Florida Realtors: Economic Update for Housing and the Economy
By Jennifer Quinn
What did you miss from Florida Realtors Virtual Convention? Will inventory increase? When will Canadian buyers return? Will Fla. see a rash of foreclosures hit the market?
ORLANDO, Fla. – Florida Realtors® Chief Economist Dr. Brad O’Connor provided Realtors with his insight on Florida’s housing and economic future at the recent 2020 Florida Realtors Virtual Convention. Here are some of the questions received from Florida Realtors’ members.
Question: What will sales activity levels look like in the coming months?
Answer: The stunted spring buying season created pent-up demand that exploded into summer, as evidenced by more new pending sales in June and July than the year before. This is expected to translate into more closed sales in August and beyond. That said, employment losses and economic weakness continues and could cause headwinds for this current burst of recovery going into the fourth quarter of 2020.
Question: Inventory was tight before COVID – has anything changed?
Answer: The pace of residential building is still behind last cycle’s highs, and while building has continued through the pandemic as construction was deemed an essential occupation, costs of materials and labor have increased. Safety protocols for workers, some disruption in supply chains and increased demand for materials all have translated into cost increases. Coupled with some uncertainty in lending, relief on the supply side is not coming from new construction.
For existing homes, the tap is dwindling to a dribble as current homeowners are living in their homes for an average of 10 years compared to only seven during the early 2000’s. Uncertainty in the economy is also prompting people who can to stay put. That said, demand continues to be strong, as those who were sitting on the sidelines are feeling the pull to jump into a home for the first time or finally trade up, fueled in large part by record low interest rates and the desire to upgrade to more “pandemic friendly” homes and locations. This all leads to an imbalanced market with demand outstripping supply, particularly in the single-family home category.
Question: What about our friends to the north that snowbird?
Answer: The border restrictions between the U.S. and Canada are still in place, as are other travel restrictions both internationally and domestically. These will certainly impact their return travel to Florida and international buyer activity. According to the 2019 Profile of International Residential Real Estate Activity in Florida, 43% of international buyers came from Latin America/Caribbean, 23% from North America (Canada), and 19% from Europe.
Even U.S residents that call Florida home for half the year may face interstate travel restrictions, as several states in New England have quarantine requirements on people traveling from Florida. This will all create an odd year for people who typically have extended stays in the Sunshine State.
Question: I see a lot of scary stuff in the headlines about the economy – how are we doing in Florida?
Answer: Florida’s total employment dropped 13% between February and April but has begun to come back as people went back to work during the summer months. The return to work and impact is felt differently across industries, however, making for an uneven recovery. For example, the leisure and hospitality sector was hit the worst while finance and insurance grew during this time. The V-shape of the short-term recovery is not an indication of how the recovery will continue, and the loss in employment will have lasting impacts on Florida.
Question: What do you think about a looming wave of foreclosures? I remember the last cycle and I’m getting nervous.
Answer: Remember the market was very strong before the pandemic, and this recession was not borne out of the housing market and banks like last time. The fundamentals are much different. The speed at which the Fed acted in response to the crisis to support the economy was exceptional and largely done out of lessons learned from the Great Financial Crisis.
The CARES Act included action that allowed borrowers to receive mortgage forbearance for up to a year. But forbearance only pauses payments, and some homeowners could be hit with a large balloon payment at some point which they may not be able to pay. There has been a rise in the delinquency rate recently, which includes loans in forbearance. Employment is an important aspect to watch as it directly correlates to one’s ability to pay their mortgage.
In addition to Dr. O’Connor’s Economic Trends session, a total of 32 full education sessions presented at the convention may be streamed online (login required) until Oct. 31. Other topics include dealing with iBuyers, expanding globally, short-term rental investing and pandemic business-growth tips.
Jennifer Quinn is a Florida Realtors economist and director of economic development
Reprinted with permission Florida Realtors. All rights reserved.