Posted on March 22, 2019 in Foreclosures
STORM CLOUDS ON THE HORIZON: REAL ESTATE MARKET CLEARLY A HARBINGER FOR UPCOMING RECESSION
While I would be the last person to want to be called “Chicken Little,” it is still important that I continue to serve as a messenger for the disparate factual analysis that indicates that the real estate market is clearly slowing and that may well be a harbinger for the entire economy. In fact, just yesterday, the Federal Reserve announced that they will not be raising interest rates (and likely not be raising interest rates for the duration of the year) because they, too, are perceiving a precipitous decline in economic activity and today as I edit this blog, Wall Street too is now predicting a recession based on the bond and stock market.
We see numerous factors that would suggest that the real estate market will be in decline and that foreclosures will once again be on the rise, unfortunately. These factors include:
1. Bankruptcy rates have started to increase in Delaware, and my bankruptcy colleagues are indicating that they are very busy with, typically, large entities going into bankruptcy first. Many of these entities are in the construction business, which will affect an entire slew of smaller companies and individuals. Lots of subcontractors will not get paid, and many of these subcontractors will have difficulty with continuing to pay their employees. Many of these employees will obviously rely on their salaries and continued income to be able to pay for their mortgages. In addition, with interest rates having an increase over the past year, that has created a serious problem for individuals being able to obtain mortgages. The good news is, however, that with the Federal Reserve announcement, we anticipate that interest rates will either stabilize or start to creep downward in the months to come.
China Restricting Cash
2. With China restricting cash from leaving its county with huge restrictions, many individuals are no longer capable of buying investment properties in the United States and particularly in Florida. The same holds true for the folks in Central and South America where many of those economies are doing rather poorly and individuals there are no longer able to purchase real estate. In fact, many of those individuals will have difficulty fulfilling their commitments for condominiums that they have purchased over the past 3 years because they may well not be able finance their closing obligations.
3. The tax law, on the other hand, has provided both a good and bad situation for the real estate market in some regions. Northeasterners are coming down to Florida because it is a more tax‑favorable environment because local state income taxes are no longer deductible from tax returns. At the same time, with only $10,000.00 being allowed to be deductible from real estates taxes, individuals, who were accustomed to deducting more than $10,000.00 from their real property taxes, may think twice about purchasing real estate.
4. Finally, of course, the gorilla that is in the room is salaries and incomes. For real estate volume and values to continue to increase and to be affordable, people must be able to have wages that support the cost of maintaining such homes. Unfortunately, in Florida, this wage issue is at issue, causing dysfunction in the real estate marketplace. The likelihood is that real estate prices will have to come down rather than incomes going up since there are not enough industries to support major increases in wages in the State of Florida.
The final question… is how will this affect foreclosures? And the answer is simple. If people cannot afford to pay their mortgages or if they perceive that their home values are once again underwater, the likelihood is that people will once again walk away from their homes and foreclosures will increase. Most people believe that this time around the foreclosure situation should not be as severe, but it is anyone’s guess how bad and how long this next downturn will be.
The only silver lining might be that as long term interest rates drop so will the mortgage rates and folks may find it an appropriate time to refinance their home mortgage. So hold on to your hats, we are in for quite a ride!
From the trenches,
Roy D. Oppenheim
Original source posted March 19th 2019 on South Florida Law Blog: https://southfloridalawblog.com/storm-clouds-on-the-horizon-real-estate-market-clearly-a-harbinger-for-upcoming-recession/
Oppenheim Law | Real Estate Attorneys Fort Lauderdale
2500 Weston Rd #404
Fort Lauderdale, FL 33331
Roy Oppenheim is a sought-after legal expert on issues relating to real estate, real estate litigation and commercial litigation. In 2009, he started the South Florida Law Blog to address the real estate market and foreclosure crisis. The Blog has been voted the best business and technology blog by the South Florida Sun-Sentinel. Mr. Oppenheim has been a contributor to Yahoo! Homes, featured on HuffPost Live, FOX News, and Lifetime TV, and quoted in prominent national publications, including USA Today, The New York Times, Huffington Post, WSJ, US News and World Report, The Financial Times, the National Law Journal,Florida Bar News, Sun Sentitnel and Miami Herald. Most recently, Mr. Oppenheim hosted an Ask Me Anything on Real Estate on Reddit. Mr. Oppenheim has also co-authored two law review articles: Deconstructing The Black Magic of Securitized Trusts, and The Emperor’s New Clothes.
Mr. Oppenheim founded Oppenheim Law, one of South Florida’s leading boutique law firms in Fort Lauderdale, Florida in 1989 with his wife Ellen Pilelsky, and, in 1994, he co-founded Weston Title & Escrow, a trusted South Florida real estate title company whose multilingual staff provides personal, concierge style service in the areas of real estate closings, title insurance, title searches and escrow services.
Weston Title: https://westontitle.com/