Signs pointing to a slower market

South Florida is one of the nation's hottest housing markets but its five-year run of soaring home prices is ending. Still, don't expect to find bargains anytime soon.

BY MATTHEW HAGGMAN, LISA ARTHUR AND TIM HENDERSON

The story of 801 Majorca Ave. is the story of South Florida's housing boom.

801 Majorca is a three-bedroom, Spanish-style home on a quiet street in Coral Gables. In 2002, it sold for $413,000. A year later, it sold for $505,000. And in November it went on the market, billed as a ''mini Vizcaya,'' for an asking price of $799,000.

But this time it didn't sell. In late November, owners Janina Deppie and Jaime Einstein lowered the price to $769,000. Still nothing. December came and went and the ''For Sale'' sign stayed.
''There were some brokers who came in and looked at the house and said it will sell in a week,'' Deppie observed. ``But that was the old standard.''

Over the past five years, South Florida has gone through the most explosive housing boom in its history. The land rush has transformed just about every corner and corridor of the region, sending prices skyward since 2000 -- more than 150 percent in Pompano Beach, more than 200 percent in Hallandale Beach and Sunny Isles Beach, and 250 percent in North Bay Village, according to an analysis by The Miami Herald of home sales over the past five years.

Housing mania has reshaped the economy along with the skyline and shoreline, creating billions in homeowner equity and feeding an entire ecosystem of jobs, from cement maker to mortgage broker. But it also has propelled South Florida into the ranks of the nation's least affordable places to live: A mid-priced home now costs nearly eight times median income, up from four in 2000.

Now the big question is: Is the wild ride over?

Yes, experts say. South Florida's five-year run of annual price jumps of anywhere from 12 percent to more than 20 percent is ending, they predict.

The signs are already there. Prices have wobbled in recent months, with sellers such as Deppie and Einstein lowering their expectations. The number of homes for sale in Miami-Dade County has nearly doubled since April. Houses are sitting longer on the market -- the average time needed to sell a single-family home in Broward County has jumped from 34 days six months ago to 53 days. And potential home buyers are now more cautious.

Last year, when Jeff and Stephanie Carson contemplated moving from Mississippi to South Florida, they played a version of real estate bluff. The couple went to online real estate sites to guess how high prices had climbed -- only to find them higher than they had ever dreamed.
In August, they moved into a rental apartment in Coral Gables.

''You can imagine the sticker shock,'' said Jeff Carson, 32, a lawyer. 'Some of the uncertainty about prices and how long we're going to stay led us to say, `Let's sign a one-year lease.' ''
SHIFT IN GEARS

For single-family homes, many say, the market is shifting from overdrive into third gear.
Experts predict prices will still go up by 5 percent to 10 percent this year. Demand remains strong because land is scarce and South Floridians still dream of a house with a yard.

But homes in the western parts of each county are more vulnerable, said Bradley Hunter, an analyst with real estate consulting firm MetroStudy. ''That is because so much more stuff has recently been sold in the west and much has been bought by investors and speculators,'' Hunter said.

The area most in danger of falling prices: condos, which now make up more than half of housing sales in South Florida.

Experts predict condo prices will slow, flatten or even fall this year, especially at the high end, because the boom churned out too many units too fast.

There are, for instance, 15,080 units under construction in the city of Miami alone, compared with 11,241 built in the entire past 10 years. And that doesn't even count the more than 28,000 units approved to go up in Miami.

Condo fever already has cooled from the time when buyers camped out all night at sales centers. In 2004, it took developer Jorge Perez of the Related Group of Florida about a week to sell out The Plaza, a 1,000-unit Brickell Avenue project.

Perez's more recent project, the 1,750-unit ICON Brickell, just a few blocks away, went on the market in April. But after more than eight months, it's still not sold out.

To summarize the market, developer Henry Harper scooped up the milky froth on his cappuccino at a Miami restaurant with his spoon. ''This is now gone,'' he said.

While rising construction costs may buffer the market by choking off proposed projects, some market watchers say so many buyers are speculators that prices will drop.

''There is severe overbuilding of condos,'' economist Hank Fishkind said in January at an Urban Land Institute conference in Hollywood. He gloomily predicted, ``People will get hurt, banks will go bankrupt.''

Deerfield Beach investor Jack McCabe is betting on it. He has started several so-called vulture funds to swoop in on distressed properties at bargain prices after a market fall. He says he has more than $10 million in pledges already.

''I think it will happen in 2006,'' he said. ``The writing is on the wall.''

HOW IT AFFECTS YOU

What does all this mean? If you're hunting for a home this year, you'll likely be in more of a buyers' market, with prices leveling. But prices are still coming off a red-hot high, so plan to pay up. And don't expect a return to the days when you could get a house in paradise for under $200,000.

If you're selling, you may have to be more patient this year. But chances are in many cases you'll still do fine, just not as well as you might have before. And of course, if major hurricanes hit South Florida, all bets are off.

To understand the forecasts, look at how the factors that sparked the housing boom in the first place are likely to play out.

House hysteria nationwide arose from a perfect storm of events. And in South Florida, it was more like a hurricane.

First, new buyers rushed in. Second-home buyers -- including baby boomers hitting their peak earning years -- now account for about a third of all home purchases. And roughly 15 percent of buyers are from another country, a Florida Association of Realtors study found last year -- probably even more in Miami-Dade. Residential real estate broker Philip Spiegelman took to calling leftist Venezuelan leader Hugo Chávez his ''salesman of the year'' because so much money from Latin America has come north.

While boomer and foreigner funds won't fade anytime soon, there's more concern around another growing group of buyers: investors and speculators.

At the height of the boom in South Florida, investors bought one in five single-family homes sold and at least 60 percent of new condos, real estate analyst Lew Goodkin estimates. Asking prices became the stock quotes of the day.

South Beach attorney Matthew Krieger and his friends once pooled money to invest in the stock market. In the last three years, they've sunk about $10 million to $15 million into South Florida real estate instead.

They're not done. But Krieger has ruled out investing in condos in areas such as downtown Miami, Biscayne Boulevard and Brickell Avenue. He says anecdotal evidence points to a glut of investors and speculators there, who could flood the market with resales and send prices down.
Instead, Krieger is buying office condos, single-family homes and waterfront condos in areas with an already established market. For instance, he is buying on South Beach.

''2006, in the right place, remains very strong,'' said Krieger, 32.

``But you have to be smart about it.''

MORTGAGE CHANGES

Another shift playing out is in how people buy houses.

In the past five years, mortgage rates plunged to record lows along with interest rates, and more people could afford homes. Some who couldn't afford homes bought them anyway, helped by new kinds of loans and mortgages that required buyers to pay only interest at first, for example.

In 2005, 30 percent of sales above about $360,000 in the Miami area were with interest-only loans, slightly more than the national average. And 15 percent came with mortgages where full interest payments were optional at first, according to Freddie Mac, the federal corporation that backs home loans.

Now mortgage rates are creeping up and could hit close to 7 percent by the end of the year, blowing cold air on the market. Federal regulators are warning that lenders are offering too many risky loans and mortgages to both builders and buyers.

Some banks have already backed off. BankAtlantic stopped financing the construction of high-rise condominiums a year and a half ago.

But what grounds real estate in South Florida is land, and there's a limited supply of it. As development spreads, the price of land -- and of the houses on it -- goes up.

''Generally, we only have about 18 to 20 miles of dry land from the beach to the Everglades,'' said Ronald A. Shuffield, president of real estate brokerage Esslinger Wooten Maxwell. ``We are bumping up against the edges in each county.''

At the same time, there are more and more people who want to live here. More than 150 people move to South Florida every day, according to Florida's Office of Economic and Demographic Research.

And they're projected to keep coming, lured by sun, surf and South Florida's spruced-up reputation. Plagued for years by the drug trade, public corruption and a seedy image, South Florida is now seen as an international destination for leisure and business. Its economy is robust, with unemployment at its lowest point in 15 years.

Put all the pieces together, experts say, and you have a cooling but not a collapsing market.
That may help in at least one way -- it may make homes a little more affordable, or less unaffordable. A U.S. Census study last year showed that Miami-Dade ranked second in the country -- behind Brooklyn in New York City -- in residents who spend more than 30 percent of their income on mortgage payments.

And that may be one of the biggest reasons the market has to slow down -- prices have reached the ceiling of what many buyers can pay.

''I personally consider it to be almost a good thing because it will bring back some reasonableness to the market,'' said Alan Levan, chief executive of home builder Levitt and BankAtlantic. Levan predicts home prices will go up by less than 10 percent in 2006.

801 Majorca Ave. went into contract at the end of January, nearly three months after it hit the market. The would-be buyers offered a little less than the already-marked-down listing price of $769,000. The deal is set to close March 15.