How the Florida Housing Market Affects Economy, Non-Sellers and Buyers
What the housing slowdown in the Sunshine State means to those selling - or searching for a Florida home mortgage - is pretty clear.
But what about everyone else? Those who aren’t in the real estate market have to be wondering what all those For Sale signs will mean. Will housing’s troubles spill over into the entire Florida economy? How badly will it hurt? For how long?
While the Florida housing outlook remains negative, among many economists and real estate forecasters, there’s a surprising tint of optimism in the rest of the picture.
Let’s start with the good part of the scenario. Florida’s economy is a powerhouse. The state registered the third-highest growth rate of all states last year. It lead the nation in job creation.
State of the Florida housing market
Last year’s home price gains nationwide were the biggest jump since 1978.; moreover, Florida did even better than that with 13.3 percent average gain. If you have owned a house or a condo for a while in the South Florida housing market, you saw median home values go up by around 50 percent in 2004 and 2005 combined.
That’s over. From October 2006 to October 2007, South Floridians have or will likely see the value of their homes drop, according to one major forecast.
Moody’s Economy.com sees a significant probability that home prices will decline by 5.5 percent to 5.9 percent in South Florida from the top to the bottom of the housing market. If that holds true, that trough or bottom just ended in West Palm Beach. Fort Lauderdale has almost another year before it hits bottom and there’s two more years until the situation turns in Miami.
What about the state economy?
In the rest of the economic picture, however, it is true that Florida does have a lot to lose when housing goes down. Housing accounts for about 15 percent of the state’s economy, in the estimation of David Denslow, senior research economist at the University of Florida’s Bureau of Economic and Business Research.
Denslow’s outlook is among the sunnier forecasts around today.
“I don’t think there’s a risk as bad as the collapse in construction that occurred in the early 1990s,” Denslow said. “The recession then was far worse in Florida than it was nationally.”
Today, the nation is just getting started on the Baby Boomer retirement boom. With growing population, the state has seen gains in retail sales as well as construction. And other sectors, such as medical care, are also doing well.
Other forecasters also point to the state’s ability to weather a slowdown. Mark Vitner, Wachovia senior economist, points out that because some sectors other than housing are going so right for Florida, overall moderate economic growth will continue.
International trade, tourism, an explosion in business and professional services, the emerging biotechnology industry - “These will all continue on the same path as before,” he said. “That will keep the economy moving forward.”
Indeed, business and professional services has been the leading employment sector, not construction. Still, the housing downturn will hurt construction jobs and consumer spending eventually, the forecasters say.
The impact on jobs will come down the line, says Lew Goodkin, who has been analyzing Florida real estate trends for four decades. When today’s condo buildings are finished, “I see a significant decline in the number of construction workers.”
Also, consumer spending will hit a wall as Florida mortgage demand lessens - even though that’s not looming over the holiday season, predicts Chris McCarty, director of survey research at the UF economic and business research center. McCarty says spending has been inflated in the last five years by rising home values and home-equity borrowing. “My expectation is that we’ll be experiencing this big drop from housing. It just hasn’t happened yet,” he says.
Back to the housing market
Economist Hank Fishkind of Fishkind & Associates in Orlando predicts 24 months or more of “flat line” sales for single-family homes. For condos, the decline in sales volume will continue for “four or more years.”
Goodkin says it will take a very long time to work off such excesses as what he says happened at the market’s peak: Florida had three speculative buyers to every one buyer who really wanted to live in the house or condo.
“The recovery in the condo market, that’ll come at a minimum in two years, probably three,” Goodkin said. “For the single-family sector, sales volume will recover during 2007, but not to the levels that we’ve seen.”
Vintner’s prediction for home prices: a decade of less than 6 percent yearly gains. This mean those seeking a Florida mortgage loan should plan on residing in their homes for at least five years.
