The upside of Florida real estate: 15 market positives

Let’s take a look at some of the opportunities for today and the future of Florida’s real estate market.

1. Great prices. Statewide, the existing-home median sales price was $161,200 in the fourth quarter of 2008; a year earlier, it was $216,600 for a decrease of 26 percent.

2. The time is right. Home sales volumes are rising again – a clear signal that today’s “buyers market” may be changing soon. In fourth quarter 2008, statewide sales of existing single-family homes were up 13 percent compared to the same period last year, according to FAR statistics.

3. High inventory levels. Conditions are ideal for buyers to find their dream home. Inventory is still plentiful in all price ranges. But as sales volumes increase, inventory levels are likely to shrink. That reality translates into this advice for buyers: Don’t wait too long.

4. Low mortgage rates. Mortgage rates are still at the lowest levels since the 1960s. Lower rates multiply a buyer’s financial power. Even half a percent can make a sizeable difference. For example, on a $200,000 home, half of 1 percent could save the homeowner about $815 a year. Buyers can get more home for the money, which is a perfect scenario for families looking to upsize.

5. Incentives to buy. Federal, state and local housing programs can help buyers make that big purchase. The U.S. Housing and Economic Recovery Act of 2009 includes an $8,000 tax credit for first-time buyers. President Obama’s 2009 economic stimulus package also identifies and offers incentives to help home buyers with mortgages. Talk to a local mortgage lender about state and federal incentive programs.

How to get the $8,000 credit.
6. A long-term-growth state. Long-term economic and demographic trends continue to favor Florida. By 2010 economists forecast that Florida will be the third-most-populated state in the country. Florida’s population is expected to swell about 75 percent by 2030. Florida has been one of the 10 fastest-growing states in the U.S. for each of the past seven decades, and often the state has been in the top four, according to census data. Population growth will continue to provide a foundation for other economic development, such as new jobs and growing incomes. All of these trends are positive indicators for real estate growth.

7. A migration magnet. Even with a slowdown in economic growth nationally, projections call for Florida’s population to return to more normal growth levels of about 317,000 a year between 2010 and 2020, similar to the 1980s and 1990s, said Stan Smith, director of the University of Florida’s Bureau of Economic and Business Research. That’s a lot of new buyers coming into the market.

8. A favored retirement destination. Over the long term, Florida stands to benefit from the migration of the aging Baby Boomer generation, roughly 80 million strong. Demographic studies show that the Sunshine State’s mild climate and outdoor amenities continue to make Florida a top retirement destination.

9. Business-friendly state. Florida has always been a business-friendly state – no state income taxes, plus incentives from local municipalities encourage businesses to set up shop here. Even with the current economic downturn nationwide, Florida leaders continue to keep business needs in the forefront of planning for the state's future. The Milken Institute/Greenstreet Real Estate Partners ranked five Florida communities on its “Best Performing Cities Index 2008,” which ranks U.S. metropolitan areas by how well they are creating and sustaining jobs and economic growth. Florida’s business climate ranked fourth among executives and sixth overall on “Site Selection” magazine’s 2008 Top State Business Climate rankings.

10. Positive investment outlook. Every quarter, the University of Florida’s Bergstrom Center for Real Estate Studies conducts a survey of industry executives, market research economists, real estate scholars and other experts. In the third quarter 2008 survey, the investment outlook for various types of Florida properties remains steady. “People who have responded to our surveys have not lost their faith in Florida as a place to be and a place to invest,” said Dr. Wayne Archer, director. “We have 40 pages of comments from our respondents, and although the dominant theme is the disruption of financing, perhaps the second theme, as one person put it, is people being on the sidelines with full pads and helmets just waiting to jump back in.”

11. Homeownership has value. Realtors believe – and research supports that belief – that homeownership provides a variety of tangible and intangible benefits to the community and homeowners. Studies show that home equity is still the largest single source of household wealth, both for the individual homeowner and for homeowners as a group.

12. Greater sense of well-being. Owning a home leads to increased personal well-being. Research shows that people who own their own homes tend to show higher levels of personal esteem and life satisfaction, which in turn helps to make homeowners and their children more productive members of society.

13. Beneficial for kids. Studies show that children raised in homes owned by their families are more likely to stay in school and more likely to graduate high school. They’re also shown to have a higher lifetime annual income.

14. Community involvement. People who own homes have a strong financial stake in what happens to their community and tend to become more involved in community and civic affairs. Studies show that homeowners also interact more with their neighbors and communities. Compared to renters, homeowners join up to 41 percent more civic and/or nonprofessional organizations, such as the PTA or Scouts; vote in local elections 15 percent more often; enhance their neighborhoods with gardens 12 percent more often; attend church about 10 percent more often; and have a 3 percent greater chance of being interested in public affairs.

15. An unsurpassed lifestyle. Finally, let’s not forget the things that brought people to Florida in the first place, and will continue to attract them – beautiful beaches, fabulous weather and a friendly business climate, with no state income tax. It’s no wonder that Florida’s combination of temperate climate, outstanding recreational amenities and economic opportunity has consistently put Florida in the top three of Harris Poll’s “Most Desirable Places to Live” survey.

The Two Latest Signs Housing Is Recovering

Here’s more evidence that the housing market is recovering.

Two major home builders, Toll Brothers Inc. and Hovnanian Enterprises Inc., say their losses were shrinking compared to last year because buyers are coming back to the market.

Other encouraging news came from HIS Global Insight, a research firm, which said home prices fell on average at an annual rate of 2.2 percent in the first quarter in 199 of 330 metropolitan areas. That compares with a 12.5 percent decline in the fourth quarter of 2008 in 312 metropolitan areas."While it's too early to see a bottom of this housing downturn," the report said, the latest data "may signal that the market is beginning to stabilize."

Source: The Wall Street Journal, James R. Hagerty and John Spence (06/04/2009)

Keeping You Current - May 2009

HUD: Tax Credit Can Be Used on Closing Costs

FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans that was released today.

Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent.The loans can't be used to cover the minimum 3.5 percent, senior HUD officials told reporters on a conference call Friday morning.

Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent downpayment.There remain many sources of assistance for buyers needing help with the 3.5 percent downpayment, including many state and local government instrumentalities and nonprofit lenders.

In addition, some state housing finance agencies have developed their own tax credit bridge loan programs, so buyers in states whose HFAs offer such programs can monetize the tax credit upfront to cover all or part of their downpayment. These programs are separate from what HUD announced today. The first-time homebuyer tax credit was enacted last year--and improved upon earlier this year--to help encourage households to enter the housing market while interest rates are low and affordability is high. The credit is worth up to $8,000 and is available to households that haven't owned a home in at least three years. The credit does not have to be repaid, and is fully reimbursable, so households can get their credit returned to them in the form of a payment.

Condo maintenance versus house maintenance

Many buyers perceive that the maintenance fees for a condo seem so high compared to the monthly costs of owning a house. This is really not always the case if you break it down. Typically condo maintenance for a medium range building is $ 0.50-0.70 per square foot to close to $ 1/SF for very high end building. Depending on the condo, this maintenance cost could include reserves for major repairs lessening the need for special assessments.

Here are the monthly costs of owning a mid range home:

$ 300/insurance ( approximately 0.75-1.5 % of home value depending on age of home,east or west of US1 and flood zone location)

$ 75 water ( will depend on city and if property is on sewer or septic)

$ 50-100 trash removal

$ 100 gardener

$ 30 basic cable

$ 30 alarm monitoring

$ 40 pest control

Total $ 625 so if the house is 1800 SF, we are at $ 0.35/SF.

But ....you have to figure roof replacement reserves about $ 1000/year plus painting outside $ 1000/ year, tree trimming $ 300/year, pruning and fertilizing $ 800/year, pool service $ 1000/year and other external maintenance you would not have in a condo adds another $ 0.20 per square foot monthly.

Maybe there is a small garden and no pool but sooner or later roofs need to be fixed, maintained or replaced: the exterior needs to be painted, pressure cleaned etc; trees need to be trimmed for hurricane season: plumbing and electric repairs are more extensive than in a condo.

So the condo maintenance does not seem so high anymore when you really compare monthly or yearly costs for the house. The condo can also offers security, pool, beach access, gym, tennis, gardens, concierge, management etc so you are getting more services for the money you pay.

The big question is will there be special assessments ? It is easy to find out from the association what major repairs have been made and what the condo still plans to assess for. Many buildings in South Florida have been going through their 40 recertification and have replaced almost all major systems in the building or are in the process of doing so.

Many condos are also starting to have reserve funds so they collect from the owners each year the exact amount needed to repair or replace let's say the elevators in 15 years: paint in 5 years: roof in 20 years etc. This is a fair and responsible way to run a building as each condo owner pays into the fund whether they live there 2 years or 10 years.

The big difference is control. Buyers feel that owning a house gives them more control over the expenses and they are not at the mercy of a badly run condo association. The only solution to this is to get involved in the association which can be hard work, politics and very little gratitude from other condo owners.

Report: S. Fla. home inventory falling

Depressed home values are driving up sales in South Florida.

Residential resale inventory has fallen 21 percent, and pending sales have jumped nearly 66 percent in the last six months in Miami-Dade, Broward and Palm Beach counties.

On May 25, there were 84,962 single-family homes, townhomes and condo units on the market in the tri-county area, down from 107,527 in November.

There were 15,399 pending sales that week, compared with just 9,302 in November, according to the report.

"In the last six months, we have seen inventory decrease by between 1 percent and 2 percent on a week-over-week basis," said Peter Zalewski, a principal with the Bal Harbour-based real estate consultancy. "During the same period, pending sales have consistently increased by between 1 percent and 3.5 percent on a weekly basis since November. This trend suggests that summer – which historically is a quiet period – looks to be active."

Miami-Dade County has the most available residential resale properties, with 32,133, or 37.8 percent of the tri-county total. The inventory in Miami-Dade has fallen 21.6 percent in the last six months from 40,994 properties on Nov. 24, according to the report.

Broward County has the second largest share of properties for sale, with 27,669, or 32.6 percent of the regional total. In November, Broward had 36,926 residences for resale.

Palm Beach County has the fewest number of properties for sale, with 25,160, or 29.6 percent of the total. On Nov. 24, Palm Beach had 29,607 properties available for resale, according to the report.

Pending sales in Broward are up 80 percent in the last six months, to 5,934 contracts on May 25 from 3,295 deals on Nov. 24.

Pending sales in Miami-Dade are up 60 percent, to 6,789 deals on May 25 form 4,245 contracts six months ago.

Palm Beach County's pending sales are up 52 percent in the last six months, to 2,676 contracts on May 25 from 1,762 deals in November, according to the report

South Florida Business Journal

A return to basics: buy low, fix, rent

MANASSAS, Va. – May 4, 2009 – While it may seem crazy to bet on real estate for a steady retirement income these days, that is exactly what Edward and Olivia Green are doing.

With their golden years fast approaching – he is 64 and she is 60 – the husband and wife have snapped up five investment homes in the past three years. They hope to buy more as the struggling real estate market continues to produce cheap properties. Their portfolio includes a condominium apartment in Manassas; two houses in Prince William County; and two houses in Memphis, Tenn. Their goal is to buy cheap foreclosure properties, fix them up and rent them out.

The Greens said they prefer real estate to stocks and bonds because they can touch it, drive by it on a weekend and look at it – which gives them a level of comfort in the midst of a volatile economy.

Buyers such as the Greens seeking long-term cash flow from their holdings are emerging as the new investors of the bust. In many ways, they are reclaiming the term “investor” from the speculators who bought homes during the boom years with intentions to flip them for quick gains.

“At the peak of the bubble, you had a lot of people who called themselves investors but were really only buying a property with the hopes of selling it at a higher price to a greater fool later,” said Michael D. Larson, a real estate and interest rate analyst at Weiss Research in Florida. “The long-term way to invest in real estate is to buy cheap and buy at a level where it is profitable to rent; traditionally, anything you got from appreciation was icing on the cake, not the cake itself.”

In areas such as Prince William County, where sales of foreclosure properties have dragged down home prices but rents remain relatively strong, the Greens’ strategy has become particularly popular, local real estate agents said. Nevertheless, these are not easy times for those looking to profit from the bust. Lending standards have tightened, making mortgages for investors harder to come by. There is also no guarantee that home prices will end their free-fall. Buying a foreclosed-on home, fixing it up and then becoming a landlord requires patience, vigilance and capital, and success is not certain.

The Greens have had their stumbles. Their first investment property was a two-bedroom, two-bath condominium apartment not far from Interstate 66 in Manassas that they bought from their daughter in 2006 for $250,000. At the time, they anticipated that the housing market would take only a mild hit, and so they financed the property with a mortgage but rented it out for less than their costs. They expected to sell as home prices appreciated. That didn’t work out, so they’re taking a hit to their cash flow – a mistake they don’t intend to repeat with the other places they own.

Glenn Kelman, chief executive of Redfin.com, an online brokerage based in Seattle, said one of the first questions to consider as a potential investor is whether you want to become a hands-on landlord.

“If they don’t want to become a landlord, then they have to hire a property management professional, and that is going to cut into their investment,” Kelman said. “That is the fundamental decision that somebody has to make when going from a very liquid asset [such as stocks] to something that is not all that liquid – and will make their phone ring in the middle of the night when the toilet clogs up.

”While rental income ideally provides a steady stream of cash, a tenant’s finances can fall prey to the souring job market. With the recent wave of foreclosures, potential tenants may also have shoddy credit ratings, meaning landlords need to decide whether they’re worth the risk.

Kelman said the best investors are often the “fix-it” types who can quickly size up how much they need to spend on a property to make it rentable. They are also the ones who are willing to spend their weekends and evenings making those repairs and maintaining the homes over time.

“They are often wearing a tool belt on the weekend and doing it all themselves,” he said.

Last month, Michael McNally of Chantilly paid $53,000 for a three-bedroom, 2 1/2 -bath house in Dumfries. To make the purchase, he cashed in a $60,000 certificate of deposit that was earning interest at about 3 percent, he said.McNally initially estimated that he would need about $7,000 to get the property in shape. He now expects to come in about $1,500 over that by his self-imposed deadline of June 1. He has already redone some walls, added fresh paint, gutted and refurbished all three bathrooms, and put down new carpet.

McNally, an information technology manager for a government contracting firm, said he was inspired to get into real estate investment by his 85-year-old grandfather, who started buying properties as a side job in Pennsylvania in the 1970s. He now owns about 45 such homes that have been paid off, McNally said.“He just rakes in all kinds of money,” he said.Danielle Babb, a real estate investor and a co-author of the book “Finding Foreclosures,” said she has been approached in recent weeks by many people looking for such properties. Many are getting discouraged, she said, because banks are taking a long time to close on offers and finding financing has grown increasingly difficult.

Banks are turning down some would-be buyers, even those with pristine credit, if they have risky loans on their credit reports. Credit card debts are also causing problems at closing, with some banks asking buyers to pay off such accounts, she said.

The best way to close a deal quickly is to pay cash, Babb said. If you need financing, make sure you’re satisfied with the mortgages you have on the properties you already own – your residence and any vacation homes – because it will become difficult to refinance once you start borrowing for other properties, she said.The Greens bought their second property in 2007 using cash from a home-equity loan on the house where they live. The property is a three-bedroom townhouse in the Lake Ridge subdivision of Woodbridge that had gone into foreclosure.

Olivia, who is a real estate agent, had been showing the home to a military client who was interested in buying foreclosures.“We opened the door, and it was a disaster inside,” she recalled. “Even though she was looking for a foreclosure, she couldn’t see the potential in that one; she couldn’t see what could be done.”That evening, Olivia spoke with her husband, who runs a home repair business. They went together to view the property. They decided that with some work, the home could fetch a good rent, so they paid $235,000 in cash for it. Edward undertook about $16,000 worth of improvements – new paint, appliances, countertops, hardwood floors and more. Once the work was done, Green called her client and told her about the improvements. The buyer who originally balked agreed to rent it for $1,695 a month, Green said. That translates to a monthly profit.

In search of cheaper properties, the Greens researched other hard-hit parts of the country. They considered Detroit, looked into some communities in upstate New York and settled on Memphis. They hired a local real estate agent through a family friend. The agent e-mailed photographs and descriptions of homes.

During a week-long trip last year, the couple selected two houses. They bought one for $16,000; it needed another $16,000 in repairs. They paid $35,000 for the other; it needed just minor touch-ups. Given the distance, they hired a property manager to rent those homes.Their latest purchase was a three-bedroom, 2 1/2 -bathroom townhouse in Dumfries they bought out of foreclosure for $60,000. They are making some repairs and hope to rent it this month.

“We are baby boomers, and we are looking for another way to have income,” Edward Green said. “It provides good cash flow if you have income coming in from rent, and with what is out there now, this is probably our best bet.”Copyright washingtonpost.com