BIPOLAR HOUSING

If Lee County were human, it would be diagnosed as bipolar, in this case an economic malady caused by a deranged real estate market. The condition has also reared its ugly head in its closest Sunshine State sibling, Collier County, not to mention many other places.

First, all the way up and higher than a kite, then all the way down and lower than mud.

What that means for us — roughly 1 million residents of the two coastal counties alone — and how the condition might be remedied could be a matter not just of wild speculation these days, but of wellreasoned opinions and steady actions based on long observation.

This week, Florida Weekly seeks such opinions — call them knowledgeable straight talk — from real estate professionals in both counties and a noted economist. None dispute that the short, happy life of the bipolar market has been vivid.

Were those the days?

In 2004 and 2005, Lee real estate ascended to the pinnacle, garnering national attention as one of the hottest residential real estate markets in the United States. Collier followed close behind.

That no-longer-enviable position was defined by huge increases in home values, the number of sales, the number of quick turnovers and the ready availability of money, which seemed to grow on trees that forested the lobbies of banks.

"When things got totally crazy, anyone who had been in business a while knew this was not good. What happened is in some ways the least surprising thing about all this, to me," says Phil Wood, whose Naples-based John R. Wood Realty has operated in Collier and Lee counties for many years.

The most surprising thing to him, Mr. Wood adds, "is how much the credit markets are messed up. I never thought they'd get to this point. Obviously, the government is going to help them get back to some kind of normalcy."

For Lee, with its sprawling serviceindustry communities stretched out for miles through zip codes that encompass Lehigh Acres and mottle Cape Coral, and its sizeable lower middleclass or poor neighborhoods in east Fort Myers, the distinction was particularly remarkable.

The great number of small, singlefamily homes — one-level 3/2s (three bedrooms, two baths in 2,000 square feet or less — did not prevent median values from rising above $200,000 in the first quarter of 2004, back when the unemployment rate dropped below 4 percent.

And those values stayed there through the second quarter of 2008. At mid-year of 2006, the median home value even brushed the sky at almost $300,000, according to Lee County statistics.

In those days, home foreclosures in Lee were, if not unheard of, infrequent. There were 1,900 on the books two years ago when the market crested the top of the roller coaster and offered its first hint of the stomach-dropping descent about to follow, a fact noted in a Wall Street Journal story written out of the courthouse in Fort Myers three weeks ago.

In January this year, there were 24,000 home foreclosures scheduled in the courts; last month judges were running them through "rocket-dockets" at the rate of about 60 seconds per case. Still, the number remains stratospheric — clogging the market, paralyzing banks and keeping the local economy here, with its recession-shot unemployment rate of almost 12 percent, anesthetized and belly-up on the table.

"We have to move these cases out of here," Charlie Green told the Wall Street Journal. As clerk of courts in Lee County, scheduling the parade is his job. "That's how we get these houses back on the market and get to the bottom faster," he added.

If all that sounds like battlefield surgery of a sort, it is.

"As a former CPA, I learned a long time ago that banks know how to make and lend money, but they don't know anything about real estate," says Jack Samler, a 30-year real estate veteran who manages Royal Shell Preferred Properties on Sanibel and Captiva Islands.

"The foreclosures are killing them. They have to get rid of those properties as fast as possible. To get out of this recession, we have to get the banks to let them go, whatever the price or the cost. The market won't start going back up until everything goes down as far as it will go."

GRIMES

It's all in the timing

In Collier, meanwhile, the median price of homes has never dropped below $200,000 in the 21st century. Nevertheless, the bipolar roller coaster still defines the status quo.

Beginning in mid-2003, the median home value rose steadily, more or less, to peak twice at about $440,000 between the end of 2005 and the beginning of 2007.

Only 18 months ago, in September 2007, Collier unemployment was considered ridiculously high at 5.3 percent. By contrast, it was running at 8.1 percent at the beginning of the year, according to the Regional Economic Research Institute at Florida Gulf Coast University.

And in 2008, Collier courts processed about 8,000 foreclosures, which amounts to about 22 for each day of the year. That number is showing no signs of dropping this year, according to county figures.

But both Mr. Wood and Mr. Samler are optimistic about the year ahead, even though economic forecasts suggest the recession will deepen in 2009.

Their time frames, however, are different.

"The market is trying very hard to come alive, and both January and February were very encouraging. We have low prices and low interest rates," says Mr. Wood. "The only thing we need now is to have a little stock market recovery, and it will really pick up."

Ask Mr. Samler and you get a different response. "How long will we have to wait to get through this? We used to say 'next year,' but I think we're looking at two or three years to get back to normal," he predicts.

Real estate prognosticators

Tom Buckley of McWilliams and Buckley, based in Fort Myers

First and foremost, I don't know if there's a fix by us as Realtors and county officials to these problems in the market. The government is already doing the necessary things by trying to keep people in their homes.

Short of the government renegotiating a mortgage, you have to run that fine line between having a loan and foreclosing. The bank is taking a haircut, a short sale — whatever the terminology, banks are losing a lot of money.

How long will this last? We're already starting to see it recover. Cape Coral and Lehigh Acres are the hardest hit, and the banks have established a basement price-point. In Lehigh, homes are selling between $60,000 and $70,000, and in the Cape some stuff is down in the $70,000 to $90,000 range. It's now very, very affordable.

How fast and how out of control it has gotten has surprised me the most. Whether from the mortgage side or price-point, it has really happened too fast.

Many of us would like to sit there and say we saw this coming, but no one saw it coming.

What isn't surprising to me are the foreclosure numbers. When you look at real estate values and how rampant we were as far as prices going up, we are exactly the opposite right now.

Jack Samler, manager, Royal Shell Preferred Properties, Sanibel and Captiva Islands

A lot of our potential buyers are influenced by what's happening on the mainland, and they expect the same thing to be happening out here as is happening in town.

We've only had 50 or 60 foreclosures. And 100 homes, approximately, are in pre-foreclosure, which can be identified as a couple of months late in payment. I will say this: This is more foreclosure activity than I've seen in 30 years, cumulative.

We used to say on the islands, "Our buyers don't have to buy and our sellers don't have to sell." Nobody is being transferred out, and if a seller doesn't get what a seller expects, then they have to spend another winter on Sanibel. So it's like "Brer Rabbit" (the briar patch was that fabled creature's home, so he was happy to be thrown back into it).

There's a marked difference now in that attitude, but still, things here are nothing like the mainland.

We're seeing people who need to sell and want to sell, so we've had some serious price reductions in the past six months. In the past, we've seen price reductions of $5,000 to $25,000, say, just to get people's attention. This year I've seen reductions of $500,000 in one case, and $100,000 to $300,000. The $500,000 reduction was on Roosevelt Channel, and there was a $1 million reduction on the gold coast on Captiva.

One factor is that when you're in a gated community where everything is fairly much the same, like Lexington Golf Club or like a lot of places in Cape Coral and Lehigh, it's harder to sell a property because buyers have their choice of 100 others just like it. But in the Dunes on Sanibel where I live in the Heron model, there might only be 25 of them out of 372 homes.

How long will we have to wait for the market to stabilize? We used to say it'll be next year, but we're now looking at two to three years to get back.

So for now, if you don't get what you're asking as a seller and you enjoy it here, wait two or three years and it'll go up $50,000 — and that's easier than working for it.

I'm a glass-half-full guy when it comes to the recovery, especially because our kind of buyer isn't as impacted by the recession. And we have partnerships, like five doctors who were looking at a place last year for $2 million, and they just got it for a lot less.

You know when you have Realtors start to say, "If I had the money, I'd buy that," good deals are happening. In Sanibel View across from Tanger (the outlet mall on Summerlin Road before the Causeway on the mainland), for example, we just had a closing at $195,000.

We've been slow since 2007, and in 2008 we had a 10 percent loss of members (Realtors on the islands). This year we budgeted for a 15 percent loss, but we're only down 7 percent. That shows how membership is strong and can withstand a couple of years of slow business. But if you're calling me next March about this, we'll know the recession is a lot worse than we expected.

It's an interesting time, a crazy world out there right now. I've never seen anything quite like it. When the dot com bubble burst, only the dot com bubble burst. When auto industry tanked with the worst sales since 1982 a few years ago, only the auto industry tanked. But this recession is across the board. It's banking, the auto industry, real estate, the service industry, restaurant business, commercial building.

Russ Weyer, a senior associate with Fishkind & Associates, economists and analysts based in Orlando and Naples

There is no one quick fix. It's a very complicated mess we're in on a number of fronts, and the old truth still holds: If you think you're in a recession, you're in a recession.

Even people with money are not spending as much, and that contributes to the spiral down.

Two things need to happen quickly. One is to shore up the banks, because they aren't lending money. They got all that stimulus money, but they're just holding it to offset their assets. They see themselves as stuck: The government puts money in, but then the government has these ratios of cash to their assets they have to meet, and they can't.

So the banks are holding cash to offset the assets — and they're holding a lot of assets.

Banks will have to look at their portfolios and write off their bad assets. Now they're stymied. They don't know what to do because they have such an influx of properties. So until bank regulators force them to move, they'll just sit there.

It's true in both cases, although Collier County is nowhere near as bad as Lee County.

We were lucky despite the issues we have in Collier: getting projects approved more quickly, the high cost of living here influenced by impact fees and everything else, the long length of time required to go through the permitting process here compared to Lee County. But here's what happened: It became a blessing in disguise, because we didn't get a lot out there, and now we're not suffering as much.

I think inventories will come down in both Collier and Lee.

One short-term fix is to make the decision to diversify our economy.

We were relying on agriculture, tourism and construction. And now there is no construction industry. There has to be a regional focus on that diversification. So it's a conjoined effort between Collier, Lee and other counties.

We have to realize that our major assets are regional. The airport is regional and so is I-75. We don't have a port in Naples or Fort Myers, but we have three or four ports both north and east of here, on the Atlantic coast and in Tampa.

All of that is primary for economic development.

The second part of this is to identify what are the appropriate types of business that fit here.

Again, we need to look at this on a regional basis. So Lee is hiring a (Denver, Colo.-based) marketing firm to draw businesses. The good news is that it's a third party giving us a fresh eye. The downside might be that if Lee County is doing this on its own, and not looking at the region, it might limit what can happen.

Construction will come back, but it will take a lot longer than people think. We think it will be late 2010. So we're still almost two years away. And it will depend on how the stimulus package works.

In the 12-month perspective: Housing prices will ultimately stabilize. There's always a price at which somebody will buy. Just remember what's happening in Cape Coral and Lehigh: Sales figures are good; we're down to a price where people will buy again.

If you were to draw a trend line of growth from 1980 going forward, with a growth rate of 3 to 6 percent a year on pricing — and we did this, extending it way out past 2015 — you'd see that the actual pricing going on was fine until the 2003-2004 huge spike.

But here's what's interesting: Now we're back to just below that trend line. If we'd never had that bump, about three months ago we would have been where we should be today.

We are such an instant-gratification society, that we look at what happened today and yesterday, but sometimes no farther. Consequently, the value of my house went up more than 150 percent in 2005, but now it's back down to 100 percent. I could think, I lost a lot of money — but really I lost nothing, because it's all on paper.

And shame on you if you overspent when you thought it was a lot of money. You're paying the piper now.

So this has been about price stabilization.

Inventories will come down in Lee and Collier. There are probably about six years of housing stock out there, but it might not take six years to absorb. Now there is very little new product coming on line, so a lot of existing stuff will get absorbed, and we'll get back to more normal growth.

My only concern about the Obama plan is that it looks like it will help short-term job growth, but we need long-term job sustainability. Part of it will happen in infrastructure — that's highly needed. We need to fix not only the current infrastructure, but look at what new types we need to go forward.

For our long-term recovery process in Southwest Florida, the first big problem is that we've lost — the state of Florida has lost —our competitive advantage.

A Q & A with Denny Grimes

Florida Weekly sought specific real estate answers this week from Denny Grimes, a Realtor who founded Denny Grimes and Company in the mid- 1980s and is considered an expert in residential real estate.

FW: What is your advice for hardworking Realtors who are now struggling, and for people who need to sell their homes but aren't certain how to price them?

Mr. Grimes: It should come as no surprise that we find ourselves in a changing market because that's what markets do… My advice to agents is acknowledge the change, study the market in order to anticipate future market movement and then adapt your business practices accordingly.

It's been over three years since the residential market shifted to a buyer's market, so those of us who are still selling real estate have already acknowledged the change. In case we forget, all we have to do is look at our bank account.

However, we must continually study the market in order to anticipate shifts. The best way to do that is to track the change in inventory in the specific market we specialize in. A shrinking inventory signals the market is returning to stability; a growing inventory means it's moving away from it. It is critical that agents understand this in order to advise their clients properly.

Agents should adapt their business practices and budgets in order to fit market conditions. There are more agents chasing fewer customers, so that means more hours walking the neighborhoods and less time walking the fairways.

My final tip to agents is to stop looking for the new idea that will change your business. Rather, master the basics of prospecting and selling, because those are skills that will pay big dividends in any market.

FW: What is the shortest, least painful path we can take to halt the foreclosure spiral and stabilize the market here in Southwest Florida?

Mr. Grimes: The proper answer to that question would depend on whom you're trying to spare from the pain.

If we want to spare our local economy further suffering, then it must come at the expense of the borrowers in financial distress and the lenders who hold the mortgages. The shortest way to stabilize the market is to deal with distressed properties quickly, because as long as homes can be purchased at a fraction of what it costs to build them, then our construction-based economy will continue to suffer. When residents quit earning money, they quit spending it.

If we want to break the foreclosure spiral, then I believe two things should happen. The first is to slow the number of new distressed properties. The second is to deal with those already in the pipeline, quickly. Improving communication between borrower and lender before a delinquency occurs and the borrower's credit has been damaged can slow the steady stream of distressed properties. The lender only has one decision to make, and that is deciding which loss is bigger: Finding a way to keep the owner in the property, or becoming the owner.

If the government wants to help, then let them hire and train enough people to arrive at the best decision sooner instead of later. Rebuilding highway bridges is fine, but I am in favor of putting people to work in order to build a bridge between the borrower and the lender, so that we might begin to see an end to this mess.

FW: Without sugar coating your answer, tell us where you think we will be 12 months from now.

Mr. Grimes: I have good news and bad news. The good news is the existing home market is setting records each month. In fact, the last five months have all been record setting in the number of homes sold.

Sure, 70 percent of these sales are distressed properties, which is driving down the prices. But with excess inventory, we need sales, not increasing prices.

The bad news is that even at the record sales rate, there are more homes than can be sold in a year. Therefore, sales will stay strong, prices will continue downward and we will see more businesses close before we see more new businesses open.

Imagine if you had an 8-year-old who could speak five languages, play "The Flight of the Bumblebee" and kick 60-yard field goals. You'd be upset as a parent if no one acknowledged that.

Our market is doing that, and no one seems to notice. The thing is, everyone wants to measure market success with price, and you can't do that in a recession like this. You have to measure it in terms of sales.

FW: If you were the Wizard of Lee and could issue a series of orders tomorrow to government officials, business leaders and citizens that would be carried out by all of us to make life a little better here, what would those orders be?

Mr. Grimes: It's a fairy tale question, but let me try answering this way. Think in terms of being a parent. The decisions we have to make as parents sometimes mean the quickest solution is not the best or the least painful. I had a 19-year-old daughter, for example, and before we knew it, she was $10,000 in debt on credit cards, working at Saks and buying things. She was living beyond her means.

What is the responsibility of the parents? Is it to bail her out and hope she learns a lesson, or is it to help her figure out a way to take responsibility? Of course, you don't want your daughter living in a refrigerator box, either.

So number one, the majority of people have been living beyond their means. And now they have an attitude: They want Uncle Sam to be Uncle Santa. I think that's wrong.

If I were the Wizard of Lee, I'd want everyone to sit up and say, "I'm so-and-so, and I am responsible for my situation." The government can't solve the problems we were afraid to identify and face. Take personal responsibility. If the government bails you out, that might make you feel better - like buying a new outfit - but it doesn't solve the problem.

So I would have people say, "It's not the government's responsibility to get me out of this mess."

And number two, I would say we then have to decide to live within our means, and that means not abusing credit.

With all these foreclosures, the quickest way to solve the problem is to get out. We're absorbing them now as fast as they come on the market, but what if we put them all in a pile, and made them all available overnight for $1, but we required every buyer to be qualified, and to live in the house for five years?

In that case, our supply product would be diminished overnight.

But as long as there's product cheaper than it costs to build, we'll still be in the hole. And that solution would be painful to the people who own those properties and lose them.