J.R. Boston made an offer on the four-bedroom home in Parkland, sight unseen. It was August 2005, at the height of the housing boom, and that's what people did.
He ended up paying $928,000 for the house, only to watch the value plunge over the next six years during the colossal housing meltdown. He estimates the house in Heron Bay is worth only $650,000 today.
Boston, the owner of a downtown Fort Lauderdale mortgage business, is in the same situation as many of his clients. They're among the hundreds of thousands of South Floridians who owe more on their mortgages than their homes are worth.
Although prices are bouncing back, these "underwater" mortgages continue to haunt the local housing market and will for at least the next few years, experts say.
"The magnitude of the declines was so severe in markets such as ours that prices are still down quite a bit," said Mike Larson, an analyst with Weiss Research in Jupiter. "You're talking about a lot of ground that still needs to be recovered."
Broward County's median home price in July was $275,000, up 28 percent from a year ago, according to Greater Fort Lauderdale Realtors. But the median still is off 30 percent from the peak of $391,100 in November 2005.
In Palm Beach County, the July median of $249,000 was 16 percent higher than a year ago — but that's down 41 percent from the November 2005 peak of $421,500.
Most underwater homeowners bought or refinanced in 2004, 2005 or 2006 and couldn't sell now without bringing thousands of dollars to the closing table. Not since the Great Depression had home prices plummeted so drastically, so buyers during the boom were blindsided when the market tanked.
A third of the 333,521 Broward County homes with a mortgage are worth less than what's owed, down from 44 percent a year ago, according to second quarter data from real estate website Zillow.com.
In Palm Beach County, 32 percent of the 249,941 mortgaged properties are underwater, compared with 41 percent in the second quarter of 2012, Zillow said.
But closer to half of all mortgaged homes in the two counties are underwater when factoring in owners who don't have at least 20 percent equity — roughly the amount needed to be in position to sell one home and buy another, Zillow said.
The website's figures also show that more than 20 percent of underwater homeowners in Palm Beach and Broward counties are 90 days or more delinquent on their mortgage payments, "which has the potential to lead to more foreclosures down the road, causing a drag on the South Florida housing recovery," Svenja Gudell, senior economist for Zillow, said in a statement.
To regain equity in his home, Boston estimates that he will need the value to increase by close to 10 percent a year over the next five years. While double-digit home price increases are the norm now, analysts expect price gains to slow down to near the historical range of 3 to 4 percent annually.
"I never thought prices could come down that much," said Boston, 49, of America's Mortgage Professionals. "I figured they'd slow down or just even out. How could anybody have predicted they'd drop 50 percent?"
In 2008, Boston wanted to move to Fort Lauderdale, so he rented the Parkland home, though he says the arrangement is a hassle, and he loses money each month.
"Things go wrong," he said. "The tenants want things fixed. I'd just rather sell the house. It's a burden I want to get rid of."
Many underwater homeowners are leery of becoming landlords, so they end up staying put, unable to move for new jobs and limiting the supply of properties that would otherwise be for sale.
Typically, "one of the most active groups of buyers are current homeowners," said Guy Cecala, publisher of the Inside Mortgage Finance newsletter. "And many of those people can't trade up or move. That's holding back the market."
Outside of renting, filing for bankruptcy or letting the homes fall into foreclosure, options are limited for South Florida's underwater owners. They can try for a short sale or deed the house back to the bank, but both of those will damage their credit scores.
Those underwater borrowers who choose to stay in their homes can make the most of the situation by refinancing through a government program. Owners of second homes and investment properties also are eligible.
Still, there are limitations. The mortgages must be $417,000 or less, backed by Fannie Mae, Freddie Mac or the Federal Housing Administration and not originated before 2009. That cap doesn't help someone like Boston.
But those who qualify can save at least $200 to $300 a month and put that money toward the mortgage principal, said Ryan Paton, president of Capitol Lending Group in Fort Lauderdale.
"You can get yourself out from being underwater faster if you do it the right way," Paton said.
But some people just don't have the time to wait it out.
Bob Greene paid $520,000 for his four-bedroom home in Mizner Pointe near Boca Raton in 2005. After checking real estate websites, he thinks the value is somewhere near $400,000.
He and his wife have loved living there for the past eight years — "It's a party house," Greene said — but now the couple want to move to San Francisco to be near their grandchildren.
The Greenes hope to sell but say they don't want to give the home away. If they can't find a buyer, they'll become reluctant landlords.
"I know the market's going up," Greene said, "but I don't know that this house will ever be worth $520,000 again."
© 2013 Sun-Sentinel®
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