Gloomy outlook seen for stalled Florida real estate market
GAINESVILLE, Fla. — Uncertainty continues to plague Florida’s bleak real estate outlook in the latest University of Florida quarterly survey, with fears that stagnant financial markets, rising unemployment and another round of foreclosures could make things worse in 2010.
“Our respondents report that we will continue to see increasing vacancies and decreasing rents throughout most property types,” said Timothy Becker, director of UF’s Bergstrom Center for Real Estate Studies. “One person summed up the current situation by saying that ‘unemployed people don’t need office space, don’t shop, don’t pay rent and don’t buy houses.’”
Adding to the angst is the unavailability of financing, Becker said. Respondents continue to worry about their ability to refinance existing mortgages coming due, even if they are able to meet the obligations right now, he said.
Compounding the problem in the housing market is that many adjustable rate mortgages that were taken out five to seven years ago must soon be reset, which could increase monthly payments and throw property owners into financial peril, he said.
“I think we’re going to see more foreclosures coming down the line because of that and because of the rising joblessness,” he said. “The longer people are out of work the less opportunity they have to make payments on their house.”
Florida’s unemployment rate climbed to 11.8 percent in December, its highest level since 1975, and there are concerns that it may rise even higher, Becker said. “Until we start seeing significant job gains, it’s going to be a rough road to hoe for residential and commercial properties,” he said.
Mortgage refinancing also stands to increase the number of foreclosures in commercial real estate, the weakest sector of the market, Becker said.
“Many commercial property owners can still pay their mortgage based on the rents they collect, but with the terms of their mortgages ending, they will have to figure out how to get financing, and there is no financing out there,” he said. “With values continuing to decline, the amount of money that banks would be willing to offer if they did finance is considerably less than what is owed on the mortgage.”
On the positive side, the survey indicates that private investors both foreign and domestic are starting to “kick the tires” in many markets, Becker said. In addition, investor expectation for returns is starting to fall to more realistic levels, helping to close the spread between bidding and asking prices, he said.
“These developments bode well for the transaction market when quality properties start coming to the marketplace,” he said. “Unfortunately, there are few good quality deals to bid on.”
One trend in the survey is the growing advantage in the marketplace of larger national companies over smaller regional and local firms, Becker said. Because the bigger companies are in a better position to get financing to acquire property, they are more positive about the outlook for their own business than are neighborhood “mom and pop” firms” or companies that concentrate solely in Florida, he said.
Apartments are the only sector with funding readily available for ownership transfer, as a direct result of the willingness of Fannie Mae, Freddie Mac and Housing and Urban Development to provide financing for such properties, he said.
Apartments continue to be the strongest segment of the market, with expectations for occupancy increasing dramatically as people continue to lose their homes, Becker said. “Because foreclosures have had such an adverse effect on homeownership and people have to live somewhere, there is no shortage of folks in the market to rent,” he said.
Until the backlog of housing foreclosures has been reduced, the outlook for prices for new single-family homes is pessimistic, Becker said. Respondents expect prices to rise at a rate slower than inflation or to remain at present levels in the near future, he said.
“I think it’s going to be a ‘wait and see what happens’ type of year, but problems with unemployment and financing will continue to weigh us down,” he said.
The Sunshine State’s unhealthy real estate picture places it in the company of such problem-prone states as Nevada and California, with their high foreclosure rates, Becker said. “Florida is still competing with the top of the worst and it’s likely to stay that way,” he said.
The quarterly survey is the most extensive survey of Florida professional real estate analysts and investors conducted on an ongoing basis. The recent survey of 319 participants covers 13 urban regions of the state and up to 15 property types.