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Investors are coming back to Florida.
As the chief investment strategist and managing director of equity research at St. Petersburg-based Raymond James, Jeffrey Saut talks to the brokerage firm's clients every day.
What they tell him should be good news to anyone in the real estate business. “They don't think they can lose money in real estate over a long cycle,” clients tell Saut.
Never mind the real estate collapse during the last decade or the threat of rising interest rates. Saut cites a recent Wells Fargo survey of its wealthiest clients that showed 40% of their portfolios were invested in cash.
And some of that cash is making its way to Florida, where buyers are purchasing homes without financing, even as borrowing rates remain ultra-low.
In addition, investors have been taking recent stock market gains and putting that money into real estate. “The individual investor believes the stock market is only up because of the Fed,” he says, referring to the perception that the Federal Reserve's easy-money strategy has artificially inflated assets such as stocks.
The recent run-up in real estate prices in Florida doesn't worry investors because they're still lower than other desirable places such as California and Europe, where Saut says he recently paid $12 for a Coke in Geneva, Switzerland. “Florida is still cheap,” he says. “I'm pretty bullish.”
Indeed, Raymond James research analysts recently upgraded the stocks of publicly traded homebuilders. Among other favorable developments, the government recently announced lower mortgage-insurance premiums and other initiatives to lower financing costs, particularly for first-time and entry-level buyers.
Raymond James' positive outlook for homebuilders included Bonita Springs-based WCI Communities (symbol: WCIC; recent price: $19). While WCI targets more upscale buyers, the investment firm says WCI has a nimble balance sheet, a solid earnings outlook of 40% three-year compound annual growth and its stock trades at a discount relative to its peers. Raymond James says WCI has “industry best” Florida land positions.
Commercial real estate is attractive, too. Saut says Standard & Poor's is considering adding real estate investment trusts (REITs) as one of its major sector groups along with energy, financials and health care. If that were to occur, institutional investors such as mutual funds would likely add publicly traded REITs to their portfolios, boosting demand and prices for such stocks.
Meanwhile, the drop in oil should attract more visitors and prospective real estate buyers to Florida. “Every penny drop in gas puts $1 billion to $1.5 billion in the hands of consumers,” Saut says.
Saut isn't concerned about the consensus for rising interest rates later this year. He believes rates will rise incrementally from drastically low levels, especially when viewed by historical context. “Interest rates will be going up for the right reasons,” he says.
Follow Jean Gruss on Twitter @JeanGruss
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