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Lee housing gloom 'scary' for economy

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12-04-2007

The News-Press - newspress.com

by Dick Hogan, December 04, 2007

Foreclosures continued to rise for primary residences in Lee County while permits for single-family homes stayed low - a serious warning sign for the economy, experts said.

The number of permits issued to build single-family homes in Cape Coral dropped to 12 in December, the lowest in memory and down from 153 in November 2006, according to statistics released Monday by the city.

Permits in unincorporated Lee County - which includes Bonita Springs and Fort Myers Beach because they contract permitting services from the county - also dropped: 60 for single-family homes, down from 91 in October and 357 in November 2006, according to a county report issued Monday.

In the past year, actions have been filed on a record 11,700 Lee County foreclosures.

Meanwhile, the number of foreclosures filed on primary residences rose to 503 from 472 in October countywide even as the total number fell to 1,483 from October's record 1,538, according to statistics compiled by the Southwest Florida Real Estate Investors Association.

"That's scary," said Ray Kest, an economics professor at Hodges University in Fort Myers who tracks local economic trends. "It does not bode well for any type of turnaround in the economy. If homesteaders can't make their mortgage, there might be an out-migration by some of these people. When people lose their jobs, they hang on, hang on, try to find another job. When they lose their house, they move."

As the number of homes being built continues to drop, that's already happening to some extent, said Bob Knight, vice president of Paul Homes in Cape Coral and president-elect of the Lee Building Industry Association.

"To reach a normal level of activity you probably have to contract a little more beyond what the normal level will be," he said. "They're definitely going to leave town to go find something else. They do have a skill and it probably can be done anywhere in the world. Then there are those who say 'I'm getting out of the entire business.' "

Tonya Mahterian, who worked as controller for home builder Martins-Somrak for three years, is one of those forced to find other work - but she has landed on her feet.

Martins-Somrak is closing down, Mahterian said. "We just finished the certificate of occupancy on our last house."

Mahterian has a job with a local certified public accounting firm. "The timing couldn't have been better," she said.

People in all kinds of construction-related businesses are having to regear, she said: One private client is a company that puts architectural foam on the exteriors of houses, "but business is so slow, they're going to start up a new magazine of some sort."

Bad as things are, the bottom of the market may not be here yet, warned mortgage broker Jeff Tumbarello of Network Funding Solutions in Fort Myers: Although the total foreclosures dropped in November, that's because it was a shorter month with fewer business days. "We're still getting about the same number per day."

As for the primary residences going into foreclosure, he said, "A lot are refis (refinancing) who took the cash out of the house."

It's logical that there'd be a spike in foreclosures on primary residences toward the end of a downturn, he said. "The last thing you're going to let go is your own house. The first thing you're going to let go is a rental property."

Hugh Bromma, CEO of Oakland, Calif.-based The Entrust Group, said there are sometimes strategies for people to keep their houses even when they're in desperate financial situations.

"What you can do is indeed borrow up to $50,000 from a 401(K) if your plan allows it, and you can use that for any purpose," Bromma said, and pending federal legislation would increase that to $100,000.

The money has to be paid back to the 401(K) over a five-year period, Bromma said, so it's a stopgap measure. "But at least it'll give me some time to decide what to do."

As the real estate market tanks, Bromma said the tactic is being used more and more by his clients. Entrust, which has an office in Fort Myers, provides services for self-directed retirement plans.

"I've been through three of these (downturns) and this is by far the worst I've seen," Bromma said. "Our clients are investors, and they have self-directed IRA's and 401(K)s."

Many, he said, are finding themselves having to ride out a period of reduced property values and relatively low rental rates.