They'll Take Your Houses

South Florida's real estate forecast calls for pain

Some very influential people are saying all will soon be well with the Florida real estate market.

Sam Zell, a billionaire investor who recently bought Sun-Sentinel parent Tribune Co., said last week that an uptick would begin in the spring.

Orlando economist Hank Fishkind, a consultant beholden to monied interests, has said that Florida's real estate bust is building a bottom and that we're going to avoid a recession.

Bank of America analyst Daniel Oppenheim recently upgraded homebuilding companies, saying that a housing turnaround has already begun and that prices should stabilize by the summer.

But the vulture only shakes his head at such prognostications and prepares for more carnage.

That bird would be Jack McCabe, one of the first real estate pros to predict a catastrophic ending to South Florida's housing boom. The Deerfield Beach-based consultant is now working full-time advising hedge funds and other vulture outfits that await some bottom-feeding deals.

McCabe says he's seen only two such deals so far, both involving townhouses on the west coast of Florida. Given that, he doesn't believe we're halfway down the dangerous slope yet.

He told a group of Fort Lauderdale real estate agents last week that, contrary to what they may be hearing, 2008 will be much worse than last year, the year of "the great meltdown."

Another difference between McCabe and the trio of optimists above is that he backs his prediction with numbers that are almost impossible to refute.

Like 38,582 and 1,063.

Those are the number of homes that were for sale in Broward County in December versus how many were actually sold (the figures in Miami-Dade are even worse, while those in Palm Beach are slightly better but still dire). The massive inventory, more than three years' worth, is only growing, according to recently released government statistics.

That fact alone indicates that real estate prices have nowhere to go but down — which means more foreclosures, more bad debt, and more multibillion-dollar write-downs by irresponsible — and in some cases, downright criminal — banks.

Add to that an overall credit crisis, rising inflation, record oil prices, a sliding dollar, and a backward-acting Fed and you have a recipe not only for a recession but for something similar but worse that begins with a d.

"The year 2008 is going to be the worst," the 52-year-old McCabe says. "People's credit cards are maxed, and they aren't buying anything. People have stopped spending money. They don't have houses to use as piggy banks. The piggy bank is closed."

McCabe has made his name on such dire predictions, and I should note that he stands to profit if he's right. Unfortunately for everyone else, however, he's been right a lot lately.

His penchant for doom hasn't always made him popular — one critic compared him to Hannibal Lecter in a funeral parlor — but his accuracy has nearly made him a star. His predictions have been featured in national publications such as Forbes, Fortune, and the Wall Street Journal, and he's traveled the country on a speaking tour. Just last week, he gave a sobering speech to the Society of Commercial Realtors of Greater Fort Lauderdale. "When it was over, they were looking for a bar — and it was the morning," he says only half-jokingly.

McCabe, in truth, is no seer — just a rare realist.

"I'm not a guru," he says. "I'm just a good student."

And McCabe says his studies are telling him that we should expect the following during 2008:

• Home prices will fall by at least another 15 percent.

• Individual foreclosures will increase 300 percent from last year, when they already soared.

• About half of all new condo buyers will walk away from projects by the time they reach completion.

• Bankruptcies by developers and lenders will proliferate to the point that they become common.

• Many lenders, appraisers, and brokers will be indicted for mortgage fraud.

• A recession will be declared by the third quarter of the year.

• Government efforts at bailouts and interest rate cuts will be like putting a "Band-Aid on skin cancer" and only ensure '70s-style stagflation.

All of those predictions, to my layman's eyes, seem perfectly reasonable. While it's risky trying to predict the financial future, I've had a sinking feeling about this economy. It seems that greedy brokers and bankers have finally gone too far and that the pyramid scheme of debt that propped up our collective illusion of prosperity is about to crumble.

It's infuriating. Remember all those offers you got in the mail from people wanting to give $250,000 for nothing? Well, they were really giving away that money, often to people who obviously could never afford to pay it back. Age-old mortgage standards were tossed out the window. Then banks bundled all the bad debt into securities and sold it all over the world.

But who cared? So long as prices kept going up, everybody would be fine.

Since the market turned south, though, the gravy train has careened off the tracks. Home­owners have walked or foreclosed, leaving banks and buyers of securities high and dry. Flagship institutions — with names like Citigroup, Merrill Lynch, Wachovia, and Bank of America — are involved and have already written down tens of billions in losses. More are coming.

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