Central Florida Housing Market: A Bumpy Ride
Florida is in a funk.
That much we know, statewide, with the Central Florida housing market no exception. The big question now is whether this will morph into a serious economic downturn.
In a May report, Goldman Sachs economist Jan Hatzius called Florida the “Epicenter of the U.S. Housing Bust.”
Home prices are overvalued by 40 percent, with Florida also having the biggest glut of inventory on the market in America.
Prices will drop over a few years, with the correction “likely to cause a recession.”
Hatzius warned that “businesses with significant sales in Florida could encounter problems for an extended period of time.”
That, according to the Orlando Sentinel, is a disturbing sign… of yet more bad times ahead.
Across Florida, consumer confidence is falling, according to surveys by the University of Florida’s Bureau of Economic and Business Research Office.
Residents are “growing much more pessimistic about the economy and their finances,” says survey director Chris McCarty.
The gloom has spread from low-income workers, who take the biggest hit with rising gas prices, to those in the upper income levels.
With a healthy stock market, McCarty puts the blame for the sour mood of the economy squarely on the Florida housing market.
“I think a lot of people used home equity loan funds to fuel spending, and that is not there now,” he says. “I don’t think steady employment growth is enough to make up for that.”
Hatzius’ report backs this, citing numbers that show our residents fueled spending more with Florida home equity loans than did homeowners in the nation as a whole.
Sales-tax figures from the state show spending is falling fast, and in large part, it’s due to declining Florida mortgage demand.
Tax collections in April came in $43 million less than what was predicted. And the prediction was made in March. In May, property tax collections came in $70.3 million below the prediction.
The trend line is not good. The meltdown scenario would be if reduced spending leads to layoffs, because the job market here has been our saving grace.
The soft-landing scenario is that jobs and income growth remain strong, allowing the market to absorb the huge inventory of homes without major corrections in home prices.
There are analysts who believe this will be the case and think fears of a Florida mortgage meltdown - and recession - are greatly exaggerated.
Hatzius, at Goldman Sachs, says Florida won’t get much of a bounce from an increase in international trade because we have so few manufacturing jobs.
That’s one reason why he is not predicting a national recession… just one here in the state of Florida.
Home builders are cutting back because of the housing glut. Construction here accounts for 7 percent of the state’s economy, compared to 4 percent nationally. And that doesn’t include the army of real-estate agents and Florida mortgage brokers that depends on home sales.
Florida’s economy is addicted to growth. And there even is a hiccup in that, with a puzzling decline in school enrollment this year.
“Is there a sea change going on in our state?” says Dominic Calabro, president of Florida TaxWatch. “Back in January we heard concerns, and they’ve only been more validated.”
As for a recession?
“I’m not ready to go there yet,” Calabro says. “We’re seeing a yellow light. It’s a great warning sign. We just can’t sit on our laurels and assume we’ll always have population growth and job growth as far as we can see.”
SOURCE: Orlando Sentinel
