Uncertainty about jobs holds back real estate resurgence, UF study shows

November 3, 2009

GAINESVILLE, Fla. — With the state’s high jobless rate, Florida’s real estate outlook is plagued by the most dangerous condition to delay an economic recovery: uncertainty, according to the latest University of Florida survey.

“Most economists think the recession is over, but people are afraid to spend money as unemployment keeps going up, which creates problems for every sector of the real estate market,” said Timothy Becker, director of UF’s Bergstrom Center for Real Estate Studies, which conducts the quarterly survey.

Florida’s unemployment rate climbed to 11 percent in September, its highest level since 1975, Becker said. That, along with a large number of foreclosures, places Florida near the bottom of states expected to recover from the economic downturn, he said.

“Florida was the first one into the recession and it’s probably going to be the last one out,” he said.

The latest survey finds commercial real estate the weakest sector of the economy, with no improvement expected until the job market turns around, Becker said. As retailers struggle, they are asking landlords for rent abatements, and instead of expanding, are deciding not to renew leases and even close stores, he said.

“Discount retailers like the Dollar Store and Dollar Tree seem to be weathering the hard times, but in most cases retailers are not doing well,” he said.

In some cases, though, vacant storefronts may be a sign that some retailers have departed for fancier venues, Becker said. Retailers with money on hand are able to find better locations at better rents than were available in the past, he said.

“One of our respondents said that the old adage of ‘location, location, location’ really means something right now in the ability to lease at premiere locations,” he said. “It’s the second-tier properties that are struggling.”

The state’s high unemployment rate also has taken its toll on the housing sector, Becker said. Although the foreclosure market is “going gangbusters” right now because of extremely low prices, total sales of single-family homes will probably decline as people’s uncertainty about whether they will continue to have jobs grows, he said.

Survey respondents expressed fear about another large wave of housing foreclosures if more people lose jobs and fall behind on their mortgage payments, Becker said. “There is a lot of speculation that there could be a double-dip recession, where we recover just a little bit and then go back into recession again,” he said.

An $8,000 tax credit available to first-time home buyers is scheduled to be phased out after November, Becker said. The foreseeable end to that government initiative, along with the high unemployment rate and large number of foreclosures, has resulted in fewer new homes, he said.

“Builders are being very selective about what they build,” he said. “They don’t want to get into a situation where they have large inventories again.”

One positive finding in the survey was increasing optimism about one’s own business outlook, Becker said. Respondents believe that an expected wave of foreclosures in the commercial real estate market will lower depressed prices even further, offering tremendous opportunities for future investment, he said.

Although the outlook for readily available capital has not improved as banks continue their reluctance to lend money, survey respondents believe that foreign investment may provide some relief, Becker said. With the favorability of exchange rates for the Euro against the dollar and the availability of desirable commercial property at low prices, international investors are starting to enter Florida’s real estate market, he said.

“Everybody thinks that Florida will rebound because we have so much going for us – the sun shines every day and there are a lot of advantages to living here, he said. “Foreign investors see that too and believe their prospects are good for long term investments.”

Until some of the uncertainties in the marketplace are resolved, though, including the fate of foreclosures and availability of financing, it is unlikely that confidence in Florida’s real estate markets will make steady gains, Becker said.

“As one of our respondents put it, ‘Uncertainty is the most dangerous market condition delaying recovery,’” he said. “While there are going to be improvements some quarters and declines other quarters, we’re mostly going to be bouncing along the bottom for awhile.”

The quarterly report is the most extensive survey of Florida professional real estate analysts and investors conducted on an ongoing basis. The 268 participants in the most recent survey represent 13 of the state’s urban regions and up to 15 property types.