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Recent financial crisis fails to hurt confidence in Florida real estate

GAINESVILLE, Fla. – Oct. 21, 2008 – The national economic crisis has failed to rattle Florida real estate experts, who, despite serious concerns about the availability of financing, remain surprisingly calm about market conditions within the state, a new University of Florida survey finds.

The most recent quarterly survey of Florida real estate trends, which was completed in September, shows the investment outlook for various types of properties remains steady, according to Wayne Archer, executive director of UF’s Bergstrom Center for Real Estate Studies.

“People who have responded to our surveys have not lost their faith in Florida as a place to be and a place to invest,” he says. “We have 40 pages of comments from our respondents, and although the dominant theme is the disruption of financing, perhaps the second theme, as one person put it, is people being on the sidelines with full pads and helmets just waiting to jump back in.”

Although Florida’s housing crisis is worse than other states, over the long term Florida stands to benefit from the migration of new residents, particularly as baby boomers age, Archer said. The Sunshine State’s mild climate and outdoor amenities make it an attractive retirement destination, despite high property taxes, insurance rates and hurricanes, he said.

Unfortunately, the plunging stock market combined with the fall in housing prices and tightening of home financing requirements will likely temporarily delay plans baby boomers may have to retire and move to the state, he said.

For the state’s real estate market to recover at all in the short term, banks and other financial institutions must ease credit restrictions, Archer said.

“If the financial crisis continues, that would really change the picture,” he said. “Our respondents, I think, are keeping the faith that they may have seen the worst and the shock will not be overwhelmingly severe.”

One sign of optimism is the trend in the latest survey toward a more favorable view of new single-family home development, Archer said.

“The respondents actually moved in a somewhat guarded but positive direction,” he said. “It suggests to me that they believe we may have already reached the bottom in that category.”

Although the survey does not include the market for existing single-family homes, one respondent said houses were beginning to sell in Lee County, once dubbed the foreclosure capital of the world, indicating perhaps the market is beginning to stabilize, he said.

Several neighboring counties in southwest Florida are likely to be in trouble for a long time, however, along with the Miami condo market, where an estimated 40,000 units are for sale, Archer said. Prospects are particularly bleak for higher-end condos in the city’s downtown, he said.

The weak dollar and general confidence in the United States as a safe harbor for investment could lure international investors to Miami, but that would be unlikely if the economic crisis deepens into a worldwide recession, he said.

While condo markets throughout the state face problems, which are likely to persist in the foreseeable future, the outlook for apartment rentals bounced back a little from the last survey in June, Archer said. “There was an expectation that occupancy rates would be falling, and while they’re not great, they are viewed as stable,” he said.

The weakest rental markets are in retail, which has been particularly hard hit by the economy as consumers spend less money, Archer said.

“After seeing what’s happening to their home values and watching the news, they are deferring purchases,” he said. “As a result, most retail organizations are curtailing their expansions and consolidating their operations and stores, which is creating higher vacancies.”

Perhaps the most negative survey result was that respondents’ perceptions of their own business outlook, which has declined steadily for 11 quarters, took an even larger downturn this quarter, Archer said.

“This is in marked contrast to their views of the market as a whole,” he said. “Although keenly aware of the downturn in the availability of capital, they remain surprisingly calm.”

The latest survey is based on 392 responses and is 12th in a series. It is the only Florida-centered survey of leaders and professional advisers in the real estate industry. The largest group of respondents was appraisers, about 51 percent, followed by brokers and other service providers.

© 2008 FLORIDA ASSOCIATION OF REALTORS®

Last Week in the News

The National Association of Realtors said Friday, October 24, that existing home sales rose 5.5% in September. It was the largest increase in more than five years, possibly suggesting the housing slump could be starting to bottom out.

The report also said total housing inventory at the end of September fell 1.6% to 4.27 million existing homes available for sale — a 9.9-month supply at the current sales pace, down from a 10.6-month supply in August. This marks two consecutive monthly declines since inventories peaked in July.

On Monday, the Conference Board said its leading indicators of future economic activity rose 0.3%, a better reading than the 0.2% drop expected by Wall Street economists. The federal government's cash infusions into the money supply helped the September index.

Continuing to battle the credit crisis, the Federal Reserve announced on Tuesday that it will provide up to $540 billion in financing to bolster the money market mutual fund industry. “The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests,” the Fed said in an announcement of its new program.

On Thursday, the Labor Department said new applications for unemployment insurance for the week prior rose 15,000 to a seasonally adjusted 478,000, above the anticipated estimate of 470,000. Jobless claims above 400,000 are considered a sign of recession. A year ago, claims stood at 333,000, the department said.

According to the listing service RealtyTrac, foreclosure filings surge 71% from the third quarter of 2007. From July through September of this year, foreclosure filings were reported on 765,558 U.S. properties.

In a welcome respite for consumers, oil prices tumbled below $67 a barrel on Wednesday after the government reported a big increase in U.S. fuel supplies. The price of crude oil has fallen 55% from its peak of $147.27 reached in mid-July.

Upcoming on the economic calendar are reports on new home sales on October 27, durable goods orders on October 29 and gross domestic product on October 30.

Last week, stock markets continued an unprecedented streak of volatility. On Monday, October 13, after the worst week ever, the Dow staged its biggest single-day stock rally since the Great Depression, up 936.42 points.

On Tuesday, the Treasury Department announced they would funnel up to $250 billion from the $700 billion financial rescue package into potentially thousands of banks. The voluntary program would take an equity stake in financial institutions in an effort to help revive the banking sector.

On Wednesday, the Commerce Department reported retail sales decreased 1.2% last month, nearly double the 0.7% drop that had been expected. It was the biggest decline since retail sales fell by 1.4% in August 2005. Also on Wednesday the Labor Department reported that wholesale prices fell for a second straight month, declining by 0.4%, thanks to a big drop in energy costs.

The Federal Reserve reported Thursday that production at the nation's factories, mines and utilities plunged 2.8% last month, the biggest since December 1974, when output fell 3.5%. Economists were forecasting a decline of 0.8%.

On Thursday, the Labor Department announced the Consumer Price Index, the government's most closely watched inflation barometer, was virtually unchanged in September following a 0.1% decrease in August.

The Commerce Department reported Friday that housing starts fell 6.3% in September to a seasonally adjusted annual rate of 817,000, the lowest since January 1991. It was a much bigger decline than the 1.6% decrease that had been expected.

Applications for building permits, considered a reliable sign of future construction activity, fell to a seasonally adjusted annual rate of 786,000 last month. That's 8.3% below the revised 857,000 rate in August. It was the lowest level for permits since November 1981.

Through the week, the markets seesawed wildly. The gains on Monday had been largely reversed as the Dow fell 76.62 on Tuesday and plummeted 733.08 on Wednesday. Then the Dow rose by 401.35 on Thursday and fell 127.04 on Friday. But, for first time in five weeks, the Dow closed the week in positive territory, up 401.03.

Upcoming on the economic calendar are reports on the index of leading indicators on October 20 and the Mortgage Bankers Association purchase applications index on October 22.