Storms stun residential market in September

By Ed Duggan

10/15/2004

Charley, Frances, Ivan and Jeanne are names that will live in Florida hurricane infamy.

The fearsome four left widespread physical, financial and mental destruction in their slashing wakes across the state.

The residential market was part of the fallout.

The storms caused real estate contract kick-outs, delayed and extended closings, and widespread industry and homeowner depression.

Weary sellers were the order of the day as those four 'canes pummeled the state during a six week spate.

Two that lashed South Florida and the Treasure Coast - Frances and Jeanne - were on nearly identical courses and hit just three weeks apart.

The damage was immense - in the double-digit billions of dollars and still counting.

One reader called in to say that the last Homefront column was too prophetic.

"You win the 'Nostradamus Award' for prediction," he said. (The imaginary award is named after Michel Nostradamus, the 16th-century physician who is credited with predicting the future.)

That hopefully not-too-prophetic Homefront column told about the Big Hurricane of 1926 that hit Miami, Miami Beach, Hollywood and Fort Lauderdale, and how it killed the local real estate market for years, plunging South Florida into a depression three years before the rest of the country.

Thanks for the award, but it was only an illustration of what could upset our market.

Let us look at what has upset the market temporarily, and whether or not there may be dire longer-term consequences.

A peek at history may help.

In 1926, the Florida East Coast Railroad offered free passage for those who wanted to leave after the devastating storm. A number of people took the railroad up on its offer and they never came back.

Today, some are threatening to pull up stakes and relocate to Arizona or some other Sunbelt state. Will that pass, or will the traffic be one-way north?

"There has been some current hurricane fallout in the residential resale market," said F.F. "Chappy" Adams, president of Palm Beach Gardens-based Illustrated Properties.

The firm expects to have $1.4 billion in local residential and commercial closings this year.

"Sales were virtually nil during the three weeks between Frances and Jeanne, closings have stopped and a few buyers have backed out of deals where they could," Adams said in late September.

He sees a quieter period for closings through the end of the year as sales attempt to regain lost momentum.

Charles Kovaleski, president of the 50-year-old Orlando-based Attorneys' Title Insurance Fund, said in many cases, lenders in storm-ravaged areas are asking appraisers to re-inspect properties at the buyers' expense for hurricane-related damage. Some real estate contracts are being reconsidered, delayed or cancelled altogether pending hurricane-related damage assessments and repairs.

Attorneys' Title has offices in Miami-Dade, Broward and Palm Beach counties and serves more than 6,000 attorneys statewide.

Illustrated Properties' Adams agrees that delayed sales awaiting repairs are a current stumbling block in some areas, although he thinks there may be some as-is bargains or fixer-uppers that will bring investors back into the market in force.

Is Florida a dangerous a place to live?

Not according to the Federal Emergency Management Agency (FEMA). Approximately three-fourths of all U.S. homes are in risk areas - places that can experience flooding, hail, earthquakes or hurricanes.

Building technology has not stood still, according to Kovaleski.

Homes built since 1994 are considered safer than those built prior to code changes that year, he said. The improved code required all new structures built to withstand winds between 140 mph and 146 mph, roughly a Category 4 hurricane.

There is some precedent for post-disaster attitudes.

"People have relatively short memories," Illustrated's Adams said. "In the very long term, I don't think it will have a measurable effect. There are still many people who want to live in this paradise."

He could be right, but it has been a difficult and ominous time.

Operating without power and telephones at times, weary brokers did their best to placate buyers and soothe sellers as insurers held up new policies and lenders demanded re-certified appraisals before deals could close.

The storm shutters and plywood are coming down from homes, but what of the storm shutters and plywood around potential buyers' minds?

Anthony Cutaia, CEO of the Boca Raton-based Cutaia Mortgage Group, sees plusses and minuses ahead for the residential market.

"The baby boomers will be a major influence in the coming market as they start to retire or buy pre-retirement second homes," he said. "Florida - and particularly South Florida - is, and will continue to be, a destination point for the world."

Cutaia sees the greatest danger in the to-be-built condominium projects, whose sales are propelled by investors and speculators.

"There are four factors which could drastically impact the market ahead," he said. "The availability of insurance, primarily for waterfront property - but for all at-risk areas - escalating property taxes, rising long-term interest rates ... and the next recession."

Prior to the hurricanes, Cutaia urged clients and listeners of his daily radio program to draw down their equity lines of credit in advance of the storms, warning that if their properties were damaged the funds might be frozen or not available.

"I'm a student of cycles and have been around too long to ignore them and their warning signs," Cutaia said. "Market risks can be both real and perceived. Developers and investors need to factor the coming financial storms into their plans."

Might Cutaia be a future winner of the Nostradamus Award?

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