The Housing Crisis, which kicked off with the melt down of the Miami condo market in 2006, is changing Florida into a state where new properties are being exclusively marketed for foreign ownership and snow-state retirees who once were the lifeblood of the state’s huge second home market now rent instead of buying.
Are the structural changes that are reshaping Florida’s real estate markets a bellwether for the nation as a whole?
Jack McCabe, the outspoken Deerfield Beach, FL economist who foresaw the last decade’s real estate boom and bust now has a dire scenario for the nation that’s based on Florida’s experience.
“We are headed to a rental society and a slow- to no-growth economy unless the housing market, the foundation of American spending and a major part of U.S. gross domestic product, is revived,” he wrote in an October column in the Sarasota Herald-Tribune titled “The American Dream Recovery Program: a working solution that puts the American people first.”
In an interview with Real Estate Economy Watch, McCabe outlined the Florida trends that are changing the very nature of homeownership, and the fabric of community life in the state.
“Florida is becoming a different place to live. There is a big paradigm shift in how homeownership is viewed,” he said.
Foreclosures are still flooding Florida’s markets. The state’s judicial system has some 371,009 open foreclosure cases. Another 60,000 or so are in default. There are some 1.24 million potential foreclosures and short sales, McCabe estimates. The percentage of homeowners has dropped more in the last 10 years than any time in history.
McCabe advocates a program of systematic modifications beginning with principal write downs based on re-appraisals for current market value, a new tax credit for new homes and revived purchases of mortgage backed securities by Fannie and Freddie to keep families in their homes and foreclosures off the market. Without these steps, he believes, the transition of Florida communities from ownership to rental will come even faster.
Meanwhile, demand from the state’s traditional source of second home owners is drying up. Many of today’s retirees are thousands of dollars in debt on their home, can’t buy a retirement home, don’t want to tap the nest egg and they can’t move to Florida. So they just go down to Florida for a few months and rent, he said. Resort and retirement communities are transitioning from owner/occupant to rental.
In parts of Florida, foreign buyers are now a major part of the market. Some 80 percent of sales in Miami/Dade are to foreign nationals and over 70 percent are cash transactions. In other parts of the state, Canadians and Brits are major buyers. Properties are marketed abroad and McCabe knows of several South Florida condo developments where buyers must pay incrementally as the projects are built, foregoing the need for financing. “These are designed from the outset for foreign ownership,” he said.
“What’s happening in Florida’s retirement market is the tip of the iceberg. It’s a bellwether and we are already seeing the changes underway,” said McCabe, pointing to changing attitudes towards homeownership, especially among young people. “Young people are viewing homeownership negatively compared to other investments.”
However, McCabe is not giving up. “We’ve bailed out the banks, bailed out the automakers, bailed out the airlines, and in the past many other businesses considered important to the American economy,” he said in his Sarasota column.
“The American Dream Recovery Program is a working solution that puts the American people first. ”