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How the Florida opportunity was created?

How the Florida opportunity was created?

Canadians are a large part of the trend of foreign investors buying real estate in Florida and the USA.  A mix of record low interest rates and a US housing bubble creating low home prices is creating an environment for Canadians to think strongly about real estate opportunities in the USA.
The collapse of the US housing market is well known across the world.  Who to blame – and there are many – include banks foreclosing on homeowners that cannot make payments, banks providing mortgages to people unable to make those payments in the future, and investment banks that were able to convince banks to lend to homeowners on the assumption that property prices are going to go higher and higher.
The subprime mortgage crisis, as it termed in the media, is based on banks providing loans to homebuyers without thoroughly reviewing their income and assets (often referred to as a NINJA loan, no income, no jobs, no assets).  The basis was that home prices would only go up, therefore there is no need to review income and assets.  Mortgages were received on highly inflated property values.  Individuals received loans and bought real estate as prices were going up – many of them were flipping houses as prices increased for a profit.  The bubble burst when prices stopped increasing and homeowners were unable to make monthly payments and did not have sufficient income and assets to continue to make payments.  Then the rush to foreclose started.  Prices started to drop.  And here we are today.

Key trends in the US housing market:

  • The recession has caused people to lose their jobs and they are unable to make payments on homes they purchased.
  • Homes are foreclosed on and prices start to decrease as there is an oversupply in the market.
  • As prices go down, homeowners that are making payments on a home worth much less than what they bought it at start to consider defaulting on their mortgage loan.
  • The cycle continues and prices continue to fall.
  • Home construction companies that were developing condominiums are unable to sell their units.  They start to default on their loans to the banks.
  • The banks have a bunch of loans out to people that are unable to pay them back.
  • As home prices have decreased, foreign nationals, including from Canada, have started to look at investment opportunities in the USA.
  • As foreclosed homes get picked up by buyers and more interest is created by homebuyers, home prices have started to increase in some parts of the USA as of 2013.

 

When the bubble burst, banks started to fail as they had so many loans on their books that were worthless.  Essentially, the banks had more liabilities than assets and were bankrupt.  Bank mergers occurred.  Mortgage lending companies needed to be bailed out.

Why are builders selling homes below construction value?
With the US economic recession hurting many, homebuilders were severely impacted.  Many of them had borrowed money and build real estate with hopes to sell it at lofty prices to US home buyers that were flipping real estate in the USA.  After the crash, homebuilders were unable to make payments and defaulted.  The banks took possession of the property and could only sell this real estate to an investor – but only at a fraction of the loan cost.  The new buyer of the development essentially bought the property for less than the cost to actually build the unit.  The real losers were the banks that gave out more money than they brought in and the homebuilder that went bankrupt.  The winner is the new buyer that is buying it cheap and is able to rent it out or sell it at a reduced cost but still make money.

The rental market
In the US, the housing crisis has forced many to leave their homes and default on their mortgage.  But these families are not out on the streets – they still need a place to live.  Therefore, the rental market is still relatively strong, especially since many Americans have now pledged to never buy US real estate again.  The influx of renters has created an opportunity for many US property buyers to be able to rent out properties and still net a gain after all expenses not including capital appreciation.