Real Estate Trends Offer Mixed Signals for Florida Economy

By George Livingston, CIPS

(Ed. note: George Livingston is chairman emeritus of NAI Realvest in Maitland, FL  and a 30-year veteran real estate and investment analyst.)

Current real estate trends offer mixed signals for the Florida economy. While several economic indicators are stabilizing or recovering, the millions still unemployed hold little promise of a full recovery this year.

Housing markets are showing signs of revival, however, commercial property values dropped 25.8 percent from a year ago and a full 42 percent from the October 2007 apex.

The big question is, how quickly can commercial real estate absorb its losses? We’re moving in the right direction. Commercial property sale volume is way up---$5.6 billion in March, up from $4.2 in February and significantly higher than 2009 levels. And sales are dominated by distressed transactions.

REITs are performing well, with a 6.9 percent total return for April. Cap rates are steady at 7.81 percent in March. But commercial office absorption totaled -7.5 million square feet in the first quarter of this year, down from -39 million during the same period last year.

Job growth in April was strong, as was our 3.2 percent GDP growth.

The S&P index increased 1.6 percent in April with year-over-year returns posting a healthy 38.8 percent.

Real estate capital markets are improving. RBS Commercial Funding offered the first CMBS security the market has seen in two years.

House sales were up in March, and prices strengthened for existing homes.

Investment property vacancy rates and rents stabilized after two years of steady decline.

The consumer confidence index increased and we saw continued growth in March and April for the highest since September, 2008.

We also saw increases in retail sales, apparel and building materials.

Dr. Peter Linneman,  (top  left photo) chief economist for NAI Global, says interest rates could be the key to our economic future.

We could experience sustained growth through the end of this year if the Fed raises artificially low interest rates. If interest rates remain low, the economy could continue to suffer.

Real GDP has increased over the past three quarters. We are seeing early signs of job growth. Both of these indicators support our anticipation that recovery is underway.

However, job creation will lag GDP growth by 12-18 months. With sustained growth, interest rates should increase by June this year.

The current sharp stock market decline will suppress the economy and job growth, at least in the short term.

Looking ahead, the greatest threat is from inflation, thanks to the extraordinary federal budget deficit.

The strengthening of the dollar against many currencies, regardless of our twin deficits and ominous inflation, reveal that although the US is in bad shape, many countries are fundamentally in worse shape.

Contact:
George Livingston, glivingston@realvest.com
Larry Vershel or Beth Payan, lvershelco@aol.com