Florida Real Estate Slowdown Ripples Through Economy, Consumers’ Mindset

Many South Florida residents are eating out less and springing for fewer big purchases like a new car or a vacation, the Miami Herald reports.

It’s not just because of the increasing cost of living, either.

Economists talk about new consciousness among consumers who relied heavily upon their houses for their worth and are now watching the Florida real estate market slow way down.

And as the South Florida housing market slides, the new consumer psychology is rippling through the region’s economy - and is already hurting South Florida’s biggest companies.

Companies are saying they’re starting to see less business because of the housing slowdown. And it’s not just the obvious businesses within the housing industry - like real estate, Florida mortgage or construction companies - which have already seen clear hits.

Miami-based home builder Lennar, for example, reported last week that its first-quarter profit tumbled 73 percent on softness in the housing market made worse by problems with subprime lenders. Lennar warned it doesn’t expect to meet its 2007 earnings guidance.

But companies you wouldn’t automatically associate with housing are also pointing to the Florida real estate slowdown as a big culprit for less earnings, in such industries as varied as car dealerships, cruise lines and shipping companies.

In February, although prices remained relatively flat, sales of single-family homes declined by 31 percent in Miami-Dade County and 20 percent in Broward County compared to a year ago, Florida Association of Realtors data indicates.

The condo numbers were worse, and inventory has nearly doubled. And there’s little doubt that all those for-sale signs may wreak havoc with consumer confidence (psychology) as the housing market slows.

The boom saw many homeowners taking out sizable adjustable rate mortgages or simply tapping home equity out of their properties. Now, with possible Florida home loan rate increases and the equity well drying up, people are more worried and therefore more cost-conscious.

As fears of Florida mortgage problems escalate, the confidence among Floridians dropped last month, according to data released by the University of Florida last week. The index, last month at 92, declined to 86.

“Housing is an increasing problem,” said survey director Chris McCarty. “It’s very clear that people were using their home equity to fuel spending, so I don’t think this should be that much of a surprise,” said McCarty, citing the rampant speculative buying and use of exotic loans.

Economists see the housing slowdown working its way through the economy in this fashion: First, home prices slow down, then the number of people who are extracting equity from their homes also starts to taper off. That pool of money shrinking leads to fewer purchases of big-ticket items.

Last year, 16 percent of the new car purchases in the Sunshine State were made with a Florida home equity loan, said Art Spinella, the president of Oregon-based market research firm CNW Research. That compares to 9 percent in 2000.

Follow the link to continue reading in the Miami Herald …