A dangerously high percentage of mortgage-holders in Sarasota, Charlotte and Manatee counties are now spending more than 35 percent of their income on their mortgage, property insurance and taxes, and other major home expenses, new census data shows.
Economists say that phenomenon is a definitive warning sign of further foreclosures. The rule of thumb is that communities are in danger when more than 35 percent of homeowners are spending more than 35 percent of their income on these monthly expenses.
In Sarasota County, 41 percent of homeowners fit that definition; in Charlotte, it was 46 percent; and in Manatee, 38 percent.
"It definitely portends a future trend of high percentages of foreclosures and short sales for the next few years," said Jack McCabe, a Deerfield Beach real estate consultant.
Unemployment, declining incomes and the resetting of adjustable-rate mortgages are pushing those income-to-mortgage ratios higher even though a record number of owners already have lost their homes to foreclosure in recent years.
A look at the highest rates for Florida's largest counties reflects the epicenters of high-rolling investment during the boom and foreclosures during the downturn: Monroe, Dade, Collier, Broward, Osceola, Palm Beach and Sarasota counties top the list.
McCabe, who correctly predicted the housing downturn, was especially alarmed by data showing that half of Miami homeowners are now spending more than 35 percent of their incomes on housing.
Economists worried about the strain of housing costs on household budgets even before the downturn.
"We talked a lot during the housing boom about affordability as prices rose faster than income," said Sean Snaith, a University of Central Florida economist.
Because of its demographics, the trend is particularly troubling in Southwest Florida, said Sarasota attorney Anne Weintraub.
"A good portion of our community is retirees trying to use their fixed incomes to pay for everyday expenses, including their mortgage payment," said Weintraub, who wrote a manual to familiarize non-real estate attorneys and their borrower-clients with the foreclosure process and who has handled hundreds of short sales for struggling homeowners.
"These percentages are off the charts, and invite mortgage defaults," Weintraub said.
Port Charlotte's John Cannon says he paid way too much — about $210,000 — for a home during the boom that he would be lucky to sell today for $125,000.
"It's a gorgeous house," said Cannon, who is no relation to the Lakewood Ranch builder of the same name. "I gave them way too much money, I don't know what I was thinking. But I make the payments. It hurts every month I write that check."
But not writing it is simply not an option for Cannon, 37, who says walking away from an agreement is unthinkable. It is not the kind of message he would like to send to his 16-year-old son.
Business virtually halted in 2008 for Cannon's firm, Treemendous Tree Service, which is in North Port.
To make the payments on his home and his business' trucks Cannon worked two years in Port Arthur, Texas, where there was work for an arborist at the oil refineries, which were all in expansion mode at the time.
Now he is back in Southwest Florida and the landscaping business has picked up enough to get by.
"You gotta do what you gotta do, you just can't sit around and complain," Cannon said.
While three years of economic hardship seem to have only hardened Cannon's commitment to meet his obligations, others are giving up the fight to stay in homes whose values have sunk far below their mortgage debt.
"The numbers clearly show that strategic default is an epidemic," said Greg McBride, a senior financial analyst at Bankrate.com.
The census data shows that Southwest Florida homeowners have long carried heavier mortgage burdens than other Americans, or other Floridians.
According to the 2000 census, 24.9 percent of Sarasota County households were spending more than 35 percent of their income on their mortgage and other monthly payments. At that time, Florida's average was 22.8 percent and the national average was 19.1 percent.
But the run-up on home prices in the first half of the decade brought about a severe shift in how much income homeowners were diverting to their monthly housing costs.
In 2000, the only major Florida county violating economists' 35 percent rule was Monroe, home to Key West and traditionally some of the state's highest-priced homes.
By 2006, 11 of Florida's 30 biggest counties, based on property values, had crested the benchmark. By 2011, 21 counties did.
"When incomes go up, they go up in drips and drabs," McBride said. "But particularly for homeowners that took out exotic mortgages, when the mortgages went up, it went up at a pace that income couldn't approach."
Before the boom, the rule of thumb was that banks would make mortgage loans only to borrowers who would pay no more than 28 percent of their income on their monthly payments, McCabe said.
"During the boom years that changed once Wall Street started buying mortgages from originators who would do business with pretty much anyone who could fog a mirror when they came in to get a loan," said McCabe, the Deerfield Beach real estate consultant.
Also worrisome is that the five- and seven-year teaser rate loans will still be resetting at much higher rates through 2013, which could push even more counties into violating the 35/35 rule.
"That's why we're probably going to see these rates continue to go up next year," McCabe said.
Article from http://www.heraldtribune.com/article/20110924/ARTICLE/110929708?p=4&tc=pg
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