ORLANDO, FL - In 2016, Florida's economy outperformed the nation in part because of better job creation, according to several economists who spoke to a standing-room-only crowd of about 500 Realtors at the 2017 Florida Real Estate Trends event last week during Florida Realtors Mid-Winter Business Meetings.
National Association of Realtors Chief Economist Lawrence Yun noted that the pace of U.S. home sales in 2016 at 5.5 million was "the best in a decade." Since that's still nowhere near the 7.2 million sales peak in 2006, however, it leaves room for continued growth in 2017. And while interest rates are trending higher, it hasn't had a dampening effect on home sales.
"A 4.2 percent mortgage rate is still a great rate," he said. "As long as we're around the 4 to even 5 percent mortgage rate, home sales are likely to stay on pace. As mortgage rates rise, job creation – which Florida excels at – could be a great neutralizer and good for home sales. In fact, Florida is outperforming the country because of better job creation."
Other speakers who shared their views on 2017 included Dr. Elliot Eisenberg, a nationally known economist and a former senior economist with the National Association of Home Builders (NAHB); Michael Johnston, Florida regional sales manager, Wells Fargo Home Mortgage; Dr. Julie Harrington, director of Florida State University's Center for Economic Forecasting and Analysis; and Dr. Brad O'Connor, chief economist for Florida Realtors.
"The good news, here in Florida, you're in the right place," Eisenberg said. "The South is the right division to be in – the economic recovery here has been much more robust. Florida is doing fine economically, unemployment is OK and foreclosures are diminishing."
He agreed with Yun that while mortgage rates will continue to rise this year – albeit slowly – the markets will be fine as long as jobs are being created.
"Housing is improving, but in fits and starts," Eisenberg said. "There's not enough inventory of homes for sale, and builders aren't building, especially at the entry-level. Bigger houses are being built, but it's not profitable for builders to construct more affordable homes."
He cited worker shortages, burdensome land-use regulations and costs – land, labor and regulation – as some of the constraints homebuilders face when it comes to building entry-level homes. "We have to try a myriad of solutions, but getting the land costs down and easing land-use regulations will be the single most important factor in solving this issue," he said.
According to Eisenberg, forces at work in Florida and across the U.S. that are dampening real estate sales include:
Low inventory – December 2016 data, which is just a few days old, shows existing single-family home inventory nationwide at a 3.6 months' supply; in Florida, it's at a 3.9-months' supply. A 6-months' supply is generally considered a market that's balanced between buyers and sellers.
New model of renting – Six million single-family units have been taken off the market because institutional investors snapped up so many homes during the Great Recession and created a new method of renting.
Mortgage rate lock – Many people don't want to sell and lose the really low mortgage rate they're currently paying.
When it comes to financing, lenders are in a technology race to provide a digital, user-friendly experience that makes the mortgage process easier for the customer, said Michael Johnston, Florida regional sales manager for Wells Fargo Home Mortgage.
"Today, 42 percent of homebuyers are millennials," he said, "and with 92 million more millennials coming up, it will be an even bigger part of the housing market over the next five years. A recent survey found that 93 percent of those age 18-34 intend to buy a house sometime in their future. Millennials are always online, so creating a digital mortgage experience for them is critical."
Johnston shared research showing millennials value the expertise of Realtor professionals during the home buying process. "While they will go online to do home shopping, they do want to consult a trusted advisor along the way," he added.
The condominium market is an important part of the overall real estate market and often offers an affordable option for buyers, according to Johnston. "In Florida, the condo market is healthy and robust," he said. "Condos make up 28 percent of all home sales in Florida; nationally, it's 12 percent."
Looking at all of 2016, Florida Realtors Chief Economist Brad O'Connor said the statewide existing homes market remained stable but was also relatively "flat," though part of the reason for that was the comparison as "2015 was a pretty darn good year, sales-wise."
He also pointed out that a shortage of housing inventory in markets across the state, particularly around the $200,000 price range and under, is impacting closed sales and putting pressure on median prices. Another factor: Sales of distressed properties continue to fall.
"In 2015, 10 percent of Florida's housing inventory was distressed at the end of each month," O'Connor said. "This past year, it's been 5 percent, and it's going to keep going down into 2017."