Every time economists and Wall Street executives estimate full extent of the damages from the real estate downturn, reports indicate conditions were worse than estimates. (more…)
Florida Gov. Charlie Crist has asked the State Legislature for $50 million from the state’s trust fund reserves to help the Florida Housing Finance Corp. provide assistance to some 3,000 first-time home buyers. (more…)
Sunshine State residents are spending less on big items and economists say it’s primarily due to one ailment: the slumping Florida housing market. (more…)
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. (more…)
In the midst of the debate over how to cut property taxes, state lawmakers relish pointing fingers at local governments for reaping the benefits of the Florida real estate market boom without lowering taxes.
But they fail to mention that the state has enjoyed its own windfall from a little-known real estate tax, and it has never moved to slash it back.
The culprit: Documentary stamp fees.
Income to the state from the stamps grew 266 percent, to $4 billion, between 2001 and 2006.
The tax is collected every time there is a closing on a real estate deal or a Florida mortgage refinance, at a rate of 70 cents on every $100 of real estate value.
As low Florida mortgage rates fueled a refinancing boom and property values increased, the state has been raking in money.
The tax on a $250,000 home: $1,750, paid as part of closing costs.
But rather than lower the tax to ease the burden on property owners, the state legislature used the ballooning “doc stamp” account to pay for programs.
“The money, quite frankly, was needed to balance the budget,” said House Speaker Marco Rubio, the West Miami Republican.
This year, the well documented (no pun intended) real estate slump, which has meant dramatically fewer sales and Florida mortgage refinancing needs, is now expected to reduce doc stamp collections to $3 billion - still twice as much as it was before the real estate boom took off in 2002.
But as House leaders push ahead on plans to lower local property tax rates by requiring local government to roll back tax rates to pre-boom levels, they have no intention of reducing the documentary stamp tax.
“It’s a one-time tax,” Rubio said. “It’s not an ongoing tax you pay year-to-year, like property tax.”
County officials, whom Rubio has criticized for putting forth “no meaningful” alternatives, say they want to fix the state’s property tax system, but they also want the state to shoulder its share of the budget cuts.
Under two separate proposals by House Republicans, local governments would have to roll back property tax levels based on either 2001 or 2004 budget years - to save taxpayers between $5.5-6.7 billion across the state.
One plan, requiring a constitutional amendment, would completely eliminate the property tax on homestead exemption property and replace some of that lost revenue with up to $9.2 billion in new state sales taxes.
“How much has the state budget grown over the same period of time?” asked Broward County Commissioner Ilene Lieberman. “Because, if we want to give meaningful relief, it has to happen at all levels of government.”
Continue reading in the Miami Herald …
For the past half-decade, the housing market fueled the economy in Palm Beach County and the Treasure Coast.
But in 2007, a sputtering market for residential real estate will force the region’s economy to find other sparks, according to the Palm Beach Post. At the same time, commercial real estate and tourism remain strong and should pick up some of the housing market’s slack.
The South Florida housing market isn’t the only dark cloud in the 2007 forecast for the Sunshine State. Soaring property insurance costs are looming as a threat to the region’s economy, and energy costs remain a concern.
Still, there will be sunny skies, as well, thanks to a job market that remains near record-low levels of unemployment. Here’s a look at several segments of the local economy, and what to expect from each.
COMMERCIAL REAL ESTATE
Residential real estate might be contracting, even with Florida mortgage costs relatively low - but commercial real estate is still expanding.
So much so that commercial real estate developer Dan Catalfumo contacted DiVosta Building Corp. to let it know that his Palm Beach Gardens company, Catalfumo Construction, needs workers.
Construction workers might not be putting up as many houses in 2007, but there will be lots of building the stores and roads to accompany all those homes they built in 2004 and 2005, said Sean Snaith, an economist at the University of Central Florida.
While many observers worry about a glut of inventory on the condo market and too many homes and apartments available for rent, good luck finding industrial space or office space in Palm Beach County.
“The commercial market didn’t get as much of the speculator demand as the housing market did,” said Brad Hunter, a housing analyst at Metrostudy in West Palm Beach.
PROPERTY INSURANCE
In 2006, many homeowners and commercial real estate owners saw property insurance premiums double or even triple.
The good news for policyholders going forward is that insurers are raising rates less than they originally planned.
Sam Miller of the Florida Insurance Council expects lawmakers to deliver some rate relief, perhaps by boosting the amount of reinsurance offered by the Florida Hurricane Catastrophe Fund. But he warns that any cuts will be small in comparison to the hikes of 2006.
“Don’t expect miracles,” Miller said. “If folks had their rates go up 100 percent, you can’t roll it back 100 percent.”
GAS PRICES
If inventory is the watchword in real estate, volatility is the running theme for energy markets. Economists predict spikes and dips in gas prices in 2007.
The general consensus is that energy costs will remain high, thanks to growing demand from newly affluent consumers in both China and India, and pump prices also will rise.
Gregg Laskoski, spokesman for AAA Auto Club South, points to winter demand for heating oil and a weak dollar as reasons that motorists will see little relief in 2007.
“Could we see gas above $3 per gallon? Unfortunately, yes,” Laskoski said. “I think we’d be naive to think that could not happen.”
THE HOUSING MARKET OUTLOOK
As for the residential real estate market in Palm Beach County, it’s hard for the slowdown to feel like anything but a collapse after the record run of 2004 and 2005.
Now that 2006 marked the end of a historic boom, everyone’s wondering how soon the pain will end. The answer: Don’t expect a wholesale crash, but don’t get too excited just yet.
Even David Lereah, chief economist at the National Association of Realtors and a perpetual optimist, admits the outlook isn’t especially bright for many Florida real estate sectors.
While he’s bullish on markets such as Texas and the Carolinas, Lereah says South Florida, California and other markets that boomed hard in the early half of this decade must continue to work off the excess inventory of 2004 and 2005.
On the positive side of the spectrum, Palm Beach County’s unemployment rate remains near record lows, and Florida home loan costs have fallen in recent months.
Some pessimists expect intense pain from the slowdown. Christian Weller, an economist at the Center for American Progress, a liberal think tank, says that a slowing real estate market will sap homeowners’ wealth and kill construction jobs.
“The housing market is still much-overvalued,” Weller said.
Even as the demand for Florida mortgage loans increases in some areas, the housing market is still facing a long road to recovery. Two major reasons for this fact are slowing growth and rising inflation in the economy.
These factors are squeezing the housing sector; the former causes family incomes to rise more slowly and the latter has been driving Florida home loan rates and interest higher. As a result, real estate is no longer fueling the economy, as it had since the 2001 recession the report concedes. Nevertheless, 2006 should be the third strongest year for home sales in history, while residential investment and housing consumption are still contributing strongly to GDP growth.
The Freddie Mac report
Freddie Mac released its August Economic Outlook this week. It states that homeowners are combating rising risks in the economy through Florida mortgage loan refinancing - trading in adjustable rate mortgages for fixed rate products and consolidating first and second mortgages into first mortgage loans to lower monthly payments.
The report estimates that $500 billion in first Florida mortgages and $650 billion in second lien Florida home loans will be refinanced this year and that a total of $155 billion was pulled out of home equity through refinancing in the first half of the year. However, as price appreciation slows, homeowners will be increasingly unable to use such refinancing to balance higher interest rates with slower income growth.
Housing starts are dropping due to slowing housing market activity and figures for the second quarter came in at 1.88 million units for the second quarter, below the July estimate of 1.91 million. Consequently, Freddie Mac downgraded the forecast for the end of the year from 1.92 million to 1.90 million units. The report points out, however, that this is still 50,000 more units than were built in 2003.
Single-family Florida mortgage loan activity is expected to run 13 percent behind last year, primarily because of decreasing refinancing activity, which had represented 44 percent of all applications in 2005, but will drop to 38 percent this year.
At the same time the total outstanding mortgage debt will be up 12.6 percent across the country this year versus 2005, reflecting still strong construction, sales, and cash-out refinancing activity.
Job growth throughout the Sunshine State is slowing as specialty contract jobs take the forefront, and a decline in the Florida housing market and rising interest rates are leading to a dropoff from 2004’s economic peak, according to the Miami Herald.
Statewide unemployment continued to drop in June, although the number of jobless in Miami-Dade and Broward counties inched up slightly from the month before. Overall, unemployment in Florida dropped to 3 percent from 3.2 percent in May. The state has added 270,900 jobs since June of last year, more than 40 percent of which came in construction or in the wide-ranging professional and business services categories.
While job growth in construction continues to be strong, the rate of growth has slowed from its peak in 2004, a trend the state attributes to a cooling off in the housing market and rising costs of Florida home loans. This was the conclusion of the Agency for Workforce Innovation in its monthly report released on Friday.
Some companies’ analyses show that jobless rates in Broward and Miami-Dade actually dropped between May and June. But due to frequent hikes in interest rates and a slower housing market, analysts are universally sounding a more cautious note than they have in the past about the overall forecast for Florida’s economy.
“Home sales are slowing, and inventories are backing up. There are a lot questions on the cost of insurance. There are businesses moving away from Florida, which we’ve never seen before,” Wachovia Senior Economist Mark Vitner said.
Decelerating residential markets in other parts of the state are happening faster than originally predicted and expects the same will happen soon in South Florida. Still, many think that costs going down are essential as a way for Florida to regain its competitive advantage.
“Right now when you combine the run-up in housing prices with higher interest rates and soaring insurance costs, Florida’s pricing a lot of people out of the market,” he said. “People are saying, ‘I can’t afford to live here,’ and businesses are saying, ‘I can’t afford to operate here.’ We need to see some slowing.”
Increasingly expensive Florida home loan costs and soaring housing values have led to a state of sticker shock for many buyers, while rising insurance premiums have made both commerical and residential property owners worried. Hopefully a return to normalcy is in order and Florida’s job market remains in optimal condition.
Homeowners throughout the Southeast can expect to pay more for homeowner’s insurance in the coming year as a result of hurricanes in 2005, as well as higher property taxes rise because of higher real estate values. These are the financial forecasts of Bob Allsbrook, chief economist of AmSouth Bank. The rising cost of living doesn’t end there. Allsbrook expects interest rates will rise slightly in 2006, which could translate to higher credit card bills and higher house payments for those with adjustable-rate mortgages.
But the overall economic outlook for 2006 isn’t gloomy, according to the Jackson, Miss., Clarion-Ledger newspaper. Overall, the economy should grow 3 to 3.5 percent in 2006, with the strongest growth evident in the first quarter and slowing to 2.5 percent in the fourth quarter. Three percent is average growth for any sliding 10-year period since World War II. Overall spending will decrease, while consumer income is expected to rise and unemployment will remain low, experts say.
Stacey Wall, President and CEO of Pinnacle Trust Wealth Management in Ridgeland, Miss., expects the economy to grow 3.25 percent nationally in the coming year. He sees bird flu, terrorism and hurricanes as potential problems. Ashby Foote, President of Vector Money Management in Jackson, projects 3.5 to 4 percent growth, which he says is a good, solid economic growth rate for a mature economy like the United States has.
“There are some overhangs such as the U.S. government’s trade deficit, but all in all, I think you can expect a continuation of what we’ve been having, solid economic growth and controlled inflation,” said Zach Wasson, CFO at Trustmark National Bank, agreeing with that projection.
Experts believe the Federal Reserve will increase the interest rate on overnight loans between banks after the early part of the year.
Allsbrook expects the Federal Reserve to raise the federal funds rate a quarter of a point on January 31 and another quarter of a point on March 28. That would place the rate, currently at 4.25 percent, at 4.75 percent. If you add 3 percentage points to that figure, you get the prime interest rate — what banks charge to their preferred customers. Fluctuations in the prime rate influence other interest rates, not the least of which are mortgage rates.
The common sense advice for 2006 is not expect too much from investments. An 8 to 9 percent return is reasonable, and with energy prices expected to continue their volatility, consumers should be disciplined in saving money so plenty of cash is available for a big event that might come along (such as, say, a devastating slew of storms). Also, address your debt now even if your financial situation is fairly stable.
Wall doesn’t foresee the Mississippi housing market dropping significantly in value because it hasn’t seen extremes like California or Florida real estate. However, he voiced concerns about buyers who have purchased homes with no down payment, interest-only mortgages or variable rate loans.
“People are doing some risky stuff betting that housing prices are going to continue to rise,” Wall said. “As long as the housing market continues to rise, they’ll be okay. But it doesn’t take much of a down turn to get into trouble.”
Jackson Realtor Charlotte Smith expects interest rates to rise next year, but that this turn of events should send some business her way, as it prompts some people to make a decision about buying. Madison County, Miss., is growing rapidly in the aftermath of Hurricane Katrina, which displaced a tremendous number of Gulf Coast residents and damaged the properties of countless others.
All in all, it looks like a stable economic forecast for the Southeast, with a slight downturn in housing. Still, it’s hardly the doomsday-style collapse that has been predicted by armchair pundits for months. Instead, buyers may see some openings as Mississippi and Florida home loan rates rise enough to cool rapidly rising home prices, but not enough to quell demand in the large scale. It will also be exciting to see how the economies of some of the region’s most hurricane-damanged areas rebound.
In a declining housing market, as many as 800,000 jobs may be lost. This number is based on a new economic report released yesterday by UCLA. The sustained slow down will affect the entire country, costing around 500,000 construction jobs and 300,000 more in the financial sector to be vanquished.
“We expect housing to start slowing the economy this quarter or the next,” said Edward Leamer, who directed the study. “Some jobs in manufacturing might well disappear as a result of weakness in housing, but this may be offset by jobs brought home or not lost to foreign competition.”
Is a recession on the way?
The forecast said eight of the past 10 economic recessions were started by housing market slowdowns. Though the coming cool-down will cause a drag on the nation’s economy, it will fall short of triggering a recession. This is partly due to the continued success in certain regions. This would include the Florida home loan area, as the following numbers support.
Last month, the Florida Association of Realtors said Brevard County’s existing median home prices rose 6% over October. For the year, prices were up 35%. Many property owners, economists and Realtors have paid careful attention to real estate prices the past several months in order to gauge the state of the economy.
In Florida, and in Brevard specifically, new home construction and existing home sales have been an important sector of economic growth.
“There is every evidence that things will slow down,” said David Ling, co-director of the Center for Real Estate Studies at the University of Florida. “The question is ‘How much?’ ”
Franck Kaiser, chief executive officer of the Home Builders & Contractors Association of Brevard, said the local home-construction industry employs about 30,000 people directly. On top of that are wholesale suppliers — such as electrical companies and lumberyards.
Moreover, the home-construction industry supports employees at places like convenience stores, where many of the construction workers eat all their meals.
“It’s been the backbone of the economy for the last four years,” Kaiser said. “If it slows down, everyone is going to feel it.”
The report cited several signs the decline could be under way:
“On all these grounds, we believe housing is due for a sustained decline,” economist Michael Bazdarich wrote in the forecast. “The remaining questions are how hard the fall will be and when it will begin.”
Florida appears to be one of the healthier regions right now. While the constant news of a decline in the market is never encouraging, fortunes in The Sunshine State remain brigher than most other.
