Florida’s real estate. Prospective and market risks for investors
Florida’s real estate. Prospective and market risks for investors

Florida’s real estate. Prospective and market risks for investors

Caused by a combination of risky loans and excessive investors’ and developers’ speculations on the property market, the crisis of 2008 influenced Florida more than any other state of the USA. What are the risks of property investment here at the turn of 2019/2020? This review will reveal the answer.

The bridge connecting huge Miami and luxurious Miami Beach

The number of houses foreclosed by banks increased from 75 thousand in 2006 to about 517 thousand in 2009, by almost 600% in 3 years. It took more than 10 years for the real estate market to recover.

Nowadays, the total number of overdue credit liability properties came back to the previous figures, a bit more than 65 thousand in 2017 and 2018.

Nevertheless, since 2013 Florida is holding a leading position in the total cost of foreclosed accommodation. Besides, Florida was ranked country’s number 6 state in the amount of seized properties in 2018. Statistics says, one in 140 state’s households were distrained.

However, it is expected that the population and job market growth will continue, causing real estate demand increase too. In accordance with the projection of the Chamber of Commerce of Florida, in the near future, the recession risk will remain low. The Bureau of Labour Statistics announces that unemployment rate, which increased by 11.2% in 2009, at the moment stays at a historical minimum of 3.5%.

Migration of both young and elderly people from other parts of the country still continues. Some cities try to diversify the population by creating various attractive offers for their inhabitants. Taking into consideration the desire to diversify industries, a constant population inflow to the state and low unemployment rate, Florida has all the essential economic factors to influence the real estate investment climate.

An average property price in Florida is $218,990 that is 8.1% higher than in 2017 but 4% lower than the highest price of $227,5 in 2006. Given that factors which caused a noticeable recession in 2018 have passed on, risk of another recession in Florida seems to be low, and a favourable market correction is more probable.

Little cosy houses outside the urban area are a good example of typical Florida’s architecture. Private boat and yacht parking lots are provided along the channel

Risk is a part of any investment, including real estate, stock market, cryptocurrencies, etc. However, when it comes to property prices, risk level depends on investors’ business model and a specific market segment.

In terms of subsequent leasing, Miami doesn’t seem to be the best option because an average resident here spends more than a third of their income on rent. It increases tenants’ risks and can cause problems in case of unfavourable turn in economic conditions.

The example is well-known. When the market collapsed in 2008, rented housing demand faced drastic changes. Many accommodations remained vacant during a long period of time.

Obviously, it was profitable to buy real estate 5 and more years ago when the recovery growth took place. Today, when the prices are close to maximum, investing in Florida’s real estate doesn’t seem to be a good idea. 

The specific risk group is connected with natural disasters, hurricanes and floods. It is curious that property prices in Florida increase right after a hurricane.

The reason for it is that accommodation prices are determined by supply-demand balance. Of course, no one goes to Florida to purchase a house when expecting a hurricane and people are meant to evacuate. In this situation, property demand goes down.

Destructive winds and floods caused by hurricanes like Irma sharply reduce vacant residence supply destroying a huge number of houses making them unsuitable for living or selling. And then an amazing growth period begins. 

A natural disaster is coming to hit Florida

Right after a hurricane, a financial storm of powerful American capital comes. Tens of billions of dollars go to insurance payments and public construction. That significantly stimulates Florida’s economy, and contributes to job market growth, attracting many assurers, public-service workers, and other employees from different states of the US. The reason for it is clear: Florida has money and demand but lacks for own workers to deal with all the cleaning and construction processes.

Thus, there’s a curious market fluctuation. Real estate prices can sharply drop down but only after liquidating hurricane consequences and external financial inflows run low.

A huge number of coming trucks and workers, who are, by the way, paid really well, leads to big expenses in Florida. It increases an income of local restaurants, bars, hotels, all the places where people spend their money.

Pickups or, as they call them here, trucks are Americans’ most favourite kind of transportation. It is the best way to move around during hurricanes

After natural disasters, constructors buy here properties with a view to work in Florida for a year or so, and even move their families with them.

When all the funds for disaster management are spent, most public officials come back to their states. Otherwise, they will become unemployed staying in Florida. Additional personnel hired to serve visiting specialists lose their jobs as well.

This is a typical Florida story. Funds involved in the construction and workers’ remuneration leave Florida at about the same time when freshly replaced or renovated houses are ready for occupancy. Temporary rental demand decreases, new householders suddenly lose their profit, and, therefore, money to pay for their own mortgage.

Investing in Florida’s real estate, purchasing houses or apartments, it is crucial to make sure the properties are well protected from hurricanes and floods. Almost all skyscraper apartments fall into this category. In case of a successful purchase, if your property resists a natural disaster, all other hurricanes will paradoxically increase your income and demand for your immovables.

Special correspondent of
Realting.com portal in Florida
Oleg Razdelovskiy

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