At The Closing Table From the January/February 2012 issue of
Sean Snaith, Ph.D., is director of the Institute for Economic Competitiveness, College of Business Administration, University of Central Florida. Orlando REALTOR® spoke with him about the economic conditions influencing Orlando's housing market.
What economic trends in the Orlando area will guide the real estate market in 2012?
The linchpin for stabilization of Orlando's housing market is the state of the labor market. We really need to see the labor market improve, to see the employment rate come down, and to see payroll job growth pick up. Payroll jobs create a demand for housing, while high unemployment continues to put foreclosures into the pipeline and that puts downward pressure on prices. So the labor market truly is at the core of the turnaround in real estate.
What percentage of annual job growth is needed for a positive impact on housing?
There's not a golden mean as far as job growth is concerned. We need to see fairly robust job growth — above 2.5 percent — before we start to see some measureable difference in the housing market. We've lost a tremendous number of jobs in Florida, and climbing out of that hole is going to take many years. It's a process that will unfortunately take a lot of time. I've referred in the past to labor as the scar that's left over on our economy from this economic and financial trauma. Unfortunately, that scar is prominent and is going to be slow to fade. What we are seeing now, this low 1 percent-type growth, is not going to do it. The labor market has been improving, but it's been improving at such a slow pace that it's not sufficient enough to overcome the supply side influences from distressed properties. I do believe 2013 and 2014 will see higher rates of job creation, and that's when we'll really see some positive benefits for housing.
What represents a sign of optimism and opportunity for the Orlando real estate market?
There are a number of things to be optimistic about, starting with the census results. Population growth in Orlando will continue to be strong over the next decade or two. Central Florida and the I-4 corridor is the new breadbasket in Florida, and this is where job growth and economic growth will be the strongest in the state. In the nearer term I think the Medical City is finally poised to deliver on all of its promise in terms of creating jobs, boosting the economy, and providing a shot in the arm for the housing sector as well.
What concerns you most about the current state of Orlando's housing market?
My greatest concern is the imbalance between supply and demand created by foreclosures, which is placing downward pressure on home values. With every dollar that the value of a home declines, that's one dollar less in homeowner wealth or one dollar further underwater on a mortgage. And of course that feeds back into consumers' spending behavior, and we get a vicious circle of feedback between the consumption, labor, and housing markets.
What actions can REALTORS® take to improve Orlando's economic conditions and its housing market?
Every REALTOR® can hire an assistant! Seriously, a good challenge for REALTORS® is to reshape how people look at housing. Homeownership has been tarnished because of the prices, because of the state of the economy, and because of certain demographic changes. REALTORS® need to convey a message that refocuses people's opinion about housing, particularly about housing in this region and how it still can be a good investment and an opportunity to build wealth over time.
What impact is the proportion of foreclosures and short sales in Orlando's inventory having on the housing market?
Distressed properties weigh down on prices. We have a bifurcated market right now, with normal transactions that are occurring at a certain price and distressed properties that are occurring at a lower price. And so you've got challenges with appraisals and comparables and foreclosures in a middle of a neighborhood that are impacting sale prices of non-distressed homes. That means the big issue is in terms of weighing down on prices, but there's a stigma problem at this point as well. Homeownership and homes themselves don't have the appeal that they had five or 10 years ago, before all the trouble in the housing market. All these foreclosures, all these empty homes with brown lawns and green pools, really continue to push a negative image, and that has an impact.
What can REALTORS® do regarding foreclosures and short sales in Orlando?
REALTORS® cannot intervene in the two-year judicial process; that's just the way foreclosures happen in Florida. But they can try to market these homes aggressively (both on the selling side and on the buying side), so that they are absorbed as quickly as possible. REALTORS® can also market Central Florida's long-term real estate picture, which I believe is quite bright. The 2010 census results show that we're a rapidly growing area in a state that will once again grow rapidly as well. Real estate in Central Florida is still a good investment, whereas in other parts of the state that is not necessarily the case.
What impact on Orlando's economy are we seeing from SunRail and the Medical City, and when will the greatest impact occur?
SunRail is still in its infancy. We've all seen plans for projects and retail or mixed residential retail developments around the various stops of SunRail, and those approvals are starting to get the ball rolling. The Medical City, however, is a different story. Many of these buildings are getting close to completion and eventually they are going to be staffed with nurses and doctors and scientists and administrators and support staff who are all going to need places to live. That part of our region will start to grow pretty rapidly once some of these projects are completed.
When will lending standards begin to ease?
Banks have been villain-ized a little bit in this whole financial crisis and housing market woe. While I do think banks bear some of the blame, I think there are many who could wear a black hat: those who speculated in real estate, those who lied on their mortgage apps, etc. There are a lot of people who contributed to the rapid rise in housing prices and the subsequent collapse. Now, banks are facing pressure from both sides: pressure to lend more and at the same time pressure to raise capital standards. These are incompatible. I don't anticipate a real flood of financing in the short run. It's going to be a function of the economy stabilizing and some of the uncertainty beginning to resolve itself. Before that happens, banks are going to be forced to be conservative.