Will Florida Mortgage, Housing Woes Trigger Recession?
The Florida housing market decline likely will cause a statewide economic recession, according to a prominent New York investment firm.
But despite a weak economy, the nation will be able to offset such hits to its overall economic growth, the firm predicts.
The stable economy in Gainesville will be somewhat shielded from the effects if Florida does slip into recession, experts said.
In its May 4 U.S. Economics Analyst Report, Goldman Sachs predicted that Florida will be the only state in which the housing downturn leads to outright recession, with growth slowed to twice the national rate.
The nation will be able to avoid recession because housing’s effect on growth will be spread out over time, foreign trade is improving and the Federal Reserve can react by changing interest rates, which shape Florida mortgage loan rates.
A recession is two consecutive quarters of negative gross domestic product, which measures total production and consumption of goods and services.
Chris McCarty, head of the University of Florida Survey Research Center, which compiles the state’s consumer confidence reports, said he has been predicting a Florida recession for months, and expects the market to hurt retail sales.
Strong employment in the state has kept that from happening. As Florida was one of the hottest states during the housing boom of 2005-06, it also had the furthest to fall.
Speculative investment buying - powered by record low Florida mortgage costs - in coastal areas especially fueled the boom and now fuel the downturn. California and Nevada also have suffered from a downturn.
Florida sales of single-family existing homes were down 26 percent in the first quarter of 2007 compared with the same period in 2006, according to numbers released Tuesday by the Florida Association of Realtors.
Of 20 metro areas in Florida, 19 of 20 were down in sales. Median sales prices were down 3 percent statewide.
Home sales around Polk County dropped nearly 42 percent from 592 in March 2006 to 345 last month, the latest figures available.
And for the first time since the housing boom began in 2005, the county’s median home prices decreased 5 percent from March 2007 to March 2006: $178,300 to $168,300.
Decreasing home values means owners are not able to take out a home equity line of credit to fuel spending, McCarty said.
Florida home prices have fallen more sharply, while nationally, prices were down 1.8 percent nationally from a year ago, the National Association of Realtors said. U.S. sales were down 6.6 percent from a year ago, but up 2.4 percent from the fourth quarter of 2006.
Whether the state housing crunch leads to recession, McCarty said eventually housing prices will return to those of the boom years.
“Appreciation in real estate had a good couple years,” he said. “We have to wait for it to catch up.”
SOURCE: Lakeland Ledger
