Experts: Housing will continue climb in 2014
Published: Tuesday, December 10, 2013 at 11:46 p.m.
Last Modified: Tuesday, December 10, 2013 at 11:46 p.m.
ORLANDO - At the tail end of the healthiest year for residential real estate since the Great Recession, housing economists are predicting a continued upswing in 2014.
A panel of market analysts on Tuesday told an Orlando banquet room packed with Realtors from Panama City to South Florida that they expect the industry to maintain its brisk pace well into the coming year.
Their general consensus was that home sales would climb another 10 percent next year, with appraised values rising by 5 percent and median sale prices increasing 12 percent. That would be another significant step forward for an industry now among the key drivers of the Sunshine State's economic recovery.
But speakers also warned that political uncertainties looming over the economy — from the federal health care law to the debt ceiling and mortgage reforms — could dim that positive outlook.
“The housing market has improved, but it's still nowhere near where it was five to 10 years ago,” said Frank Nothaft, vice president and chief economist for Freddie Mac, who was among the speakers at the Florida Realtors' annual summit. “We're getting there. But we're not there yet.”
Through the first nine months of this year, single-family home sales throughout Florida rose 13 percent from the same time in 2012, the highest level since the onset of the recession. Prices, meanwhile, have swelled by 19 percent over the year to reach a third-quarter median of $175,000.
That trend was mirrored in Sarasota and Manatee counties, where the 3,276 home transactions during the third quarter were up 14 percent over the year; median prices jumped 21 percent to reach $206,000.
Forecasters on Tuesday attributed that growth to modest job improvements, pent-up demand from retiring baby boomers and investors picking up Florida real estate for rental income.
Nothaft projected that the U.S. economy would grow 2.5 to 3 percent in 2014, outpacing the 2 percent average of the past three years. That should also allow more middle-class families to join the recovery.
He added that unemployment is the top factor now holding back the home market. Coupled with discouraged workers who have given up on their job hunts and underemployed part-timers, these jobless Floridians have been forced out of the housing market.
“What's important with that step-up in growth is there'll be more job creation,” he said. “With that job creation comes income, which gives more families the ability to buy homes.”
Nothaft and the other panelists said they are keeping a close eye on mortgage interest rates and lending qualification standards.
They believe both measures will become key to sustaining real estate demand in 2014.
The Federal Reserve is expected to slow its $85 billion-per-month purchases of Treasury bonds and securities sometime next year, which should lessen the government's manipulation of mortgage yields. As a result, Nothaft sees average rates rising to 5 percent by the end of next year, though that rate would still be low compared with historical averages.
Freddie Mac data shows even if interest rates go that high, owning a home will remain affordable in Southwest Florida based on a recommended 20 percent housing payment-to-income ratio.
Oversupply of vacant housing also has dwindled substantially, both with for-sale listings and rentals. That has eased the downward pressure on prices.
Florida home values are now down 36 percent from their peak in January 2006, but up 24 percent from January 2012, according to the Freddie Mac economic presentation.
Metro areas that saw values fall the sharpest during the recession have seen a more pronounced rebound this year.
But even as the housing market has improved, a number of unknown factors facing the economy have prompted employers to hold back on hiring.
That, in turn, has chilled the housing market somewhat, said Sean Snaith, an economist with the University of Central Florida.
The uncertainties include the new health care law, Dodd-Frank lending rules and the rift in Congress over federal debt. Higher flood insurance rates also are muddling the plans of potential homebuyers in coastal areas throughout Florida, Snaith said.
After the recessions in 1991 and 2001, the level of economic uncertainty calmed almost immediately. But that has not been the case in the wake of the recession.
“Uncertainty has really been a constant theme, and a primary reason this recovery has been weak,” Snaith said. “It's slowing down job growth and overall growth. . . . There are some signs we could see a significant slowdown in the fourth quarter.”
Especially in areas like Southwest Florida, housing demand has been propped up this year by giant institutional investors snapping up foreclosures for their portfolios. As those hedge funds retreat, the market's ability to transition to a more sustainable number of owner-occupiers will become crucial, Snaith said.
Financing for qualified buyers also remains a challenge, especially as new rules tied to the Dodd-Frank act are set to roll out in January.
With housing inventory also expected to gradually creep back up next spring, finding loans for people interested in buying will be vital for the market to bridge that investor gap, said John Tuccillo, Florida Realtors' chief economist.
“The key to this whole business is going to be accessibility to credit,” Tuccillo said. “That's going to be the single biggest problem in the real estate market.”
Job creation ultimately will be critical to a sustained, strong housing market, the experts noted.
Unemployment across Florida has fallen substantially since the depth of the recession, and the national economy is now adding new jobs at a pace of about 175,000 new positions each month. But at that rate, it would take until 2020 to fill the void of 8 million positions, UCF research shows.
Fierce housing demand already has restored jobs in the ravaged homebuilding sector. UCF projects that construction will lead all industries in Florida with an average employment growth of 7.3 percent — nearly double any other sector.
Grant Thrall, a real estate analyst and retired University of Florida professor, told the crowd on Tuesday that jobs — and ultimately long-term housing demand — starts with education.
The graduation rate for low-income high school students across the United States is 73 percent. That falls to 51 percent in Florida, which ranks last in the country, according to Thrall's research. Similarly, graduation rates for students with disabilities hovers around 63 percent nationally but only 34 percent in Florida, 49th among states.
Those factors hinder economic spending in Florida, and increase the housing market's dependence on seasonal buyers and investors, Thrall said.
Those high school dropouts earn an average of $9,200 less per year than graduates. That can mean the difference between renting and buying a home.
“For one of the wealthiest states in the country, this is not a good report card,” Thrall said. “We're not being competitive.”
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