Downbeat news from JPMorgan: Florida homes could nearly halve in value

No way to sugar coat this.

In a presentation to investors in late September, JPMorgan Chase & Co., hot off of announcing its purchase of Washington Mutual Bank, predicted Florida home prices would fall another 16 percent.

It could get even worse. In the event of what it called a "deeper recession," the bank projected Florida prices falling another 21 percent. A "severe recession" could bring prices crashing a further 36 percent.

JPMorgan assumes Florida prices have fallen 28 percent, which corresponds to what most home price indices say. So the bank is betting on a peak-to-trough decline of 44 percent in Florida (the 28 percent drop we've already experienced + another 16 percent).

How rotten is this news? Consider this: JPMorgan predicts further home price drops of 10 percent in California and 8 percent nationally. So our decline could be twice as bad as the nation's and 60 percent worse than California's.

Worse than California.

I promised I wouldn't sugar coat the news, but I fibbed. Northern Florida is experiencing the worst home price plunges these days, so the depreciation could disproportionately affect communities like Ocala, Gainesville, Pensacola and Tallahassee.

Feel better? Probably not.

(Thanks to SoldierRenter for the JPMorgan tip)

Comments

[cedric h.]

please tell the city/county governments this, my house taxes STILL went UP 17% this year!

[Snoz]

Great! So why are they're executives getting so many tax breaks again? They're not helping our economy by having these meetings and guessing where prices will go. They're also the ones that came up with gambilng on bonds, shared derivatives, told the Fed and State they didn't need any regulation, and then blew up the entire finacial system. I bet if we tax them a little more, they'll find better things to do with their time rather than fan the fire.

[Fuzzy Bear]

So the bank is betting on a peak-to-trough decline of 44 percent in Florida (the 28 percent drop we've already experienced + another 16 percent).

Surprise, hardly as the indicators have been pointing at this for some time. Me thinks the drop will be about another 20% partly due to the current inventory which includes the "hidden inventory" so many deny exists, the credit crunch and the current state of the economy in the Tampa Bay region.

However, the 16% decline will bring home values back in-line with incomes for the Tampa Bay area.

[spackle]

Unless I am reading your posts wrong, 28% drop already occurred, plus 16% drop expected, equals a 39.5% drop total overall. The key here is that it is a 16% drop from current levels, not a 16% drop from the original highs. 0.72*0.84 = 0.6048, or a drop of 39.52% from the highs.

[Marcus]

Just when you think bottom is around the corner. I just can't decide which condo tower to jump off. I mean there are so many to choose from. There's that great half finished condo tower downtown Orlando with the crane on the roof. I think perhaps that's the one. Or maybe I should drive to Tampa or something more exotic in Miami??

[Val Orlando]

I totally agree, a 50% drop is going to be realized, and then some. However, if prices have fallen that far in Florida will somebody please tell the folks who are trying to sell their properties? The MLS and FSBO listings are filled with the same overpriced stuff we've been seeing for two years now. It's like sellers in Florida are in a state of denial, playing some huge poker game and chasing the pot while holding nothing. BUYERS BE SMART - use public records before you decide what to offer on a piece of property - stainless and granite does not mean the property is worth twice what the owner paid for it.

[Val Orlando]

I totally agree, a 50% drop is going to be realized, and then some. However, if prices have fallen that far in Florida will somebody please tell the folks who are trying to sell their properties? The MLS and FSBO listings are filled with the same overpriced stuff we've been seeing for two years now. It's like sellers in Florida are in a state of denial, playing some huge poker game and chasing the pot while holding nothing. BUYERS BE SMART - use public records before you decide what to offer on a piece of property - stainless and granite does not mean the property is worth twice what the owner paid for it.

[Fuzzy Bear]

It's like sellers in Florida are in a state of denial,

It is my belief that the consumer has been in the state of denial. The next stage is acceptance that property values have dropped and that the consumer selling the property must bring the property in-line with current market values.

[SMK]

Many properties are still very overpriced. I guess I'll just have to wait. And that I will.

spackle points out the bad math. No wonder this country is going down the toilet - bankers (and reporters) can't do middle school math!

[James Thorner]

Spackle's math is good as far as it goes, but I was quoting the 44 percent figure off the JPMorgan report directly. If I made a math error, it was by extrapolating back from the 44 percent and assuming that by subtracting 16 percent you get 28 percent. The beauty of blogs is that you can correct stuff before it's set in stone. I'll do better in the future, Poster With No Name.

[David]

I used to live in Florida. I check realtor.com from time to time and yes the prices have much further to fall. The economy in Florida is all low wage service jobs. The prices during the frothy bubble were laughable seeing as the prices eliminated about 99.9% of the working populace down there.

I will keep on waiting for the true capitulation and then I will swoop in and get a nice second home by those beautiful beaches. They are about the only thing I miss in Florida besides the warm weather.

[Just Visiting]

From memory, isn't California already off peak-to-trough by something like 30%-40%, with some areas down by half? Two months ago, I read that during the 12 months before that CA prices had dropped 22%.

Maybe it depends on what numbers are being used. I think my figures are Case-Schiller data. By contrast, the real estate industry's median house price data is misleadingly high.

[Charlie]

The house prices have to continue to fall until a sustainable ratio of income to home prices is achieved ( this ratio should be a max of 3). This will be strongly driven by the tighter credits necessary to obtain mortgages, the surplus of available housing and the state of the economy.

Here are some numbers from 2008 for Florida (source: US Census Bureau):
Median income = $62,000
Median house price: $265,000.

The ratio in Florida is still above 4, which is unsustainable, therefore, house prices have to go down (unless income magically increases considerably in the near future).

If a buyer does not meet this ratio, he will be asked to produce a considerable downpayment in order to meet this.

If you are looking to sell a property for $265K, then you need to look for families making at around $90K/yr, at least 5-10% downpayment and with good credit, or else they won't get approved.

[gordon]

What Chase Morgan is looking at in value may be value of the Mortgage Backed Security value in relation to the hard asset value of collateral. Unfortunately there is the residual value which they will be reluctant to reveal, Because somewhere in the numbers is profit.

[beachbum]

Property values continue to plummet in NW Florida, yet our property taxes continue to rise. According to moodyseconomy.com (earlier this year), the Destin/Ft Walton Bch area ranked 4th in the entire nation in terms of property value decline. It is time for a southern version of the Boston Tea Party. When we throw something in the water this time, it needs to be our politicians.

[Tobias]

If it's any consolation - probably not - SE Florida is in the very same boat, and our price level is still way too high too. From a Realtor's perspective, I see 16-21% decline for our market as rather realistic... if only sellers and their listing agents would wake up to reality.

[Derek]

Great comments everyone. I'd tried making these comments 2 years ago and I was nearly burned at the stake. I just sat back and watched an elephant turd hit the fan!

[Tino]

For those looking at grossly overpriced realtor.com listings:

if the realtors think that the buying public are too naive to do their own research, there is a solution. Find a property you like and offer them what you want to pay. They probably won't take it, but they will at least find out what the market is offering.

If they say that they are "insulted" by your offer, that's even better!

I use this same strategy when dealing with scalpers. They can ask for $100 a ticket all day long, but when they realize that there are more sellers than buyers, they'll take $20.