GAINESVILLE, Fla. – March 19, 2008 – Fallout from the subprime meltdown is now spreading from the residential to commercial real estate sectors, but the outlook for Florida remains stable because of the fundamentals of good climate and in-migration, according to the latest University of Florida survey.
“It sounds like an old song re-sung, but our respondents are still keeping the faith in the real estate market,” says Wayne Archer, director of UF’s Bergstrom Center for Real Estate Studies. “It’s not that we don’t see some lessening of the market, but it’s nothing like the sensational doom that dominates the news about residential housing.”
The latest quarterly survey of Florida real estate trends completed in January and released this week shows declining optimism about commercial real estate, which had been a bulwark in the property market, Archer says. Occupancy is expected to fall for industrial, office and retail property, as rental rates are beginning to lag inflation, signaling that real rates (adjusted for inflation) may fall, he said.
Respondents continue to expect only slightly more decline in the sales for new single-family homes, while the picture for condominiums, although more pessimistic, has improved slightly, he said.
“Despite growing near-term concerns about recession, residential foreclosures, falling house prices and disruption of financial markets, our survey respondents maintain an unchanged, even slightly positive view of investment in Florida real estate at this time,” Archer said.
Although there are a staggering number of housing foreclosures in a few counties, foreclosure patterns vary widely at the statewide level, Archer said. While Lee, St. Lucie and Osceola counties are considered among the country’s foreclosure capitals, most counties in North Florida, especially Alachua and Leon counties, are in good shape, he said.
The three worst counties all share lower housing costs than surrounding counties, which attract marginal home buyers who may be eligible only for subprime mortgages, Archer said.
“If you worked in Collier County but couldn’t afford to live there – maybe you were a construction worker – where could you go?” he said. “Well, if you stretched hard and qualified for a subprime loan, you might be able to buy a house in Lee County.”
Similarly, prospective home buyers who work in West Palm Beach but can’t afford to live there may choose to move to St. Lucie County and commute, while people employed in the Orlando area might be able to afford a home in less expensive Osceola County on the southern outskirts, he said.
The rest of Florida is a little worse off than the rest of the nation but not dramatically so because its subprime meltdown is offset by the still frozen snows of the north, he said.
“There are pessimists who think people are going to pack up and leave Florida, but when I stand outside on these clear winter days, I think ‘they’re not going far,’” Archer said. “As long as people keep moving here, the growth will bring us a correction that you won’t get in industrial states like Ohio, Michigan or Illinois.”
Even in the worst counties, there are signs of Florida’s attractiveness with the growing popularity of “vulture ventures,” in which people move in to buy distressed properties thinking they can make huge profits as the market corrects itself, he said.
Another factor in Florida’s favor is the aging of the baby boomers, some of whom have considerable wealth, Archer said.
“A lot of baby boomers are closing up shop and deciding where they want to be in the future,” he said. “As you get a little older, you get a little more sensitive to the cold, and Florida is going to look pretty good to them.”
Although it won’t save Lee County on Florida’s southwest coast, prospects for international investment, especially with the weak dollar, may spell relief for the 40,000 condominiums sitting vacant in Miami, Archer said.
“With possibly half of these luxury condominiums in an urban setting with spectacular views, they could appeal to high-income individuals throughout the world, especially from Latin America,” he said. “Eventually downtown condominiums may be hard to find as land becomes scarce.”
The January report is tenth in a series. The series is the only Florida-centered survey of leaders and professional advisers in the real estate industry. The largest group of respondents was appraisers, about 61 percent, followed by consultants and brokers.
© 2008 FLORIDA ASSOCIATION OF REALTORS®