Despite the bleak real estate outlook nationwide, Florida’s new home market appears for now to be stabilizing as a result of persistent demand for homes and lack of overbuilding, according to a University of Florida study released today.
“There’s a growing feeling of apprehension or caution, but the results from our survey remind us that the underlying markets for real estate in Florida are still in good shape,” says Wayne Archer, director of UF’s Bergstrom Center for Real Estate Studies. “Owner residential is the only area of real estate markets where there are problems at this time. Apartments, retail, office, industrial and hospitality all remain stable and healthy.”
The findings are from the center’s quarterly survey of Florida real estate trends completed in July.
New single-family home development is sluggish but considered stable by industry experts, while the condominium market continues to struggle, Archer says. However, overall the state is in better condition than the rest of the country, he says.
What sets Florida apart is its high growth rate, allowing quicker recovery from setbacks in the real estate market, Archer says. “If there is a problem with the housing market in Chicago, Indianapolis or Kansas City, people there may have to live with it for a long time because growth is relatively slow and it takes awhile for the problem to work itself out,” he says.
Another advantage Florida has is a rate of building that is moderate enough – with the exception of condos – to prevent large imbalances in supply and demand, he says.
The greatest fear right now is that subprime loans underlying many real estate securities will result in increasingly high defaults, foreclosures and losses for investors, Archer says. The crisis involving these unconventional loans has pervaded the entire financial system, causing declines in the stock market and generating fears about the kind of damage that might result in the future, he says.
“We have a liquidity crisis that is at the top of the news hour by hour and it’s very hard to conjecture how much impact this will have on the real estate picture in Florida,” he says.
The latest UF housing survey was conducted in July before the crisis had escalated. “If we could poll our respondents now, they might be quite a bit more apprehensive than they were two or three weeks ago,” he says. But Archer, who has spent most of his professional career studying mortgages, says people underestimate the tenacity of homeowners to remain in their homes.
“Even if a homeowner gets in trouble, it takes a severe disruption in their household or their life before they will abandon their mortgage and their home,” he says. “They will fight to keep that house. They’ll give up their car. They’ll take on four jobs. They’ll do whatever it takes.” The same cannot be said, though, about people buying second homes or houses as speculative investments.
Unlike second homes or condominiums, owner-occupied single-family homes continue to be a good investment, Archer says. Although there has been a flattening in single-family housing prices, with prices in some markets likely to drop over the next year to adjust to a correction in the market, Archer says he does not foresee widespread declines.
“I think homeowners have not yet come to terms with the fact that the price increases we’ve seen in the last two or three years are not going to continue,” he says.
Condos, especially in certain cities, are in much bigger trouble, Archer says. By some estimates, there are as many as 40,000 condo units for sale in Miami and not even a fraction of those are needed, he says. Unless there is some movement by foreign investors to buy these condos, the market is likely to be hurting for a long time.
On a positive note, the survey shows remarkable stability in capitalization rates, the measure of how fast an investment pays off in net cash, Archer says. If there is growing apprehension about the real estate market, capitalization rates should increase in response to lenders’ rising fears about perceived risk.
Source: FLORIDA ASSOCIATION OF REALTORS®