The dark days of the recession, when as many as 31,500 homeowners were defaulting on their mortgages each month, are behind South Florida. Miami’s luxury market is booming thanks to cosmopolitan millionaires, and prices throughout the region are steadily rising. But the area’s housing market continues to boast a less savory superlative: the highest foreclosure rate in the nation.
In January, South Florida once again led the nation in mortgage defaults, with 10,302 foreclosure filings, according to RealtyTrac, an Irvine, Calif.-based data firm. While those foreclosures represent a massive 50 percent spike from December, it was also a nearly 5 percent year-over-year decline. And while the supply of distressed assets slowly dwindles as the economy improves, the steep discounts that many investors enjoyed during the recession have largely vanished.
In fact, at the close of last year, home prices across South Florida were up 16.5 percent from the same time in 2012, giving buyers few advantages.
“It’s funny, you hear about these [real estate owned properties] and foreclosures coming to market, but if you drive around South Florida, everything has been absorbed, from single-family to multi-family to commercial,” said Jimmy Tate, CEO of Tate Capital, which invests in distressed multi-family and commercial assets. “There are no discounted distressed debts anymore. Everything is market rate.”
Broken down by county, Miami-Dade saw the highest number of foreclosures, with 4,268 in January, a 10 percent decrease from January 2013. Broward followed with 3,837 defaults, a 24 percent year-over-year improvement. Finally, Palm Beach had the fewest foreclosure filings with a total of 2,197, a 26 percent improvement over January 2013, according to RealtyTrac, which defines foreclosures as a combination of new lawsuits, judgments and repossessions.
While South Florida is gradually beginning to see fewer distressed assets, the state’s judicial foreclosure system is still weighed down with a massive backlog of more than 250,000 properties. On average, it took 918 days — two-and-a-half years — to move a foreclosure through the system in Florida in 2013, compared with 858 days in 2012. The state ranked third in foreclosure length behind New York and New Jersey.
With so many distressed properties tied up in court, the inventory left in Miami’s increasingly robust housing market has dwindled.
“Across the board, there is no question that the number of distressed properties available is few and far between,” said Warren Weiser, chairman of Coral Gables-based Continental Real Estate Companies. “Miami has bounced back very quickly. The condo inventory that we thought was going to last for 10 years lasted four years, and we are back to building new condo towers. Compared to the recession days, it is night and day.”
Several factors will likely put a major dent in Florida’s shadow inventory in coming years: a recently passed foreclosure fast tracking law, lenders that are increasingly eager to remove bad debt from their books, and investors hoping to capitalize on growing property values. Current reports estimate it would only take another 42 months to completely clean out Florida’s mountain of mortgage debt.
The supply of distressed assets has also decreased significantly in South Florida’s commercial sector, with sources reporting relatively typical rates of foreclosure, heightened competition among property investors and tightening spreads that surpass even what is being seen in the residential market.
“There are fewer distressed assets coming to market and those assets are being priced at a level that you wouldn’t have seen a few years ago,” said Weiser, who specializes in distressed commercial properties.
In fact, the inventory of distressed commercial properties is now so sparse that some investors are speculating that lenders may be sitting on properties and introducing them into the market slowly to inflate values. (For a list of the top distressed commercial properties in South Florida, see the accompanying chart.)
“With prices so good, it seems to me that [properties] are being strategically withheld and released onto the market,” Tate said. “I have never seen the South Florida real estate market looking so strong. It is almost at the point where I am concerned again.”
But with money coming from all directions — from international homebuyers, infrastructure investments ahead of the Panama Canal expansion and domestic tourists — South Florida’s distressed market isn’t going to cool off anytime soon.
“Subject to any unforeseen major catastrophes, 2014 is going to be another strong year in South Florida,” Tate said. “You’ve got a lot of money on the street, and you’ve got a lot of economic drivers coming to Miami. The way I see it, Miami in 2014 is going to have a nice upward trend.”