lauderdale's Victoria Park, townhouses dot a dead-end
street backing up to the tennis courts that Chris Evert made famous.
Foreclosure signs hang from the balconies of two vacant units, and that bothers
Ted Fling, a Victoria Park homeowner and neighborhood activist.
He says foreclosures and vacant homes hurt an entire
community, and he's worried that more mortgage defaults will make things even
"It's a sad, sad situation," said Fling, 74, a
retired insurance fraud investigator. "I never thought it would be this
Neighborhoods that may get hurt the most from the
foreclosure crunch are newer ones with many sales made near the peak of the
housing boom in 2005, said Alan Hunter, a senior market analyst with
Metrostudy, a West Palm Beach consulting firm.
Because lenders don't want to be in the real estate
business, they'll likely sell those properties quickly and at a loss that will
reduce home values.
At Miramar's Sunrise Lakes, a manicured community of
barrel-tile roofs, homeowners in distress are becoming increasingly common,
real estate agents say.
Carlos Becerra of Fortune International Realty has a
five-bedroom home near the entrance listed for $889,000. Becerra said he has
told his client to prepare for the possibility that foreclosures could mean
accepting far less money.
"As much as I would like to be an optimist,"
Becerra said, "things might continue to get worse."
During the housing frenzy, some owners avoided
foreclosure simply by selling the homes or refinancing, but that wasn't easy to
do when the market slumped last year. With fewer buyers and thousands of
properties for sale, cash-strapped homeowners can't count on fast deals to bail
themselves out of trouble.
What's more, refinancing isn't as easy now because home
values are flat or dropping and lenders are tightening credit standards as
borrowers default on home loans.
Regardless, the downward pressure on prices actually will
be good in the long run for overpriced markets, including South
Florida, said Mark Vitner, senior economist for Wachovia
"It's going to help speed up the adjustment
process," Vitner said. "More homes will get into the hands of more
willing sellers — the banks or whoever. It's a necessary thing."
That's not what sellers want to hear. Re/Max agent Mark
Plaxen is marketing a two-bedroom townhouse off Village Boulevard in West Palm Beach. Four months ago, the seller
was asking $199,000. This month, it was listed at $174,900.
Plaxen just found out about another listing for sale down
the street: a townhouse in foreclosure down the street.
"I'll probably have to call up my seller and say,
'It's time to lower the price again.' "