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Slowing growth in Canada and the oil bust will have significant implications for Florida.
Speaking to a captive audience in Fort Myers recently, Mark Vitner, senior economist at Wells Fargo, suggested the oil-price drop could boost domestic tourism to Florida, but it could slow visitors from oil-producing countries such as Canada.
“Canada's right on the brink of recession,” Vitner says. That's important because Canadians spend money on homes and vacations in Florida, especially during the busy winter season.
For example, the Florida Association of Realtors reported that the biggest share of international buyers in Florida for the year ending June 2014 came from Canada. Northern neighbors represented 32% of foreign buyers in Florida. In all, international homebuyers accounted for 10% of all Florida real estate sales in 2014.
Vitner says Canadian tourists will continue to visit Florida, but they likely will spend less money. The same is true for visitors from oil-producing countries in South America, such as Brazil.
A strengthening U.S. dollar won't help, either. Vitner's message to retailers and real estate agents who depend on foreigners for business: “You're going to have to work a little bit harder.”
Vitner has seen this before. He has tracked Florida's economy for three decades, starting with Barnett Bank in the 1980s. “The growth in foreign tourism has slowed,” Vitner warns.
Offsetting the drop in foreign business, domestic tourism likely will get a boost from declining oil prices as Americans find it more affordable to drive or fly to Florida. “It's a huge benefit to Florida,” he says.
But Vitner warned that rival states such as South Carolina are becoming more competitive, especially for retirement housing. “They're gaining market share of retirees because it's a cheaper alternative to Florida,” he says.
While Vitner hailed the recovery in housing in Florida, he says home prices can't continue to rise at double-digit annual percentage rates. For example, the median price of an existing single-family home in July rose 17% in Fort Myers and 24% in Naples.
Vitner notes too that commercial real estate prices “are a bit high,” though “it doesn't mean they're crashing down.”
In addition, Vitner says the decline in stock values may affect Florida disproportionately because many retirees rely on investment income for their spending. He forecasts slower spending by that demographic if stocks continue their downward trend.
Vitner says it's unclear whether recent stock-market gyrations mean a financial crisis is brewing. “In the void of information you don't know how bad this is,” he says. In particular, Vitner says no one knows how dramatic the slowdown in China really is. “There's very little hard data on China,” he says.
Still, the U.S. economy continues to show strength and is a safe harbor for global investors — another plus for Florida real estate. “The economy looks pretty solid,” Vitner says, citing recent upward revisions of the country's gross domestic product.
As a result of improving economic conditions, Vitner says he believes the Federal Reserve will raise short-term interest rates this month, though he says they'll be watching the financial markets. “If the turmoil is still with us in September, they're not going to raise rates,” Vitner says.
But Vitner says the Federal Reserve's easy money days are numbered. “Interest rates are at zero,” Vitner says. “Zero is not normal.”
Follow Jean Gruss on Twitter @JeanGruss
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