UF study: BP oil spill adds to uncertainty about Florida’s real estate market
GAINESVILLE, Fla. — The BP oil spill threatens to swamp a shaky Florida real estate industry that had been bottoming out because of repeated economic blows, the latest University of Florida survey finds.
“The devastating effect of the spill on the Panhandle’s economy has created a giant cloud of uncertainty that is affecting all markets across the state,” said Timothy Becker, director of UF’s Bergstrom Center for Real Estate Studies, which issued its quarterly survey Wednesday (7/28). “Our respondents indicate that the effect of the oil spill is being felt across Florida despite the fact that oil is currently only showing up on beaches in the Panhandle.”
The oil disaster’s effects are a worry second only to poor job growth in what is already a precarious condition for Florida’ real estate markets, he said.
“Until we start seeing improvements in job rates, I don’t think things are going to get much better than they are right now,” Becker said. “Unemployment drives everything for the real estate market, and while unemployment has gotten slightly better this past quarter, it’s not a significant difference.”
Florida’s unemployment rate, which dropped from 11.7 percent in May to a seasonally adjusted average of 11.4 percent in June, continues to be the nation’s fifth highest, he said.
The two biggest changes since the last real estate survey is an increasingly positive outlook for investment in industrial properties and a more pessimistic one for apartments, Becker said. It’s unclear why the industrial sector has become more favorable, while the appeal of apartments has waned because aggressive purchasing has snapped up the most desirable properties, he said.
“For the past year and a half apartments have been the star performer if there is a star performer among property groups,” he said. “But our respondents have seen that good assets that come into the marketplace have been bought up, so the possibility of finding quality pieces of properties in the future is not as good.”
The outlook for single-family housing development and sales declined this quarter as a result of the oil spill, stagnant job growth, expiration of government tax credits and continued high foreclosure rates, Becker said. While the number of foreclosed homes in Florida has declined, it is still high, ranking third behind Nevada and Arizona, he said.
“Our respondents remain negative about new home construction, although builders are continuing to buy finished lots on which to build on,” he said.
The vitality of both the residential and commercial sectors is brightest in South Florida, particularly Miami-Dade and Broward counties, Becker said. “It’s not a great market, but it’s the best market in the state,” he said. “It has the advantage of international diversification, with a lot of money coming in, and it’s very vibrant culturally.”
Even Miami’s condo market, with thousands of empty units, has improved, with investors purchasing large chunks of condo properties downtown and placing them on the rental market, Becker said.
“Across the rest of the state condos are still bad news,” he said. “Sales are not very good because it’s difficult if not impossible to get bank financing to purchase them.”
With so many condos in Florida located on beachfront property, there are new fears that things could get worse, depending on how widespread the oil spill is, he said.
Besides the BP disaster, a series of financial and political uncertainties loom, he said.
A large group of commercial mortgages are coming due and it’s unclear whether the loans will be extended or they will come to market with large numbers of foreclosures, Becker said. These properties, which are bundled together, would have to be paid off with additional financing, but none is available, he said.
“Over the next few years there is close to a trillion dollars in real estate loans coming due that will need to be refinanced and there is just not the money to do that,” he said.
Politically, perhaps the biggest concern statewide is voters’ decision in November on Amendment 4, a constitutional amendment that would require a taxpayer-funded referendum for changes to local government comprehensive plans, he said.
“Our respondents believe that passage of Amendment 4 could be the nail in the coffin of the real estate industry in Florida,” Becker said. “Several respondents indicated that the uncertainty of its outcome is affecting purchase decisions even on entitled land, with potential buyers backing out of contracts.”
Nationally, Congress’s decision on the extension or expiration of the Bush era tax cuts and the passage of the financial reform bill is likely to affect real estate markets, although how is not known yet, he said.