by PJ on 9/01/2008 09:20:00 AM

Perhaps one of the more interesting outcomes of the real estate crash has been the reaction of those who bought at overinflated prices in overinflated markets. What we're seeing now is a mix of denial, anger, and acceptance, per the NY Times:

For sale: one newly constructed three-bedroom, four-bathroom home near the University of Miami, with South African wood in the kitchen, marble from India, Egypt and Spain, and a $4,500 top-of-the-line garage door.

Listing price two years ago: $979,000. Listing price now: $599,000.

“I always figured the market trend wouldn’t catch me,” said Rafael Diaz, the owner and builder. He turned down $770,000 more than a year ago, he said, and has come to accept that he will never get the $700,000 he said he needed to break even. “By the end of the year,” he said, “I might just turn it over to the bank.”

Such thinking must be culture shock for an area that believed "prices go up" almost as if it were gospel; after all prices had risen for 21 years prior to this downturn. Diaz is probably typical of more than a few homeowners in the area, who have cut prices dramatically -- but still not enough to beat out the short sellers and REO inventory in the area.

As of last week, 24 percent of the roughly 34,000 single-family homes for sale in Miami-Dade and Broward Counties — and 20 percent of the 47,000 condominiums — were listed as potential short sales.

Homeowners trying to compete say they often feel flabbergasted by the competition. Alexandra Swanberg said she reduced the price of her 1,482-square-foot town house to $245,000, from $287,000 last year, to keep up with the dozens of for-sale signs sprouting throughout her middle-class South Miami neighborhood.

“Everyone has been in a panic,” Ms. Swanberg said. “The Realtors are crazy; they want you to drop the price really low.”

Part of the reason this area has been hit so hard is because so many speculators were snapping up inventory -- regardless of what the original mortgage said:

In fact, it is common for apartments and homes here to simultaneously be for rent and for sale. And rentals, which have historically made up about a quarter of all transactions in the area, have come to dominate. Roughly two out of every three deals in the Miami-Fort Lauderdale corridor since January have been rentals, according to data from the Florida Association of Realtors. [emphasis added]

Which alludes to the sort of fraud that was going on during the boom; two out three properties put on the market are now being rented out. Why? Because they were investment properties to begin with. I'll bet you'd be hard-pressed to find two of three mortgages underwritten in the Miami area in the past three years as non-owner occupied.

(Hat tip, Brian!)