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Hang on till '08
Real estate by Jean Gruss | Editor/ Lee-Collier
Housing economist Brad Hunter predicts two years before the housing market rebounds.
Housing economists are the new rock stars of the business world.
With so much of Florida's economy tied to residential real estate, everyone wants to know when the downturn is going to end. So when housing economist Brad Hunter shows up to speak, hundreds of builders and trades professionals pack a room to listen to his forecast.
Hunter, South Florida Market Director for residential housing-market research firm Metrostudy, told a crowd of Lee County builders last week it's going to take as long as two years for the new-home market to return to a normal level (We'll have a new president by then.)
That gloomy forecast wasn't what anyone really wanted to hear. But the Metrostudy data is clear. In just the second quarter, inventory of finished but vacant new homes jumped from a one-month supply to a three-month supply in Lee County. That's 1,400 homes. In Collier County, there's a three-and-a-half-month supply of new vacant homes, or about 600 homes.
And it's not over as builders finish more homes. "I expect that number to go much higher in the near term," he says.
By now, everyone knows the story of the downturn. Rising interest rates have forced speculators out of the market and buyers are sitting on the sidelines waiting for prices to drop further.
Demand is the new buzzword
When the residential market was hot, the buzzword was "supply." Now, it's "demand."
"The demand is still there," Hunter says. Boomers are going to continue buying in Florida, unemployment is low and consumer confidence is strong.
However, there are impediments to demand from both inside Florida and outside the state, he warned.
Within the state, Floridians who sell their primary residence and buy another within the state face a significant increase in property taxes under Save Our Homes constitutional amendment (see related story). In addition, rising home prices have kept young families out of the market and Hunter pointed to falling school enrollments statewide as evidence.
Meanwhile, people who can't sell their homes in northern states at elevated prices are unlikely to buy homes in Florida. What's more, Hunter says he's concerned that people who would have bought homes next year have already purchased them using risky adjustable-rate loans. Some of them will have to sell their homes as they may not be able to keep up with payments, adding to the oversupply.
Based on current demand, Hunter estimates buyers will absorb the supply of speculative homes over the next 18 to 24 months.
Looking ahead
With the downturn in the market, the homebuilding industry has to go through what Hunter calls "The Five-Step Program."
First, it's going to help if the hurricane season ends without a major storm hitting the state. Second, builders must address buyer's anxieties about buying at what they perceive as the peak of the market. Third, the supply of homes that speculators have put on the market must be absorbed. Fourth, builders may have to lower prices even further. Lastly, the market will not return to the heady 2004 levels but will resume more normal pre-boom sales patterns.
In the meantime, Hunter's advice to builders is to help buyers with financing, offer free items such as a backup generator or pay a portion of the closing costs and undercut the competition's price.
"It's really important to do your homework these days," Hunter says. Builders must pay close attention to vacant supply and absorption rates in their markets in order to be able to beat the competition.
What's more, the downturn may help some companies prepare for the recovery. "There is going to be an unprecedented opportunity to buy land at prices we haven't seen," Hunter says.
Demand for second homes will increase 50% over the next 10 years. "Get ready to position yourself," he counsels.
TO-GO EXEMPTION
Call it the son of "Save Our Homes."
In 1992, Florida voters approved an amendment that caps homesteaded residential property assessments to annual increases of 3% or the rate of inflation, whichever is less.
Amendment 10, commonly known as "Save Our Homes," was designed to keep residents' property taxes from spiraling upwards when values surged. In that, it was successful.
But now residents who want to sell their homes and buy another within the state face a substantial property tax hike because, when they're sold, homesteaded properties are reassessed at market value.
Enter Lee County Property Appraiser Ken Wilkinson, the driving force behind the Save Our Homes initiative 15 years ago. He plans to gather enough signatures to put a new measure on the ballot: portability.
Under his plan, Wilkinson says residents should be able to take a portion of their exemption when they sell their home and buy another within the state. Specifically, Wilkinson says residents should be able to "carry" their homestead exemption from one property to the next.
Although the language of the ballot initiative is still being written, it would allow residents to carry up to 50% of the difference between the assessed value and the market value of their home and subtract it from the market value of their new home. So if a resident's home has a market value of $400,000 and they're only paying taxes on $200,000 they can carry that maximum 50% of exemption to a new home in Florida. If that new home costs $500,000, then their home would be assessed at $250,000, or 50%.
Wilkinson proposes a $400,000 limit to keep the wealthiest Floridians from benefiting and that amount would be adjusted for inflation annually.
The Save Our Homes amendment has come under increasing scrutiny as home values have risen dramatically in the last few years. Meanwhile, owners of non-homesteaded properties have seen their tax bills increase as well.
An effort to legislate a change to the amendment to allow portability failed in the Florida Legislature last year, so Wilkinson is organizing an effort to gather enough signatures to get the initiative on the ballot in 2008. He estimates the effort to gather as many as 750,000 signatures around the state could cost as much as $1 million, though the job may be easier because of plans to create a Web site that accepts electronic signatures.
He's also concerned that the governor's recently created property tax-reform committee will recommend changes to the amendment that weaken it. By organizing a ballot initiative, Wilkinson hopes legislators themselves will vote to put it on the 2008 ballot.
Critics contend that the amendment has disproportionately shifted the tax burden onto businesses and owners of non-homesteaded property. Wilkinson agrees that there has been a shift in the percentage of taxes collected, but he argues local tax rates have remained steady since 1992. He says the tax increases in recent years have been due almost exclusively to rising property values.
What's more, Wilkinson says it's unlikely local governments would have lowered the tax rates anyway. "See any starving governments?" he quips.
Wilkinson also has little pity for people who own second homes in Florida and can't take advantage of the homestead exemption. "If you can afford a vacation home in Florida, you can afford to pay the taxes," he says.
-Jean Gruss
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