There's growing anxiety that Hurricane Wilma swept away the lingering euphoria of a residential real estate market already showing signs of stress.

Wilma may be the catalyst that sparks market weakness ahead, especially in the high-rise condominium market, according to Anthony Cutaia of the Boca Raton-based Cutaia Mortgage Group.

"Many were damaged - with high-floor windows blown out and residents trapped in their apartments by inoperable elevators," he said. "Potential buyers may rethink 'engineered' high-rise buildings that weren't very well engineered. There will be an impact on high-rise sales and prices."

Real estate analyst Jack McCabe, CEO of McCabe Research & Consulting in Deerfield Beach, said Wilma "may have altered the psychology of buyers and shifted the equation between supply and demand. Baby boomers are having second thoughts about living and investing on the coast."

Even before Wilma, McCabe and other experts were concerned about the amount of high-rise condo units being built, rising materials costs for developers and whether speculators could offload units to end users as the Fed ratchets up interest rates.

Cutaia, who is also involved in real estate sales, sees a split market ahead: weakness in the high end of the condo market; better strength in low- and mid-rise properties, such as townhomes and garden apartments; and single-family homes generally moving up in price.

"Anything in the $200,000s range - single-family, condo and townhouse - the market is now calling affordable, said Cutaia, whose two offices closed more than $500 million in residential and commercial loans over the last 12 months.

He sees no negative price impact ahead in the newly defined "affordable" sector.

Others in the market have a different take.

"We don't see any immediate market fallout from Wilma aside from delayed closings," said Louis Spagnuolo, senior mortgage banker for the Boca Raton office of Home 123 Mortgage, which did $2 billion in loans in the past 12 months out of 220 offices nationwide.
He sees demand continuing to escalate, with the low end and middle market showing the most demand.

"New construction will be a huge selling point going forward," Spagnuolo said, pointing out that a lot of new construction residential high-rises fared well, as opposed to older structures.

There is some evidence to that effect.

Boca Developers, a major force in waterfront high-rises, sent out a news release after Wilma, saying none of its new and existing projects suffered any hurricane damage.
Running low on land

Single-family home construction starts were off before Wilma, although a lack of buildable land may be the biggest factor.

Single-family housing starts in Miami-Dade, Broward and Palm Beach counties and the Treasure Coast fell just shy of 1 percent in the third quarter from the second quarter, according to Metrostudy, which provides data to the housing industry.

On a year-to-year basis, it's more drastic. Metrostudy said single-family construction starts fell 20 percent in Palm Beach County and 40 percent in Broward, but rose 3.6 percent in Miami-Dade. Homestead represents a lot of the raw land left in tri-county region.

McCabe cites steadily rising interest rates, heavy speculator buying and the psychological after-effects of four hurricanes in 14 months that have morphed with Wilma to produce a perfect storm for a market reversal.

He tells how a wealthy professional friend of his in Weston planned to invest in rental condominiums and purchase a million-dollar home. Wilma and the resultant power outages, gas lines and tree canopy devastation changed his mind.

"He's now considering a move to the Midwest, where his family will live eight months of the year, plus a home in western North Carolina for the balance," McCabe said. "A number of people are changing strategies - that's only anecdotal - but I think we'll see data in mid-2006 that will confirm it as a trend."
He predicts a 30 percent drop in new condo prices in 2006 from today's prices.

"The decline will start in Miami and run up and down both coasts, especially in those areas where prices have skyrocketed," he said.

It's not all bad news. McCabe sees a steady market for single-family homes and condo conversions ahead, although at a more measured pace than the last three years.

"The population can't afford $700,000 and up properties based upon our salary scales," McCabe said. "Even though conversion prices are up, they are still the most affordable products on the market and what our workforce can afford."

He sees the end of the conversion boom when the prices of new condos fall near the level of conversions. He expects that will happen when speculators dump properties on the market, or developers drop prices on resales when buyers fail to close.

"I see a lot of real estate litigation ahead once the glee is gone," McCabe said. "Buyers will sue developers and brokers - and vice versa."

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