Local Markets plus What’s Holding Back the Housing Recovery?

Past economic recoveries have been led by a turnaround in housing, not the other way around. So what’s holding the housing recovery back this time?

Palm Coast, FL – February 22, 2011 – [UPDATED to include Pine Lakes] The United States is clearly in the deepest and longest housing slump since the Great Depression with no clear signs of a quick turnaround from present levels. A lot has to do with the general economy and the job market. But past recoveries have been led by a turnaround in housing, not the other way around. So what’s holding the housing recovery back this time? There are four major factors; all a result of the severe whipping the housing market took when the bubble burst.
One local builder told me that he has enough demand in the pipeline to make his 2011 construction budget. Unfortunately, most of his customers cannot obtain construction loans. Real estate practitioners tell me that they continue to lose sales when the "sold" property does not appraise high enough to support a loan.
New construction home loans are based not on the cost of construction, but on the value of comparable sales of existing homes, including distressed properties. Existing home sales appraisals also use distressed properties as comps. This practice is clearly inequitable and results in a limited number of loan approvals. The median selling price/square foot for all Flagler County single-family homes was $68/SF in 2010. Lender-owned homes sold for a median price of $58/SF. Short sales were $60/SF. The median per square foot sale price for non-distresses homes was $88.
A National Association of Home Builders Report estimates the one-year local impact of building 100 single-family homes is 324 jobs. Additionally, the construction of 100 new homes will create 53 recurring local jobs.
Lending standards
Lender underwriting standards have become increasingly strict, limiting loans to only the most highly qualified buyers. Many properties, particularly condominiums, cannot be funded by traditional loans at all. Lenders have put them on a blacklist because of the number of foreclosures or delinquent property association assessments. Now mortgage rates are on the rise again, unlikely to return to the record low rates of only a few months ago.
MERS – The broken chain of title
The real gorilla in the room is the unsolved problem of foreclosure fraud. The mess was caused by the banks when they took shortcuts processing mortgages during the boom years. The system they created was the Mortgage Electronic Registration System (MERS). MERS bypassed traditional loan endorsements and county records filings and saved the banks billions. Now that so many homes are falling into foreclosure, the courts are increasingly denying foreclosures unless the lenders or mortgage servicing companies can document that they own the note and mortgage. But the documentation is missing.
MERS broke the chain of title, a necessary element in the concept of property ownership, title insurance and warranty deeds. Courts have not yet agreed on how this challenge should be met. Legal decisions vary from court to court. Decisions increasingly favor the homeowner. Until a solution is found, lenders and title insurance companies will tread carefully, slowing down the housing market’s recovery even longer. No legal or legislative solution is on the horizon. The situation could get very messy.
Government programs that don’t work
Most governmental attempts to mitigate foreclosures have experience little success. The HAMP program has been an utter failure. Only a fraction of the money allocated to HAMP has been spent. The program was ill-conceived and poorly administered from the start. Incentives to lenders were not aligned to the goals of the program. Most lenders paid scant service to homeowners trying to modify their loans.
The billions of taxpayer dollars dumped into the banking system is not finding its way to potential homebuyers or to distressed homeowners.
While Florida’s judicial mandate requiring homesteaded homeowners and lenders to go through mediation prior to proceeding to foreclosure was well intended, it has had marginal success at best.

All Real Estate Markets Are Local – Even the Local Ones
Like all local markets, the Palm Coast/Flagler real estate market is unique. Palm Coast home prices surged ahead of the rest of the country, topped out earlier, and plunged further. Our market is littered with more distressed properties (lender-owned or short sale) than the national average. The median selling price for single-family homes is about half what it was at the 2006 peak. Even within the Palm Coast market there are differences.
Neighborhoods with higher median selling prices generally have fewer foreclosures and short sales. Cypress Knolls and Palm Harbor have fared better among the original Palm Coast neighborhoods. As reported to the Flagler County MLS, distressed sales represented less than half of all single-family home sales in these neighborhoods during 2010. In all of Flagler County, distressed home sales accounted for 57.8% of all home sales.
Grand Haven, Hammock Dunes, and Hammock Beach logged higher median selling prices and fewer distresses sales but these gated golfing communities also carry a higher inventory of unsold homes. At the present rate of sales, it would take over 17 months to sell the number of currently listed Grand Haven homes. Ocean Hammock carries 24 months of sales in its inventory of listed homes. Hammock Dunes carries over 58 months.
One factor common to all neighborhoods and communities is the ratio of lender-owned sales to short sales. Lender-owned sales increased from 2009 to 2010 while short sales generally decreased as banks became more aggressive, taking possession of foreclosed homes, then placing them on the market. Notice the differences from neighborhood to neighborhood in the following table.
2010 Single-Family Homes Sales – Flagler County, FL


Homes Sold

Median Sale Price


Short Sale

Percent Distressed

Sales Months of Inventory

Cypress Knolls







Indian Trails







Lehigh Woods







Matanzas Woods







Palm Harbor







Pine Grove







Quail Hollow







Seminole Woods







Grand Haven







Hammock Dunes







Ocean Hammock







All Flagler County







The Pine Lakes neighborhood was inadvertently omitted from the table. The Pine Lakes stats are: Homes Sold = 121; Median Sale Price = $130,000; Lender-owned = 22; Short Sales = 32; Percent Distressed = 44.6%; Sales Months of Inventory = 12.4. The All Flagler County numbers remain the same.

Source: Flagler County MLS

Distressed properties factored into market pricing in Palm Coast’s original neighborhoods beginning as early as 2008. Having hit bottom early, these home prices evidence more stability, dropping less than 5% from 2009 to 2010.
Gated communities felt the downward price pressure brought on by the more recent appearance of high-end distressed properties. The median price of Grand Haven homes dropped 7.3% from 2009 to 2010, Hammock Dunes and Ocean Hammock dropped 31.1% and 16.4% respectively over the same period. Upscale condominiums have likewise been more recently affected by price erosion caused by foreclosures and short sales.

8 replies
  1. Bob Z.
    Bob Z. says:

    New construction appraisals?

    So what does Flagler County base the appraised values on when it comes time to establish a value for a newly constructed home? We were able to obtain a construction loan last year and had a new home built near Marineland. The bank appraised it well below what the builder was charging us but since we owned the lot it did not matter. But in the near future Flagler County will have to add the house to the tax roll – will they go by comparable sales to establish the initial value?

  2. Theresa
    Theresa says:

    Selling a non-distressed home

    I was glad to see the breakdown of selling price per square feet broken down between non-distressed properties, foreclosures and short sales for resale single family homes. My question is if I am selling my home and it is a non-distressed property can I still hope to get close to the price that is listed for non-distressed properties? I realize I will have to see what the market offers me but I would like help on the pricing strategy. Secondly, do you feel that if the MERS problem becomes worse with no real solution then the pool of buyers will be leaning towards buying non-distressed properties versus distressed? Thank you for your insight.

  3. Theresa
    Theresa says:

    Clarify clear title

    Just to clarify whether a property has clear title if there is a mortgage. We purchased our home in 2006 new construction. The lot was purchased first then the home was built on it. We started with a preconstruction loan then converted to a regular mortgage after construction was done. Do you consider this a clear title or only if the house is paid for with no mortgage?

  4. Mike
    Mike says:

    Its only going to get worse…

    Nothing seems to be working right now and my feelings are that home owners have not come to the realization that they still want too much for their houses for which there are not enough buyers. Hammock Dunes adds on a nice little $90K initiation fee for even a social membership which further weakens that neighborhood. You can play many courses for a daily fee around here. This will take one complete generation to work this out. Palm Coast is not an attractive landing spot anymore.

  5. Toby
    Toby says:

    Reply to Bob Z

    The Property Appraiser will consider what comparable homes sold for in 2010. If your building cost was more than the 2010 market level for comparable existing homes, your appraisal will likely be lower than your construction cost (plus lot). In some local markets, distressed properties made up 60 – 80 percent of all sales so all distressed properties cannot be ”thrown out” of the comps.

    To get a thorough understanding, I suggest you call Jay Gardner (the Property Appraiser) at 313-4150. He will be glad to take the time to step you through the process.

  6. Toby
    Toby says:

    To Theresa

    As long as distresses properties dominate the market, all sales will be affected. Pricing non-distressed properties in such a market is challenging. I will be listing my non-distressed home within the next month. Potential buyers will have a lot of low-priced options so I need to make my home stand out. Attention should be paid to curb appeal and marketing. Your point about MERS is valid. A clear title, as I have, will be a plus. Homes without a mortgage will also have an advantage. There is no risk of a future documentation problem claim.

    And many buyers are reluctant to purchase distressed properties because of other risks. Lenders take a long time to act on short sales. The short sale condo I just purchased was ”in process” for 7 months. After both lenders had agreed to the sale, it nearly fell apart again. The condition of a short sale or bank-owned property is also a risk. You will pretty much take it ”as is.” In my case, I inspected the condo before signing the contract in June 2010. We closed at the end of January 2011. A lot can happen to a property in 7 months.

  7. Toby
    Toby says:

    To Theresa

    Disclosure: I am not an attorney. Having said that, I mean clear title to be when you have a Warranty Deed with no ambiguity as to who owns the note and mortgage. (The company with whom you took out your mortgage still owns the note and mortgage or there is a clear trail to the present owner.) A title company or an attorney can help you.

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