Rebound in real estate could help shore up economy
The residential real estate market that, when it fell, dragged the American economy into one of the worst recessions in recent history, hit Southwest Florida particularly hard.
Homeowners lost homes that they could not afford to keep and jobs they could not afford to lose.
However, 2009 may bring a glimmer of hope from the very economic segment that cast a pall over 2008 — real estate.
Figures released this week by the Cape Coral Association of Realtors and by one of Southwest Florida’s biggest developers indicate that the residential housing market, vital to the local economy, may be on the cusp of making a comeback.
Sandoval, a Bonita Bay Group community in northwest Cape Coral, reported an increase in sales in 2008 over 2007. Debbie Holm Sheeley, general manager of community operations, said she expects a swing toward the positive as consumers realize that the fire sale-like deals will not last forever.
“Smart shoppers are looking for values,” she said. “And they’re finding them, so properties are moving.”
Although, Holm Sheeley said, the community sees fewer visitors these days, a higher percentage are serious shoppers. Roughly one out of every 11 visitors to Sandoval last year bought a home.
2008 marked the second year in a row of sales increases in the community in a time when a number of its affluent-market competitors fell on much harder times.
Still, Holm Sheeley said, buyers were not exactly lining up to move into Sandoval when the community went on the market in early 2005.
“There were a lot of people who waited. There were some buyers that came in early but wanted to wait until the amenities were built out,” she said. “Some people like getting in on the ground floor. Others are people like me, who have hard time buying based upon a sheet a paper.”
Holm Sheeley said she is confident the uptick will continue since, in an up or down market, Southwest Florida remains an attractive place to live.
“There are a lot of great places to live in Cape Coral, Sandoval included, and we’re very optimistic that this momentum will continue,” she said.
Cape Coral Association of Realtors President Paula Hellenbrand shares her optimism.
“I just received the new numbers today, and it’s clear that the market is changing. In the fourth quarter of 2008, home sales in Cape Coral were up 295 percent. We currently have 3,900 homes on the market. In the first quarter of 2008 we had 4,400,” she said.
Hellenbrand, the broker-owner of Encore Realty, concedes that with homes selling for less, real estate professionals are having to sell more homes to turn the same profits that in recent years would have taken fewer closings.
More work for Realtors, however, could eventually benefit every homeowner in the city due to simple supply and demand. As continued sales decrease residential inventories, they eventually lead to greater demand and subsequently higher selling prices.
Hellenbrand said the resulting increase in property values may take several months or even years to culminate, but in the meantime potential homebuyers can bargain shop.
“Think of it as going to your favorite department store and seeing something you have always wanted on the discount rack and it’s 75 percent off,” she said. “That’s what the market is like now, and that’s why it’s trending upward.”
To emphasize her point, Hellenbrand cited a home that county records reportedly show sold for just over $150,000 as recently as 2005.
“In a few hours, one of my buyers is closing on that house for $85,000,” she said.
A basic economics lesson, however, does not take into account the human factor that will eventually revitalize the housing market and, presumably, allow the broader-reaching economy to bootstrap itself from its current malaise.
Cape Realtor Lenora Marshall, of Century 21 Sunbelt Realty, believes that the current wave of buyers will continue to benefit the local real estate market long after they have closed on their homes.
“People are buying homes to live in, not just as an investment that they are hoping to flip,” she said. “When these people move in, they improve the value of the entire neighborhood.”
Instead of having an abandoned or absentee-owned home next door, the new neighbors set about improving the property, Marshall said.
“Even if that just means cutting the grass or applying a fresh coat of pain, the property is now someone’s home and not just a house, so it’s likely going to be well taken care of,” she said. “Many people also are planting trees. Cape Coral definitely needs more trees. Buyers who are purchasing homes to live in, and not as a business venture, end up making Cape Coral a better place to live.”
Any uptick in the housing market generally bodes well for the health of the further reaching economy.
A 2004 research project by the Center for Applied Economic Research at Montana State University concluded that a strong real estate market can benefit many more people then just those directly involved in the construction and marketing of homes.
In fact, the researchers said, strong sales of new and existing homes can impact an economy all the way up to the county level and beyond, regardless of where, specifically, the homes are being sold.
The study emphasized the direct, indirect and induced effects of home sales.
Direct effects benefit the businesses involved in the sale of real estate such as real estate, mortgage and title firms. Businesses that aid or facilitate property sales, accounting and advertising firms, benefit indirectly from upward market swings.
The final effect, what researchers call induced effect, is also the most far-reaching. Everyone who makes money from real estate transactions also spends money for goods and services, thus benefiting everyone from dry cleaners to fast food restaurants.
However, it takes time to overcome any recession, according to Gary Jackson, director of the Regional Economic Research Institute at Florida Gulf Coast University.
“I think the economy is making a comeback, but it’s going to take time. We may be looking at 2011 before the recession ends,” he said.
According to Jackson, that may be just what the economy needs to stay healthy in the long run.
“When things are good and booming, volatility can rise faster and that’s always going to be a problem. We have to think about the impact and the long-term effects,” he said.
Jackson harkens back to 2001 when Southwest Florida last saw a noticeable recession.
“We were able to come out of that fairly quickly, but we won’t be able to do it this time around because we just don’t have the population growth that we were having then,” he said. “Most economic forecasts call for a slow return, maybe as late as 2011. That’s desirable. The growth that led to this recession wasn’t sustainable. Slower growth is what we want.”
Key to recovery is consumer confidence, Jackson said.
“Consumer confidence is important and it has risen a little bit in the last few months, but it’s still very low. When consumers are concerned about losing their jobs or their homes, they stop buying the durable goods whose production and sale drive the economy.”
Jackson said newly seated President Barack Obama may inspire confidence in some buyers, but America should not expect a speedy recovery.
“He’s got some new ideas and may be able to turn things around, but even he admits that it’s not going to happen overnight. He’s been very explicit when talking about his stimulus package, that it is going to take time. He’s even said that he may not be able to implement all of his ideas in one term.”
Regardless, Jackson looks into the economic crystal ball with guarded optimism.
“I think we’re already on the road to recovery,” he said. “But it’s going to take a little more time to get there.”