An Expert View of the Florida Housing Market
The state of the real estate market.
It’s all we talk about these days, particularly in South Florida. No one seems to know the complete story, because it’s impossible to predict. The numbers seem all to be going in the wrong direction, with inventory on the way up, sales down and prices are rising at only single-digit rates.
JOHN TUCCILLO (pictured), a real estate and housing finance economist, tells the Sarasota Herald-Tribune in a guest column that 2006 will indeed be a down year for real estate But, to add some perspective, it will also be better than any year of the 20th century.
The concerns being expressed are not limited to Florida housing costs, but the attention here is particularly intense. Both individuals and real estate investors have so much riding on it. After 10 years of expansion, the market is finally slowing down, causing people (understandably) to panic. But it is not collapsing and will revive again after a pause.
What goes up must come down, after all, but not as far. Particularly in Southwest Florida. The history of just about any housing market is that when it shoots up, it corrects by stopping, not regressing. Essentially, several years of double-digit appreciation will be followed by several years of little or low appreciation. Property may not be go up in value as dramatically, but it probably won’t lose value. Don’t worry about a real estate bubble.
Especially not in the case of the South Florida housing market, where demand is likely to remain high for decades. The population structure keeps demand high as baby boomers, immigrants and young buyers have flooded the area, keeping upward pressure on prices. A net average of 191,000 people have come to Florida each year since 2000, and the U.S. Census Bureau thinks that will continue through at least 2030.
This steady demand will support a strong market. Period.
Unfortunately for prospective home buyers, sellers are the last to get it. At this stage of the cycle, sellers overvalue property and price it above the market. Some real estate agents are enablers of this. The point of all this is that if a property hits the market for $375,000, and is reduced to $350,000 in order to sell, it doesn’t mean the value of the property fell, but rather it was worth only $350,000 to begin with.
The fact that the seller could have bought for $90,000 in ‘95 is another story. When properties are discounted, it’s often a case of the seller overreaching at the onset rather than the market falling. Cases where property values fall are rare, and usually fall into one circumstance:
- When a local economy fails. Such as when $10-per-barrel oil devastated Texas, Oklahoma and Louisiana in the early ’90s, or the Dot Com bust hurt Silicon Valley, and how the struggling auto industry is starting to hamper Michigan. These are localized events with localized impacts. This type of collapse is not about to happen to Southwest Florida real estate.
Retirees supporting significant medical and financial service industries coming to the region will help the local economy grow for the indefinite future. Government reports indicate that of the 20 fastest-growing labor markets, 11 are in Florida and Sarasota ranks seventh.
Statistics measure real estate that sells, not the value of a property. A widely disseminated number, the National Association of Realtors median price, measures the price of properties that sell. Other measures actually track given properties, but are less widely known. Thus, if sales fall but the properties that actually sell are of higher price, the median rises.
- This may seem illogical, but it’s a function of how data is collected. Remember that prices always trail sales. When sales fall, prices will continue to rise. Even after sales rise, prices will stagnate.
So, where does all this leave us? Real estate sales will fall by about 10 percent nationally in 2006, but prices will appreciate by about 4 percent. This allows you to choose your view: Is the glass half full, or half empty? You could go either way, but in this fluctuating market, an accurate appraisal is important to getting a fair price. Keep that in mind.
