By Robyn A. Friedman
Special Correspondent
Posted June 16 2002
Florida home sales are healthy, despite terror attacks and economy, but is there a bubble to burst?
Christian Schoemig set up his lounge chair at 10 o'clock the night before sales began. People were already waiting in line, and the atmosphere was festive.
"I was No. 3," said Schoemig, a private pilot who lives in Key West. "No. 4 took people to her home in the middle of the night to let them use her bathroom, and others brought food, portable TVs and bug spray."
Just another line for concert tickets, right?
Wrong.
Schoemig and about 75 other people camped out overnight to be the first to buy homes at Olympia, a project being developed in Wellington by Coconut Creek-based Minto Communities Inc. More than 3,000 people showed up at the grand opening last October, and $35 million worth of real estate sold the first weekend.
Home-buying frenzies are not unusual in South Florida. More than 800 prospective homeowners -- each of whom posted a $1,000 deposit -- entered a lottery last year, vying to be among the first residents of Courtyard Homes at The Grove, a townhouse project in Weston by Arvida. The 222 available townhouses sold out in seven hours.
"While other areas of the nation may have experienced or were near a recession in real estate, South Florida's markets actually had the best year ever in 2001, with near $30 billion in residential sales," said Dawn M. Soper, director of market research at Integra Realty Resources in Miami.
There's no question the South Florida housing market is booming right now. Houses are selling at record levels, spurred by low interest rates and demographic trends that put pressure on supply. But some pundits insist that the market is headed for a nose dive. These pessimists claim that housing prices have risen so sharply that there is a bubble in home pricing -- and it's about to burst.
"As the air escapes from the bubble on Wall Street, there's a bit of inflation perhaps going on in various real estate investments," said Bradley F. Hunter, director of consulting for Boca Raton-based American Metro/Study Corp.
Among the signs of a market careening out of control, they say, are the manic lotteries.
Jenny and Steve Kettlewell were among the winners in June last year at Courtyard Homes at the Grove. They purchased a two-bedroom townhouse for $154,000 after waiting almost six hours for their number to be called. "It was packed," said Jenny. "It was exciting, but they gave us about one minute to decide after they called our name." The Kettlewells plan to move into their new home next month.
Talk to a few local real estate agents, and you'll hear stories about bidding wars and houses selling for more than their listing price. You'll also hear about the dearth of supply in certain areas. But that's just anecdotal evidence of the strength of the local housing market. Here are some objective indicators:
Existing home sales reached a record 6.54 million units nationally in the first quarter of this year, up 9.3 percent from the first quarter of 2001, according to the National Association of Realtors. Sales of existing condos and co-ops surged 12.3 percent above the same period in 2001.
Existing single-family home sales in Florida rose 7 percent in the first quarter of 2002, according to the Florida Association of Realtors. The median price of homes sold during the first quarter rose 8 percent from the same quarter last year, to $129,600. The Fort Lauderdale metropolitan area had one of the largest jumps -- 14 percent, to $181,200.
American Metro/Study reported that single-family home starts increased 2.6 percent in Palm Beach County during the first quarter. Starts in Broward County and Miami-Dade County decreased 27.8 percent and 3.3 percent, respectively -- but because of a lack of available lots, rather than a lack of demand.
The National Association of Home Builders forecasts a slight reduction in the U.S. housing market through the end of the year, but says that supply and demand remain well balanced. "We just don't see an impending bust in housing production or house prices," said NAHB Chief Economist David Seiders in a written statement.
The real estate market is booming for many reasons, most based on demographic trends. Low interest rates that translate into lower mortgage payments are certainly helping to fuel purchases, as is the downturn in the stock market, as investors recognize that potential returns on real estate exceed those currently available in the stock market.
Baby Boomers, the demographic group perhaps best known for being the richest in history, are also helping support the housing market as they purchase larger and more expensive "move-up homes" as well as second homes for vacation. Migration from northern states to Florida creates a never-ending source of housing demand.
International buyers are also buoying South Florida's real estate market. "The Latin American market has played a very significant part in South Florida's real estate engine," said Philip J. Spiegelman, president of Aventura-based International Sales Group Inc.
Many South Americans, particularly those in countries with either economic instability or political turmoil, look at South Florida as a safe investment for their money, he said. As a result, the number of Latin American purchasers at some condominium projects in South Florida -- particularly in Miami-Dade County -- exceeds 50 percent.
Although most experts agree that South Florida does not currently have a housing bubble, others cite what they feel are indicators of potential problems.
"I don't know if it's quite a bubble, but I do see evidence of some speculative buying in the housing market," said Hunter of American Metro/Study Corp. "There is a lot of movement of money out of the stock market and into real estate right now."
Hunter identified luxury condominiums as one sector he feels is vulnerable because of the number of people purchasing them for investment. "They're making a bet that the value is going to keep going up at the same rate it has been," he said.
Hunter also expressed concern that housing prices are rising faster than incomes in some areas. This results in first-time homebuyers being forced out of the market, as well as a higher risk of mortgage default. Since move-up buyers must first sell their homes before they could purchase more expensive homes, a lack of first-time buyers could cause stagnation in the market.
Fort Lauderdale has been singled out as one of the most overpriced home markets in the country by Ingo Winzer, president of The Local Market Monitor, a Wellesley, Mass.-based firm that provides advice to institutional investors about residential real estate.
He claims that 35 percent of the homes in the Fort Lauderdale market -- and 31 percent in the Miami area -- are overpriced compared to what people are earning. In Fort Lauderdale, he claims, that could lead to a 20 percent drop in average home values over a period of several years, similar to the drop that Los Angeles experienced after its recession in 1991.
That could lead to a larger risk for the economy. As housing prices go up, businesses can't afford to pay people enough to live near their offices and plants, said George E. Casey Jr., president of Arvida's South Florida operations. Then business expansion starts to reverse and the whole market collapses.
"I call it Buffaloization or Allentownization," he said, referring to cities where real estate prices decreased. "Business expansion starts to go backwards, and you start getting housing deflation, with prices going backwards."
Los Angeles was affected in a similar way in the 1990s, Casey said, when businesses fled the city in search of more affordable housing for employees. But Casey said that it took two decades for the market to collapse in Los Angeles.
"We're not there yet," he said. "I've been watching this market for 30 years. You might get small deflations, but I don't see the bubble bursting."
Copyright © 2002, South Florida Sun-Sentinel
