This Is What Bubble Looks Like

TWO years ago, when Eric Feichthaler was elected mayor of this palm-fringed, middle-class city, he figured on spending a lot of time at ribbon-cuttings. Tens of thousands of people had moved here in recent years, turning musty flatlands into a grid of ranch homes painted in vibrant Sun Belt hues: lime green, apricot and canary yellow.

Mr. Feichthaler was keen to build a new high school. He hoped to widen roads and extend the reach of the sewage system, limiting pollution from leaky septic tanks. He wanted to add parks.

Now, most of his visions have shrunk. The real estate frenzy that once filled public coffers with property taxes has over the last two years given way to a devastating bust. Rather than christening new facilities, the mayor finds himself picking through the wreckage of speculative excess and broken dreams.

Last month, the city eliminated 18 building inspector jobs and 20 other positions within its Department of Community Development. They were no longer needed because construction has all but ceased. The city recently hired a landscaping company to cut overgrown lawns surrounding hundreds of abandoned homes.

“People are underwater on their houses, and they have just left,” Mr. Feichthaler says. “That road widening may have to wait. It will be difficult to construct the high school. We know there are needs, but we are going to have to wait a little bit.”

Waiting, scrimping, taking stock: This is the vernacular of the moment for a nation reckoning with the leftovers of a real estate boom gone sour. From the dense suburbs of northern Virginia to communities arrayed across former farmland in California, these are the days of pullback: with real estate values falling, local governments are cutting services, eliminating staff and shelving projects.

Families seemingly disconnected from real estate bust are finding themselves sucked into its orbit, as neighbors lose their homes and the economy absorbs the strains of so much paper wealth wiped out so swiftly.

Southwestern Florida is in the midst of this gathering storm. It was here that housing prices multiplied first and most exuberantly, and here that the deterioration has unfolded most rapidly. As troubles spill from real estate and construction into other areas of life, this region offers what may be a foretaste of the economic pain awaiting other parts of the country.

Cape Coral is in Lee County, across the Caloosahatchee River from Fort Myers. In the county, a tidal wave of foreclosures is turning some neighborhoods into veritable ghost towns. The county school district recently scrapped plans to build seven new schools over the next two years. Real estate agents and construction workers are scrambling for other lines of work, and abandoning the area. As houses are relinquished to red ink and the elements, break-ins are skyrocketing, yet law enforcement is resigned to making do with existing staff.

“We’re all going to have to tighten the belt somehow,” says Robert Petrovich, Cape Coral’s chief of police.

FLORIDA real estate has long been synonymous with boom and bust, but the recent cycle has packed an unusual intensity. The Internet made it possible for people ensconced in snowy Minnesota to type “cheap waterfront property” into search engines and scroll through hundreds of ads for properties here. Cape Coral beckoned speculators, retirees and snowbirds with thousands of lots, all beyond winter’s reach.

Creative finance lubricated the developing boom, making it easy for buyers to take on more mortgage debt than they could otherwise handle, driving prices skyward. Each upward burst brought more investors — some from as far as California and Europe, real estate agents say.

Joe Carey was part of the speculative influx. An owner of rental property in Ohio, he visited Cape Coral in 2002 and found that he could buy undeveloped quarter-acre lots for as little as $10,000. Nearby, there were beaches, golf courses and access to the Caloosahatchee River, which empties into the Gulf of Mexico.

Builders were happy to arrange construction loans, then erect houses in as little as six months. Real estate agents promised to find buyers before the houses were even finished.

“All you needed was a pulse,” Mr. Carey said. “The price of dirt was going up. We took that leap of faith and put down $10,000.”

Backed by easily acquired construction loans, Mr. Carey’s investment allowed him to buy three lots and top off each with a new home. He flipped them immediately for about $175,000 each, he recalls. Then he bought more lots, confident that Cape Coral and Fort Myers — the county seat across the river — would continue to blossom. From 2000 to 2003, the population of the Cape Coral-Fort Myers metropolitan area grew to nearly 500,000 from 444,000, according to Moody’s Economy.com.

“Jobs were very plentiful,” Mr. Carey said. “The construction trade was up, stores were opening up, and doctors were coming in. It kind of built its own economy.”

In 2003, Mr. Carey became a real estate agent. The next year, he opened a title company. Then he teamed up with seven others to open a local office for Keller Williams Realty, the national realty chain. They hired 40 agents.

By 2004, the median house price in Cape Coral and Fort Myers had shot up to $192,100, according to the Florida Association of Realtors — a jump of 70 percent from $112,300 just four years earlier. In 2005, the median price climbed an additional 45 percent, to more than $278,000.

Lots that Mr. Carey once bought for $10,000 were now going for 10 times that. During the best times back in Ohio, he once earned about $100,000 in a year. At the height of the Florida boom, in 2005, he says he raked in $800,000. “If you just got up and went to work,” he says, “pretty much anybody could become an overnight millionaire.”

National home builders poured in, along with construction workers, roofers and electricians. But as a kingdom of real estate materialized, growth ultimately exceeded demand: investors were selling to one another, inflating prices. When the market figured this out in late 2005, it retreated with punishing speed.

“It was as if someone turned off the faucet,” Mr. Carey said. “It just came to a screeching halt. When it stopped, people started dumping property.”

By October this year, the median house price was down to $239,000, some 14 percent below the peak. That same month, he and his partners shuttered his real estate office. In November, he closed the title company. On a recent afternoon, he went to his old office in a now-quiet strip mall to take home the remaining furniture. He was preparing to move to the suburbs of Atlanta.

While speculators may find it easy enough to pack up and move on, they are leaving behind an empire of vacant houses that will not be easily sold. More than 19,000 single-family homes and condos are now listed on the market in Lee County. Fewer than 500 sold in November, meaning that at the current rate it would take three years for the market to absorb all the houses.

“Confusion abounds because nobody knows where the bottom is,” says Gerard Marino, a commercial Realtor at the Re/Max Realty Group in Fort Myers.

Commercial builders are unloading properties at sharply reduced prices, sometimes even below construction costs, which further adds to the glut.

“It’s our goal to clear out the inventory,” James P. Dietz, the chief financial officer of WCI Communities, a Florida-based home builder, said in an interview two weeks ago. “We have to generate cash to make payroll.” Last week, Mr. Dietz announced he would leave WCI at the end of this year to pursue a career in the vacation resort business.

AT Pelican Preserve, a gated community set around a 27-hole golf course in Fort Myers, WCI has halted building, leaving some residents staring at mounds of earth where they expected to see manicured lawns. Half-built condos sit isolated in a patch of dirt, cut off from the road.

“It bugs the hell out of my wife,” says Paul Bliss, 61, whose three-bedroom town house is next to a half-built home site. “She looks out and sees that concrete slab.”

But the builder makes no apologies. “There was such a falloff in demand that it made no sense to build new units,” says Mr. Dietz, adding that the pause in construction “doesn’t in any way detract from the property.”

Throughout Lee County, a sense of desperation has seized the market as speculators try to unload property or lure renters. On many lawns, a fierce battle is under way for the attention of passers-by, with “for rent” signs narrowly edging out “for sale.”

In Cape Coral, foreclosure filings in the first 10 months of the year reached 4,874, more than a fourfold increase over the same period the previous year, according to RealtyTrac, an online provider of foreclosure information.

Elaine Pellegrino and her daughter, Charlene, see no way to avoid joining that list.

Seven years ago, Ms. Pellegrino and her husband bought their three-bedroom house in northwestern Cape Coral for $97,000, without having to make a down payment.

The land was mostly empty then. But as construction crews descended and a thicket of new homes took shape, values more than doubled. The Pellegrinos’ mailbox brimmed with offers to convert that good fortune into cash by refinancing their mortgage. They bit, borrowing against the inflated value of their home to buy two businesses: an auto repair shop and a lawn service.

“We were thinking we were on the way up,” Ms. Pellegrino says.

But last December, Ms. Pellegrino’s husband died unexpectedly, leaving her with the two businesses, both deeply in debt, and $207,000 she owed against her home, which is now worth about $130,000, she says.

Disabled and 53 years old, Ms. Pellegrino does not work. She says she lives on a $1,259 monthly Social Security check. Her daughter, a college student, receives $325 a month for child support for one child. Charlene Pellegrino has been looking on the Web for office work for months, but with so many people being laid off, she has come up empty, she says. They have not paid their mortgage in four months.

“What can we do?” Charlene Pellegrino asks, as dusk nears and her driveway lights glow into a void. The rest of the block lies in shadows, with little light emanating from surrounding homes.

“We’re probably going to lose the house,” she says.

But not anytime soon. The Pellegrinos have joined a new cohort offered up by the real estate unraveling: they are among those waiting in their own homes for the seemingly inevitable. The courts are so stuffed with foreclosures that they assume they can stay for a while.

“We figure we have at least six months,” Elaine Pellegrino says. “We haven’t heard a thing from the bank for a long time.”

AS construction and real estate spiral downward, the unemployment rate in Lee County has jumped to 5.3 percent from 2.8 percent in the last year. With more than one-fourth of all homes vacant, residential burglaries throughout the county have surged by more than one-third.

“People that might not normally resort to crime see no other option,” says Mike Scott, the county sheriff. “People have to have money to feed their families.”

Darkened homes exert a magnetic pull. “When you have a house that’s vacant, that’s out in the middle of nowhere, that’s a place where vagrants, transients, dopers break a back window and come in,” the sheriff adds.

The county’s Department of Human Services has seen a substantial increase in applications for a program that helps pay rent and utility bills for those in need. Half the applicants say they have lost jobs or seen their work hours reduced, said Kim Hustad, program manager.

At Grace United Methodist Church in Cape Coral, Pastor Jorge Acevedo normally starts aid drives this time of year for health clinics in places like India and Africa. This year, the church is buying Christmas presents for about 50 children in the congregation, many who are are in families suffering through job losses.

At Selling Paradise Realty, a sign seeks customers with a free list of properties facing foreclosure and “short sales,” meaning the price is less than the owner owes the bank. Inside, Eileen Rodriguez, the receptionist, said the firm could no longer hand out the list. “We can’t print it anymore,” she says. “It’s too long.”

In late November, more than 2,600 of the 5,500 properties for sale in Cape Coral were short sales, says Bobby Mahan, the firm’s owner and broker. Most people who bought in 2004 and 2005 owe more than they paid, he says. “Greed and speculation created the monster.”

As much as anything, the short sales are responsible for the market logjam. To complete a deal, the lender holding the mortgage must be persuaded to share in the loss and write off some of what is due. “A short sale is a long and arduous process,” Mr. Mahan says. “Battling the banks is horrendous.”

Kevin Jarrett is stuck in that quagmire. In 1995, freshly arrived from Illinois, he put down $1,000 to buy a house in Lehigh Acres, in eastern Lee County.

Three years later, Mr. Jarrett left his mental health-counseling job and began selling real estate. He bought progressively nicer homes, keeping the older ones to rent, while borrowing against the rising value of one to finance the next.

Mr. Jarrett acquired a taste for $100 dinners. He bought a powerboat and a yellow Corvette convertible. (In a photograph on his business card, Mr. Jarrett sits behind the wheel, the top down, offering a friendly wave.) Last summer, he paid $730,000 for a 2,500-square-foot home in Cape Coral with a pool and picture windows looking out on a canal.

But Mr. Jarrett hasn’t closed a deal in three months. He is on track to earn about $50,000 for the year, he said. Yet he needs $17,000 a month just to pay the mortgages, insurance, taxes and utility bills on his four properties — all worth less than half what he owes. Rental income brings in only about $3,500 a month.

Mr. Jarrett has not paid the mortgage on two of his properties in six months and is behind on the others as well, he says. His goal is to sell everything, move into a rental and start over.

He is supplementing his income by selling MonaVie, a nutritional juice that retails for $45 a bottle. He recently dropped health insurance for his family, saving about $680 a month. He is applying for a state-subsidized health plan that would cover his 9-year-old daughter. “I’m in survival mode,” he says.

Many others are in similar straits, and the situation has had a ripple effect on the local economy. Scanlon Auto Group, a luxury car dealer, says it has seen its sales dip significantly — the first time that’s happened in 25 years. Rumrunners, a popular Cape Coral restaurant with tables gazing out on a marina, says its business is down by a third, compared with last year.

Furniture dealers are folding. Hardware stores are suffering. At Taco Ardiente in Lehigh Acres, business is down by more than three-fourths, complains the owner, Hugo Lopez. His tables were once full of the Hispanic immigrants who filled the ranks of the construction trade. The work is gone, and so are the workers.

AT the state level, Florida’s sales tax receipts have slipped by nearly one-tenth this year, and by 14 percent in Lee County. That is a clear sign of a broad economic slowdown, said Ray T. Kest, a business professor at Hodges University in Fort Myers.

“It started with housing, the loss of construction jobs, mortgage companies, title companies, but now it’s spread through the entire economy,” Mr. Kest says as he walks a strip of mostly empty condo towers on the riverside in downtown Fort Myers. “It now has permeated everything.”

In recent years, Bishop Verot Catholic High School in Fort Myers had raised as much as $200,000 by selling goods at a dinner auction. Michael Pfaff, a Cape Coral mortgage broker, used to donate a weekend cruise on his 40-foot catamaran. But Mr. Pfaff’s business has all but disappeared, and he recently sold the boat. This year, the school canceled the auction and is deferring building maintenance.

The county school district’s decision to cancel construction of new public schools reflects a broader diminishing of resources. Developers have to pay so-called impact fees to the district to help fund new facilities. Two years ago, the district took in $56 million in such fees. Next year, it expects only $25 million.

New schools are no longer needed anyway, says the schools superintendent, James W. Browder. Many families connected to construction and real estate have moved away, so school enrollments are growing more slowly than expected. This could generate a snowball effect all its own: the new schools were to cost as much as $60 million each to build, so canceling them could mean further job cuts for the already reeling building industry.

Mr. Browder points out an upside of the housing downturn: Hiring people has become easy. In recent years, the school system struggled to find bus drivers, given the abundance of jobs at twice the pay driving dump trucks in home construction. “Now, we get 14 applicants for every job,” he says.

The county government depends on property taxes for a third of its general funding. Since taxes are assessed based on the previous year’s real estate values, it has yet to feel a dent. But agencies are under significant pressure to pare back in anticipation of a dip in next year’s funds.

Tax-cutting advocates cheer this prospect. Governments have gotten fat on the boom, they say. A constitutional amendment facing Florida voters in January would expand tax caps for many residences statewide.

“All the local governments were drunk with money,” says Mr. Kest, the finance professor. “Now, they’re going to have to cut back and learn how to manage.”

But local officials counter that they are already being forced to contemplate significant changes that could affect everyday life. The county’s public safety division, which operates ambulance services, says it could be obliged to cut staff. The county’s Natural Resources Department recently delayed a $2.1 million project to filter polluted runoff spilling into the Lakes Regional Park — a former quarry turned into a waterway dotted by islands and frequented by native waterfowl.

People who were priced out of the earlier boom here could wind up the winners. “We had an affordable-housing crisis,” says Tammy Hall, a Lee County commissioner. “The people who were here for a fast buck are gone. You’re going to see normal people go back into that housing.”

When Andrea Drewyor, 24, moved to Cape Coral from Ohio this year to take a teaching job, she found a brand-new two-bedroom waterfront duplex in a gated community with a fitness center, a swimming pool and a Jacuzzi — all for $875 a month in rent.

At night, most of the units around her are dark. The developer can moan.

Not Ms. Drewyor.

“I like not having a lot of people living here,” she said. “This place is awesome.”


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