Friday, July 6, 2007

Crystal Ball for Florida Foreclosures

A short-sale expert says he can predict market slumps by client traffic. Next stop: The Sunshine State.

NEW YORK ( -- A tidal wave of foreclosures may be heading toward Florida, if you judge by the number of homeowners looking to get rid of their homes as fast as they can.

Duane LeGate, president of House Buyer Network, arranges quick sales for home owners in distress. He claims he can predict where markets will go bad by looking at the traffic on his Web site.

"We can tell you what's going to happen nine months from now," he said. His most endangered market right now is Orange County, Florida, home of Disney World.

"Orlando has blown up. There's been a 700 percent increase in
traffic of people filling out our forms," he said. "I could put a bull's-eye on Orlando and write the headline for what will be going on in January and February." What will be going on could include a large increase in foreclosures as well as lower prices, longer inventories and a slower sales pace.

In the House Buyer Network, an agent gets an appraisal for a
homeowner who wants a quick sale. Say the appraisal is for $200,000. The agent markets it at $195,000. If the home fails to sell within the time stipulated in the contract, the agent will buy it at a prearranged, discounted price of perhaps $180,000.

LeGate estimates the discount from what sellers would get if they didn't need to sell quickly is 5 percent to 8 percent, once all the costs and fees are figured in.

When LeGate sees big jumps in client contacts from a single county, he concludes that the area has hit a rough patch that may not come out in price stats for months. It's played out that way in the past when he saw other markets going into distress.

"We called Phoenix, two counties in California and West Palm Beach, Florida in June of 2005," he said, at a time when those areas were still perceived to be white-hot.

Now, according to figures from RealtyTrac, which markets
foreclosure properties online, the Phoenix metro area has 10 of the top 11 zip codes for foreclosure filings in Arizona, and all 10 are among the 500 worst hit zip codes in the nation. The other areas are also suffering a deep slump.

Besides the Florida markets, other locales LeGate identified as
likely trouble spots include Clark County, Nevada and Riverside County, California where the site's traffic more than doubled between June, 2006 and May, 2007, and Price George County, Maryland, where it tripled.

Short sellers negotiate with banks to settle for less than the amount owed on the loan if a home owner is headed for foreclosure. Usually this is done when a new buyer is located and an amount of sale is agreed upon, usually less than the paper held by the bank. This is called ‘short selling’. In many cases it works out for both parties. The banks don’t want to be in the real estate business and home owners don’t want to have their credit crushed.

Inevitably of course this will involve re-pricing of the asset which could have negative effects on hedge funds. If too many of these are held as such the hedge funds holdings will have to be re-priced resulting in margin calls for many funds. Really bad news for derivatives.


Blogger Trent said...

I work for and we have noticed an increase in the number of foreclosures in Florida since January. While I believe subprime lending and ARM loans are partly to blame, in Florida I believe the main culprit is the depreciation in home prices and the lack of buyers on the market. The NAR is predicting that the market will turn mid-2008, but Florida might actually take longer as its market is so bad right now.

Friday, July 06, 2007  
Anonymous Anonymous said...

I don't trust the NAR or anything they say even now that David 'Liar' is gone. I won’t hold my breath for a 2008 come-back for Florida housing either.

Monday, July 09, 2007  

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