Property Guide: Is Florida in the midst of another bubble?
A staggering 420,000 British expats now officially reside in Florida. This makes Florida the third most popular destination for Brits after Australia and Spain. The state certainly has its share of draws, a fantastic all year round climate (excluding the occasional tropical storm), great shopping, beaches, golf resorts and world class theme parks. Brits are far from alone in their love affair with Florida, with expats from all over the world choosing to relocate to the sunshine state. The average Brit will spend around £250,000 on property in Florida, with Orlando, Kissimmee, the Gulf Coast and Sarasota as the most popular locations.
So far Florida appears to have been a major beneficiary of the United States continued economic recovery. It’s not too hard to see why. Florida attracts retirees, investors and second home buyers to a greater extent than just about anywhere else in the US. Ipso facto, improvements in domestic economic performance will invariably reap some reward for the sunshine state. With the downturn of 2008 causing a dramatic decrease in disposable incomes, vacationers and would be retiree’s stayed away, causing housing prices to drop significantly in the preceding two years. With the continued stabilization of the US economy seeing tourists, retirees and investors return, Florida’s employment rate rose by but about quarter of a million last year as demand for services in the state increased. It’s all a very encouraging cycle, but one unfortunately, that only paints part of the picture.
Despite the countless draws that Florida has to offer, there is also plenty of reasons to be cautious when eyeing up a real estate acquisition. The dreaded ‘b’ word -bubble- is once again gaining more prominence in discussions concerning the overall health of the property sector. Rapid construction over the last few years has swayed a number of key analysts to conclude that the South Florida housing market is in all likelihood, about to enter another bubble-and-bust cycle. Miami in particular looks set to be the most vulnerable. In 2015, house prices rose by approximately 7%, and those same analysts expect that figure to drop to -1.6% by the end of 2016. In West Palm ¬Beach-Boca Raton-Delray Beach metro area, prices grew by about 17%.
There are of course stark contrasts in Florida’s current property landscape as oppose to what it was at the time of the last bubble. The last bubble arose through rampant speculation, predatory lending that went beyond reckless, and of course outright fraud. This combination of widespread factors left a lot of people highly exposed to the bubble. This time round, the level of exposure is significantly smaller, with the majority of investment coming from hedge funds, institutional investors, and private equity funds, purchasing high-end condo units in bulk.
One of the major concerns within the sector is the volume of house flipping that is taking place (buying and then reselling a property quickly to make a profit). ‘Home flipping’ isn't obviously unique to just Florida, it’s a practice that is widespread across the States. What is concerning though, is that three metro areas in Florida saw the largest increase in home flips in 2015. Homosassa Springs, Jacksonville and Lakeland all experienced flip rises of around 40 - 50%. Miami topped the list of flipped property nationwide last year with 10,658 homes flipped, equating to around 8.6% of all sales in the Miami area. Home flipping is a major contributory factor to inflation in the property sector, and the increase in flips that took place last year, are certainly cause for concern.
Amid concerns John Tuccillo, chief economist for the Florida Realtors trade group, has come out fighting stating "There's not going to be a slump or a bubble burst. We have a nice, strong foundation.” While it certainly true that the real estate sector is in Florida is in a far stronger position than it was at the time of the last crash, this will not exclude it from real pain should a bubble burst. There are of course a lot of ‘ifs’ and ‘buts’ in this discussion, as their inevitably always is when assessing property markets. Ultimately the severity of any bubble can only ever be ascertained when that spark that ignites a sequence of events that lead to an eventual collapse, occurs. 2016 could be a turbulent year for property in Florida, then again, it may not. Either way, prospective buyers may perhaps do well to sit on the sidelines and observe how things play out, at least in immediate short term.