UF report: Confidence in Florida real estate markets hits new low

January 21, 2009

GAINESVILLE, Fla. — An accelerating avalanche of bad economic news has swept over Florida real estate to sink confidence in the industry to its lowest level since a statewide survey of economic experts began three years ago, a new University of Florida report finds.

Name the segment of real estate — retail, offices, housing, condos and the consumer’s frame of mind — and the survey finds that with few exceptions belief in the market has sagged to lows seldom seen in the state, said Wayne Archer, executive director of UF’s Bergstrom Center for Real Estate Studies.

“The big news is that the recession and the latest shocks in the financial markets and automobile industry have finally taken their toll,” he said. “People not only foresee tough times in the short-term, but they’re also revising downward their longer-term future outlook.”

The most recent quarterly survey of Florida real estate trends completed in December suggests the investment outlook for various types of properties has sunk to depths not seen for three decades, Archer said.

“We’ve come a long ways down in three years to the point where we’re comparing the situation now to the recession of 1974,” he said. “What started with a mortgage crisis has spread to a general financial crisis and is now spreading to employment.”

The downturn in job rates has hurt retail more than any other real estate sector over the last quarter, Archer said. Except for free-standing big box stores, the investment outlook and rental occupancy rates are bleak for all forms of retail, he said.

Growing fears on the part of consumers is contributing to the economic standstill, Archer believes. “You can’t pick up the newspaper without seeing another story about layoffs and I think that’s getting to consumers,” he said. “They’re prudently pulling in their financial resources, and as a result, things are dropping off very quickly on the retail front.”

A marked decline also is occurring with offices and is beginning to compete with retail in its severity, Archer said. As consumers buy less, one ripple effect is that firms are holding of on plans for growth and in some cases reducing staff to prepare for rough months ahead, he said.

Falling Florida housing prices are expected to continue their decline, although surprisingly little change occurred in the sales volume of new homes, which is the component of the housing market the survey measures, Archer said.

“I think there was some hope that housing prices had bottomed out three months ago, but it’s very clear now that we’re taking a lot more damage than anybody expected,” he said.

Expectations for condos can’t get much worse because things are already bad, Archer said. The condo market has always been volatile and is usually the first to suffer, sort of like the proverbial canary in a coal mine, he said.

“The financial problems are everywhere, but the state of the housing market and the employment picture varies significantly, with Gainesville perhaps the best off of the state’s metropolitan areas,” Archer said. “Generally, we see remarkably few foreclosures across North Florida compared to central and particularly South Florida.”

Lee County continues to be the “king” of foreclosures, with the Cape Coral-Fort Myers region experiencing the highest foreclosure rate among the nation’s metropolitan areas, and Osceola and St. Lucie counties suffering as well, he said.

One positive sign is the recent dramatic increase in refinancing with the availability of 5 percent mortgage rates in mid-December, Archer said. If additional programs are put into place that allow 4.5 percent Federal Housing Administration mortgages for people who have difficulty making payments, it will do even more to stabilize the housing industry, he said.

“In many cases, people haven’t been able to purchase because the financial system is paralyzed, and is either unwilling or unable to help them with transactions,” he said. “With no offers coming in, people who want to sell houses can’t sell them, and the prices go down.”

Apartment occupancy, which was up the previous quarter, reversed direction slightly in the most recent survey but is still more stable than other sectors of the real estate industry, Archer said. It could be that consumers are trying to save money by taking in roommates, creating less demand for apartment units, he said. “It’s a break for renters in being able to find better deals on apartments than they would have in the past,” he said.

The latest survey — 13th in a series — is based on 381 responses, which is second only to the September survey with 392. The Survey of Emerging Market Conditions is the only Florida-centered survey of leaders and professional advisers in the real estate industry. In previous surveys, the investment outlook for various types of properties had remained steady.