Southwest Florida Housing Market Downturn Could Result In Job Losses, Economic Turmoil

The long-lived housing boom has more than likely overpopulated Southwest Florida with real estate-related paychecks — a vulnerability that isn’t being discussed much yet, according to the Sarasota Herald-Tribune.

It should be discussed, and soon, for the fallout from the bursting bubble could have a tremendous impact on the local economy. More than one-third of all private sector jobs created during the past five years are housing-related, according to some sources. When Florida home loan applications subside, as they have in the fall and winter, big lenders (such as Washington Mutual) start looking for ways to prop up profits.

That company recently began paring down its California and Florida home loan processing operations. Less visibly, employment vacancies in the mortgage and title fields — ones that were hard to fill only a year ago — are now garnering nice stacks of resumes. Residential housing has played a very big role, to say the least. But when and if the Southwest Florida housing market slows down, what would replace it as a growth driver?

“We are liable to see Florida job losses in the 15 to 20 percent range for construction workers, title companies, appraisal companies and other real estate-related businesses,” said Jack McCabe, an economic consultant in Deerfield Beach, who predicts big employment hits in the future.

McCade and others like him are worth listening to, for they have been right about the housing backlash thus far. Local analysts accurately predicted the spiking inventory and slower sales pace plaguing real estate agents in most of the U.S. areas that have seen the fastest growth. The Southwest Florida real estate market falls smack in the middle of that designation. Yet some people whose livelihoods are at stake find a major downturn unlikely.

“I have 10 to 15 job orders in the construction trades to fill right now,” said Tony Newton, a manager at the state employment office in Sarasota, who says filling real estate jobs is still the order of the day. “The business sector is enjoying, if not a plateau, an upswing.”

A BOOMING, BUSTING BACKGROUND

Any statistics you can find will show you that a slump has arrived. Last week, the Florida Association of Realtors reported that February sales of existing homes fell 20 percent from a year ago. The report acknowledges Florida’s sharply rising inventories and the fact that housing starts are projected to fall to 1.92 million this year. According to the National Association of Home Builders, 2.07 million starts were recorded in ‘05.

Another forecast shows existing home sales dropping 21 percent to 5.7 million this year, with another drop to 5.4 million in 2007. The Herald-Tribune believes this could take an enormous toll on the local economy. The newspaper found that from November 2001 to November 2005, the state’s private sector work force grew by 705,000 to 6,855,000. Of that 705,000, nearly 30 percent (more than 200,000), were related to housing.

“This has been a historic housing boom… a nexus of industries, different kinds of companies, has staffed up to meet this unprecedented demand for the services and work, which inevitably is going to be scaled back,” said John Challenger, whose Chicago-based service, Challenger, Gray & Christmas, has tracked layoffs since 1990.

THE FLORIDA HOME LOAN INDUSTRY

Washington Mutual, a national player in home mortgages, announced in mid-February that it would lay off 2,500 workers. The largest cuts will occur in the real estate hotbeds of California and Florida. The Sunshine State will lose 280 jobs through the closing of a Florida home loan processing center in South Florida, along with layoffs in Tampa and Jacksonville.

Countrywide Home Loans, meanwhile, decided to lay off about 300. Ameriquest Mortgage laid off 1,500, and a loan wholesaler called ECC trimmed its staff by 440. Marta Grande, a longtime Sarasota mortgage broker, believes that while baby boomers will arrive in Florida in huge numbers not too far down the road, will be broad pain in the short term.

“Those mortgage people and anybody in real estate who didn’t sock their money away, they’re going to be in deep until next year,” she said.

The problem is that Florida home loan industry payrolls have grown quite substantially, with profit margins now being squeezed because investors won’t pay as much for Florida home loans on the secondary market. National Mortgage News reports that a 20-month hiring spree recently created 53,000 new jobs for lenders, loan service companies and other professionals. That means about 10 percent of the current industry work force of 533,000 are new hires.

“When you see major lenders closing an office in a market that had been a hotbed for real estate sales, how can you deny that the market has turned? There are a lot of people who are still in denial. The market really peaked in all honesty back in August ‘05,” said McCabe, who views the recent spate of layoffs as a tip-of-the-iceberg indicator.

THE INFLUENCE

The job calculations for this report are complicated. Researchers compiled residential building construction, specialty trade contractors, furniture and home furnishings stores, building materials and garden supply stores, and architectural and engineering services, and many more companies. The booming and overvalued Florida real estate industry has even fueled law firm expansion.

Steven T. Greenberg, of Icard, Merrill, Cullis, Timm, Furen & Ginsburg, in Sarasota, has created a veritable transaction machine. A real estate law firm that accounts for more closings than any other outfit in the County, be it as a law firm or a title firm. As of this report, Icard Merrill has 33 lawyers and 120 employees in all.

“Our firm has grown exponentially, and our real estate section has grown a lot,” said Greenberg. “Are we feeling the effect of the current downturn? I cannot imagine anybody who is in the real estate field in some capacity as not being somewhat affected.”

But does that mean layoffs are in the cards?

“Generally speaking, I am holding fast. I’m trying not to be short-sighted. I don’t want to be in a position that when the market picks up I am scrambling around looking for good closers,” Greenberg said.

The market correction could even have repercussions in industries that don’t seem related at all, such as travel and recreation. Along with a slowdown in closings, the region could be set to experience tapering off in home equity extraction. U.S. consumers took $600 billion in equity out of their houses during 2004, and roughly that 2005. This happens whenever a consumer takes equity out of his home through a Florida home equity loan or sells the property at a profit.

That extra $1.2 trillion is used to support what is called “consumption spending.”

“Basically, there hasn’t been strong wage growth in this cycle and people have been extracting home equity in order to support the lifestyle they wanted to achieve,” McCabe said.

The bulge in the inventory of Southwest Florida real estate for sale is easy to see when you drive around. Now it just comes down to how far the prices are going to drop. For Florida home loan applicants and sellers alike, concessions will be necessary to get a deal done. As for the thousands of professionals whose jobs are tied to real estate, all we can do is hope for the best.