Florida Real Estate Market Outlook

As we approach the end of 2009, I started thinking about the real estate market and its future. This year was not an easy year for real estate investing. Many had high expectations of seeing big recovery on the market. My conclusion of 2009 is that it was an OK year. We saw in many markets signs of stability in valuation. I think that stability is the beginning for recovery.

Florida was one of the most affected real estate markets in the United States due to the overvaluations thanks to speculations and poorly sound real estate investment strategies. Following the past 2 years of decline, I do not expect a full recovery during 2010. However, we will see more stability in the real estate market of Florida, which in turn will prepare the ground for the followers to start gaining more confidence. I think that real estate investors with sound strategies, avoiding excessive lending, speculative buying and instability will be in a position to profit from the upturn. A word of caution, investment strategies concentrated on speculative buying and poor reserves should be avoided. Long term investments are expected to be the strongest growth areas in Florida. Long-term strategies will result in fewer risks involved and excellent gain potential due to the exceptionally low priced investment options available in both emerging and established markets.

What are the drivers?

1. Low Interest Rates. Interest rates continues at record lows and are expected to continue at those levels at least until mid-2010.

2. Great prices. This slow market provides a situation to find some optimum bargain opportunities.

3. A long-term-growth state. Long-term economic and demographic trends continue to favor Florida. By 2010, economists forecast that Florida will be the third-most-populated state in the country. Florida has been one of the 10-fastest-growing states in the U.S. for each of the past seven decades, and often the state has been in the top four, according to Census data. Population growth will continue to provide a foundation for other economic development, such as new jobs and growing incomes. All of these trends are positive indicators for real estate growth.

4. A migration magnet. Even with a slowdown in economic growth nationally, projections call for Florida's population to return to more normal growth levels of about 317,000 a year between 2010 and 2020, similar to the 1980s and 1990s, said Stan Smith, director of the University of Florida's Bureau of Economic and Business Research. That's a lot of new buyers coming into the market.

5. A favored retirement destination. Over the long term, Florida stands to benefit from the migration of the aging Baby Boomer generation, roughly 80 million strong. Demographic studies show that the Sunshine State's mild climate and outdoor amenities continue to make Florida a favorite retirement destination. Florida is also a destination for Canadians wanting to have a retirement or second home with warm weather, great prices, variety of activities, etc.

6. A diverse economy. Florida's economy, like the rest of the nation, is impacted by the recession. Some business sectors, though, appear promising for the Florida economy. The healthcare and technology sectors are quickly becoming an important economic force in South and Central Florida. The Milken Institute/Greenstreet Real Estate Partners ranked five Florida communities on its "Best Performing Cities Index 2008," which ranks U.S. metropolitan areas by how well they are creating and sustaining jobs and economic growth. Florida's business climate ranked fourth among executives and sixth overall on Site Selection magazine's 2008 Top State Business Climate rankings.

Where are the risks?

1. Increase in Interest Rates. To help with the turnaround interest rates must continue at low levels long enough to allow to gain momentum.

2. Access to financing. While the ability to finance properties has enabled an optimum moment to enter the real estate market, restrictions on lending criteria has become widespread, leaving many potential buyers unable to qualify for mortgage financing.

3. International economy. Another interesting fact is that despite the weak US dollar, overseas buyers aren’t rushing to buy properties in the US as expected. Eventhough the purchases are happening they are not overflowing the market. Foreign investors are being careful and choosy. We can only speculate that perhaps even though Asians, Middle Eastern and Europe buyers generally have more buying power, (due to favorable exchange rates), they too have to tighten their belts due to their own local market condition.

4. Insurace costs. Some say the added cost of insurance and tax is keeping investors at bay. After all, Florida has always been known for the odd Hurricane, therefore it is understandable if some people are cautious.

5. Financing programs geared to foreigners. Due to its international appeal, Florida lenders must have programs geared towards this market. Few loans are being made to foreign nationals and come with terms deemed unacceptable by most. However, more than half of these foreign buyers are paying everything in cash, with European and Canadian buyers most likely to reject the financing option. Europeans are big buyers in South Florida, with Swiss, Spanish, Italians and English all seeing it as a good time to buy. They account for 26 percent of foreign buyers. But it is the Latin Americans who are the largest contingent, making up 52 percent of foreign buyers.


Which Strategy to Use?

2010 will continue to be an optimum buyer’s market, where those in a position to purchase will continue to receive and negotiate optimum deals. Long-term buyers will be in a position to once again benefit from a future turnaround into ‘seller’s market’ conditions. Investments based on long term return scenarios will be the most viable for 2010 in both emerging and established markets. As the real estate market in very few regions are expected to show any significant growth patterns during 2010, short term investment options are unlikely to prove successful. As the real estate sector emerges from its present turmoil over the coming years, long term investments will provide the most significant growth potential. Long term investments also provide the least risk, an important consideration in the current market situation.

Ideal Investment Locations?

Florida has always been a popular playground for city escapees who want to enjoy the sun, surf and of course the popular Mojito cocktail, while they watch the sun set over the ocean. Living in Florida is about the lifestyle and having fun.

One of the areas that seems of interest is Southeast Florida. The Southeast Florida real estate market is significantly impacted by international buyers and second home seekers. Cities like Aventura, Sunny Isles Beach, Bal Harbour and Miami Beach are banking on foreign nationals from South America, Europe and Asia to further increase real estate sales. In November 2009 alone, pending sales of condominiums in Miami-Dade County were registered at 4,414 units. Single-family pending homes sales accounted for 3,874 units. For Broward County the numbers were 3,394 pending single-family home sales and 3,871 pending condominium sales. To add to these figures, the ultra-luxurious Jade Beach Condo Tower in Sunny Isles Beach announced last month that it nearly sold out all of its condominium units during the most challenging economic times in recent history.

Brosda & Bentley Realtors, one of the leading full-service real estate companies in Miami predicts that home prices especially in newer buildings in North Miami Beach are close to stabilizing and sales, particularly of trophy condominium properties are on the rise. An extensive advertising campaign in Europe and South America at the beginning of autumn now brings prospects to the Miami offices of the company that specializes in luxurious properties.

What sort of units to invest and Why?

I would recommend to purchase a Single Family Home with a pool or in a community with a pool.

In conclusion, I believe that within 5 years, the market will be just as strong as it was 2 years ago but we will all work with more caution and advise our buyers to be more cautious. With more caution, we can make sure that it doesn’t cause another over priced market and meltdown leading into foreclosures and losses to investors.