Observers Unsure If Florida Real Estate Slump Will Follow Historical Patterns

Yes, we all know that the South Florida housing market has cooled off. The debate has now shifted to whether this housing downturn will be a repeat of previous market dropoffs.

Is this real estate market, defined by a glut of for-sale signs in front yards and a leveling of record home prices, reminiscent of the periods of economic downturn in the 1970s and ’80s, the pre-housing boom years of the late 1990s, or… none of the above?

While some experts say the soft market of 2006 resembles previous slumps, others insist this downturn is different because it comes after the five-year boom and won’t be as devastating as those in years past. Others think we might be in for a repeat of… 1926.

“In my opinion, there are so many things that are unique about this market that it can’t be compared to any other,” said Lewis Goodkin, a Miami real estate analyst. “We have never had a market… where the investor and speculative buying played such a role in generating the big numbers.”

Other factors in the 2006 slowdown that weren’t present before: multiple hurricanes and the resulting Florida insurance quagmire. In a word, ugly.

Mike Dooley, president of the Florida Association of Realtors, expects the housing market to bounce back relatively quickly, although others believe things won’t improve until 2008.

In July, for the first time since April 2000, the median price for existing single-family homes in Broward County fell from the previous year. Numbers that will be released Monday will likely show whether that trend continued in August.

For the most part, the median price in Broward County rose steadily during the 1980s and ’90s. Palm Beach County, however, saw a big drop during the recession of the early 1990s, when the median price dropped from $126,100 in 1991 to $110,200 in 1992.

A main cause of the decline is the increase in Florida home loan costs for prospective buyers. With sky-high home prices and cost of living, and mortgage loans getting a bit more expensive, fewer homes are tempting buyers.

From a historical perspective, South Florida home sales fell 25 percent during the recession of the mid-1970s, 50 percent in the early 1980s and 17 percent in the early 1990s. So far this year, sales have dropped by about 35 percent.

Wayne Archer, the Director of the Center for Real Estate Studies at the University of Florida, said the overbuilt condo market in South Florida reminds him of the 1970s.

“You get the sense that people have forgotten all the lessons that they learned,” Archer said.

Deerfield Beach analyst Jack McCabe expects the South Florida market to get worse before it gets better. He’s so sure that he has organized investors to buy properties at deep discounts.

McCabe does see positives in the downturn. Middle-class consumers who have been priced out of the housing market will be able to qualify for Florida mortgage loan assistance and buy homes, he said. Out-of-state companies might view the area more favorably.

The downturn, he says, reminds him of the 1980s.

“People just quit buying. [Florida] home prices went down by 30 percent and stayed flat for years. The ones holding the bag lost a lot of money,” McCabe said.

For years, residents were drawn to Florida as a low-cost alternative to California and New York. During the 1980s and ’90s, home prices were flat in sections of Palm Beach and Broward and increased only incrementally in others. At the time, buyers could find spacious parcels of Florida real estate easily for $150,000 or less.

The climate changed in 2000, when investors nationwide moved money from the stock market into real estate after the dot-com bust on Wall Street. They bought properties, watched them rise in value and then “flipped” them to other buyers for large profits.

That trend inflated demand and drove up home values.

The median price of single-family homes in Palm Beach at the end of 2000 was $138,600; by year-end 2005, the median had soared to $390,100, an increase of 182 percent. Over the same period, Broward County’s median shot up 143 percent to $361,100.

Looking to capitalize on the huge appreciations, many people put homes on the market. This year, the number of homes for sale has doubled in Palm Beach County and tripled in Broward. As values have soared, so have area property taxes, and people soon found they couldn’t afford to move within South Florida.

Michael Skiera, 48, a South Florida native, built a five-bedroom house on five acres near Boynton Beach for $300,000 in 2001. Two weeks ago, Skiera listed it for $3.5 million as he and his family are moving to Georgia.

“The numbers are just staggering,” Skiera said of the recent run-up in prices. “Florida has become the new California.”