Bubble of Trouble: a “B” word offends South Florida’s Housing Market While Bankruptcy Presents a Solution

Many in the South Florida housing market cringe when they hear the “B” word — bubble — being used to forecast the future of Florida’s climbing real estate Market. While realtors, developer’s, investors and homeowners are thrilled with the rising market, several economists are predicting this is only a temporary climb and a crisis similar to the fall of the 2007 market is “only a few years away.”

While the first quarter studies of 2016 are not showing a decline in the housing market, they do reveal a flat line. A 2014 burst of growth was fueled by a flurry of foreign investors flocking to the Florida market, the reincarnation of developers erecting multi-condo skyscrapers and an unaffordable rental market, fostered in increase in property sales and sale prices.

In the Miami-Dade County area, house prices increased 13% at the end of 2013, compared to the same time a year earlier. The online real estate site Zillow, reported that home prices in Miami rose more than 7% over the last 12 months (as of January 2016). Looking forward, however, Zillow forecasts that home values in the area will fall by -1.6% each month, over the next 12 months, with larger margins to follow in the coming years.

If another Bubble happens, there may be a new “B word” — bankruptcy.  Filing for bankruptcy may help the victims of a future housing bubble. For those that fall behind on mortgage payments, a Chapter 13 can help them catch up on payments over five years without interest. A bankruptcy may also stop a foreclosure sale long enough to get a loan modification considered and approved. For those who took on a second mortgage or a home equity line of credit, those debts may be “stripped off”, basically erased, If the value of the home is less than that of the first mortgage. In additions the chapter 13 may be able to reduce or eliminate other debts such as those used for home improvements and furnishings, freeing up more money to pay toward the home mortgage so homeowners can get back to positive equity more quickly.

While we all hope that the housing market continues to rise, there is some relief if the market crashes once more – bankruptcy relief.