The Real Deal Miami

Q & A with analyst Jack McCabe

By Jennifer LeClaire | June 29, 2009 02:26PM

Consultant Jack McCabe is an unofficial spokesperson for South Florida’s real estate market. His firm, McCabe Research & Consulting, is a nationally recognized leader in real estate research, analysis and consulting. His client list is a who’s who for real estate, but that doesn’t mean the industry always likes what he has to say. McCabe is one of the relative few willing to predict an extended recovery period for the South Florida market.

The Real Deal caught up with McCabe to talk about who’s to blame for the crisis, the effectiveness of the Obama administration’s housing assistance programs, the next wave of foreclosures, and his predictions for a real estate recovery.

Some people blame the “flippers” for the real estate crisis in Miami. How much truth is in that?

The flippers added to the problem. The number of taxi drivers with real estate licenses is amazing. Many real estate flippers never did their homework because they thought it was a quick way to make money. They didn’t care what they had to do to get financing because they planned to flip it for a huge profit in the short-term and move on. It reminds me of “The Honeymooners’” Ralph Kramden with his get-rich-quick schemes. The flippers rode the crest of the wave until it crashed. The smart investors saw this coming and waited.

Will the Obama housing program help stem the tide of foreclosures?

I thought the Obama administration was going to announce principal reduction programs and reset mortgages to market value. The bank would lose half the value and the people would lose half the value on their down payment. But at least they would have a house that’s marked to the current value so they could refinance with affordable mortgage payments. That would have stopped the foreclosures. Obama didn’t do that and we didn’t address the real heart of the problem. I think eventually it’s going to come to that.

Some speak of an even bigger wave of foreclosures coming in Florida. Do you agree?

Yes, we are going to see more foreclosures over the next 18 months because the new restrictions from Fannie Mae — as far as condo loans in Florida and as far as refinancing — literally make it almost impossible to get any help through Fannie Mae, Freddie Mac or FHA because people are so far under water in their homes. The financing has dried up and the vulture buyers are coming in with cash to dictate terms in many cases to scoop up foreclosures.

Do you expect more price declines in Florida? Have we hit the bottom?

Most markets are still going to see some price declines over the next 10 months. I don’t think the price declines are going to be as rapid as what we have seen over the last couple of years. But I still think we’ll see another 10 to 15 percent drop. Some markets have returned to levels of affordability, like Fort Myers, Sarasota, and parts of Orlando. Jacksonville never really got out of line. Prices have come down to something affordable to yield a balanced supply-demand ratio.

When can we expect to start seeing a recovery?

The amount of excess inventory in certain markets has a lot to do with how quick those areas recover. In Miami, you can make a case that the condo market down there may not recover for five to seven years. It may take a decade before we see any meaningful price appreciation down there. The Miami condo market is, to me, the best analogy of the real estate boom-bust. But many markets in Florida will bounce around the bottom for two years before we see a return to a balanced supply-demand ratio, an end to the historically high foreclosures, and a potential return to appreciable real estate again.

Do you expect to see more lawsuits in the real estate industry?

Yes, I see a tremendous amount of litigation ahead of us; buyers suing developers; developers suing buyers, suing lenders and appraisers. We are going to see all types of crazy litigation in the next few years. That’s going to slow things down and place stigmas on certain buildings and projects. When I listen to people with a rosy outlook, I have to think they aren’t considering all the ramifications of the market. I can’t bring myself to tell people that now is the time to buy.