Jack McCabe is scared.
McCabe was one of the earliest voices warning of the housing collapse 13 years ago. He runs a real estate economic consulting firm based in Deerfield Beach that bears his name. As early as 2005, McCabe was sounding alarms of a slowing housing market in South Florida.
Of course, It didn’t just slow — it collapsed.
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McCabe is not predicting a similar crash in the regional housing market because of the coronavirus. Yes, the high end of the market — new luxury homes and condos — has seen softer prices even before the stay-at-home orders to slow the spread of COVID-19. But the middle of the housing market is stronger because very few new homes in that price range have been built.
Still, McCabe is worried.
"I'm scared of this," he said. "We had all the numbers that we could count on and I could see what was happening in the marketplace last time. It made it fairly easy to predict what was going to happen. This time around I don't know if there's any way of predicting."
Right about now, April rent or mortgage is due. Some landlords and lenders give grace periods before charging late fees, but the bill is due.
How COVID-19 will affect South Florida real estate is a big mystery. But it is certain thousands of people and businesses will have trouble paying their rent and mortgages because of lost jobs and lost business.
Iyonah Williams pays $2,450 a month for a loft near Wynwood. She works in human resources for a travel retail company. Her monthly rent is almost half her take-home pay. She's still working so she was able to pay April's rent bill.
"If we have any type of salary cut for me, my net check possibly will be less than $2,500. If they cut our salaries by 20 percent like they're proposing, it'll place me in a tough situation," she said.
Across South Florida, 40 percent of people are renters and two out of three of them spend at least 30 percent of their income on rent. Anyone paying more than 30 percent of their income on housing is considered “cost-burdened” by the federal government definition. That means they may have trouble paying for other necessities like food, clothing and medical care.
Kathy Kilroy and Michael Blades cut the rent in half on the apartment they own in Key West. A family of three lives in the unit. They had been paying $1,800 a month, but Kilroy said they reduced it to $900. "We don't even know if they'll be able to do the $900," she said. "If they can't, they can't. There's nothing we can do."
"We're not going to evict them," added Blades.
Evictions and mortgage foreclosures have been put on hold statewide until mid-May. Gov. Ron DeSantis signed an executive order putting the moratorium in place last week a day after issuing the statewide stay-at-home order.
Monthly Association Fees
It's not just the rent that is due. So are monthly assessments for those belonging to a condominium or homeowners association. Those checks pay for clubhouses, pools, security, insurance for those common spaces and maybe other amenities. These monthly fees can be $200 or more per month.
In South Florida, First Service Residential manages more than 900 associations with over 400,000 people combined calling them home. It's regional leader David Diestel does not expect owners to miss their payments.
"We have seen that residents continue to make the payments that are necessary to maintain and operate those associations. We have not seen a drop up to that at all," he said.
According to First Service Residential data, it wasn’t until about a year after the housing crash in the Great Recession that late association payments or no payments began to rise. And now these homeowner associations have a financial cushion of 10 to 20 percent of their annual budgets in reserves. "Each association in each community has their own collection policies that the board administers and we help them administer those policies," Diestel said.
About four out of seven homeowners in South Florida have a mortgage. Wells Fargo is the largest mortgage lender in the country. In a statement to WLRN, it said it is granting homeowners a three month suspension of payments on mortgages or home equity loans if they ask for it. After the three months is up, how the missed loan payments are treated depends upon a lot of factors, including who owns the actual loan. Banks don’t keep all the loans they issue, so other investors may have different demands. Bank of America also is offering borrowers more time by skipping payments now and tacking them onto the end of the loan.
"I think some [mortgage lenders] will actually add those payments to the back end of the loan so that if people don't have money three months from now, which more than likely they're not going to, they won't lose their homes over it," said housing analyst McCabe.
While he is optimistic that homes priced $400,000 and less will be able to weather the COVID-19 crisis because demand has been high and supply has been tight, McCabe is scared about the job market.
"The big question is going to be how many people lose their jobs from this?" he asks. "I mean, permanently lose them, and to not find other income after this."
Commercial Real Estate
The answer to that question partly rests with how those businesses most directly affected by the economic consequences of fighting COVID-19 come through the crisis. And the calculation for restaurants, bars, hotels, retail stores and other non-essential businesses includes how they will deal with paying their rent.
Scott Sherman is a co-founder of Tricera Capital, a commercial real estate investment firm that owns buildings with restaurants and retail stores in South Florida. He does not expect most of those tenants to pay their April rent. Instead, Tricera is deferring April payments to later on in the commercial leases, which can run for up to five years. "Everyone is going to feel it and everyone needs to kind of figure out how to get through this," he said.
Mast Capital owns buildings that house a Conrad Hilton Hotel in Brickell, a Walgreens in Miami Beach, and a shopping center in Fort Lauderdale. Senior Vice President of Acquisitions and Asset Management Cassie Resnick also expects some of their tenants to miss April rent payments.
Addressing it may not be as simple as a property owner offering to delay the rent. "Everyone's going to have different hardships that they face depending on their business line," she said. "I think it has to be a customized experience."