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Most of us will survive housing downturn

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What the housing slowdown means to you, if you're selling your home, is pretty clear.

But what about the rest of us? Those who aren't in the real estate market have to be wondering what all those For Sale signs will mean. Will housing's troubles spill over into the entire Florida economy? How badly will it hurt? For how long?

For housing itself, the outlook remains negative, among many economists and real estate forecasters.

But there's a surprising tint of optimism in the rest of the picture. Optimism that housing's troubles will be contained to the construction industry. That it won't hugely affect Florida's overall economic growth, at least for now. And that home values won't be nicked too deeply along the way.

Let's start with the good part of the scenario. Florida's economy is a powerhouse. The state registered the third-highest growth rate of all states last year. We lead the nation in job creation.

Last year's home price gains nationwide were the biggest jump since 1978. Florida did way better than that 13.3 percent average gain. If you have owned a house or a condo for a while in South Florida, you saw median home values go up by around 50 percent in 2004 and 2005 combined.

That's over. From October 2006 to October 2007, South Floridians have or will likely see the value of their homes drop, according to one major forecast.

Moody's sees a significant probability that home prices will decline by 5.5 percent to 5.9 percent in South Florida from the top to the bottom of the housing market. If that holds true, that trough or bottom just ended in West Palm Beach. Fort Lauderdale has almost another year before it hits bottom and there's two more years until the situation turns in Miami (see chart for details).

A 6 percent decline in value on a house that's gone up 50 percent isn't a crash by any means. It puts South Florida right in the middle of Moody's list of more than 100 cities that are facing significant declines. South Florida homeowners will scrape by.

But in the rest of the economic picture, it is true that Florida does have a lot to lose when housing goes down. Housing accounts for about 15 percent of the state's economy, in the estimation of David Denslow, senior research economist at the University of Florida's Bureau of Economic and Business Research.

Denslow's outlook is among the sunnier forecasts around today. "I don't think there's a risk as bad as the collapse in construction that occurred in the early 1990s," Denslow said. "The recession then was far worse in Florida than it was nationally."

In the early 1990s, the nationwide recession hurt Florida's finance and retail trade sectors. And there was a population trend that turned against Florida. That is, the number of people entering retirement age in the early 1990s was small, because of low birth rates 60 years before then, during the Great Depression. That meant fewer people retiring to Florida.

That's the opposite of what Denslow sees happening now. Today the nation is just getting started on the Baby Boomer retirement boom. With growing population, the state has seen gains in retail sales as well as construction. And other sectors, such as medical care, are also doing well.

And there's no national recession at hand. "The trend is with us," he said.

Other forecasters also point to the state's ability to weather a slowdown. Mark Vitner, Wachovia senior economist, points out that because some sectors other than housing are going so right for Florida, overall moderate economic growth will continue.

International trade, tourism, an explosion in business and professional services, the emerging biotechnology industry -- "These will all continue on the same path as before," he said. "That will keep the economy moving forward."

Indeed, business and professional services has been the leading employment sector, not construction.

Still, the housing downturn will hurt construction jobs and consumer spending eventually, the forecasters say.

The impact on jobs will come down the line, says Lew Goodkin, who has been analyzing Florida real estate trends for four decades. When today's condo buildings are finished, "I see a significant decline in the number of construction workers."

Also, consumer spending will hit a wall -- even though that's not looming over the holiday season, predicts Chris McCarty, director of survey research at the UF economic and business research center. McCarty says spending has been inflated in the last five years by rising home values and home-equity borrowing. "My expectation is that we'll be experiencing this big drop from housing. It just hasn't happened yet," he says.

And that brings us back to the homeowner. The kind who's selling and the kind who's banking on his or her home to increase in value.

Economist Hank Fishkind of Fishkind & Associates in Orlando predicts 24 months or more of "flat line" sales for single-family homes. For condos, the decline in sales volume will continue for "four or more years."

Goodkin says it will take a very long time to work off such excesses as what he says happened at the market's peak: Florida had three speculative buyers to every one buyer who really wanted to live in the house or condo.

"The recovery in the condo market, that'll come at a minimum in two years, probably three," Goodkin said. "For the single-family sector, sales volume will recover during 2007, but not to the levels that we've seen."

Anyone planning on his or her home value going up at a fast rate needs to think again.

Prices, for single-family homes, will be flat for two years. "Houses will not do even as well as inflation," Fishkind predicts.

Vintner's prediction for home prices: a decade of less than 6 percent yearly gains.

The windfall gains in prices were nice while they lasted. It's going to be a little less interesting from here on. More like watching a certificate of deposit mature.

Copyright © 2006, South Florida Sun-Sentinel - Harriet Johnson Brackey - Published November 12, 2006

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