All that glitters /Itching to buy property in Florida? Hold your horses
The housing prices in Florida have been hit worse than anywhere else on the continent; properties suffering the greatest price falls could be the fastest to make a comeback.
It's been nearly four years since the U.S. real estate market collapsed. Stock markets there and throughout the world have already been rising for two years, the economy is recovering, and a good many people - here in Israel too - are getting the itch to buy a house or apartment there, maybe in Florida.
Why Florida? Anyone with even a vague interest in the property scene abroad knows that housing prices in Florida were hit worse than anywhere else on the continent. And any novice dealer knows that properties suffering the greatest price falls could be the fastest to make a comeback.
Israelis have a peculiar emotional bond with Florida, and with Miami in particular. There they can find year-round sunshine, a striking view of the ocean, lots of Jewish retirees, and many immigrants of all sorts. Another reason may be simply a matter of sheer numbers: A condo in a modern high-rise facing the sea can be bought for the price of an existing apartment in Petah Tikva.
Prices in Florida are dozens of percentage points lower than a few years ago, and large mortgages are available at low interest rates. And of course, if heaven forbid something terrible happened here in Israel, at least there's a place to go. So why not buy property there and enjoy a steady income and a potential juicy capital gain within a few years?
It's hard to dispute these basic arguments. It's more tempting to buy property in a market that has already collapsed than in a market at its all-time peak - like the real estate market in Israel. But there are actually reasons not to buy this Florida dream right now.
1After temporarily stabilizing last year, the entire U.S. real estate market has gone into another tailspin. Among major economic news items last week was the figure for nationwide housing starts in February, which fell to a 27-year low. This wasn't just a slight dip; the number of new building permits was 20% lower than in the previous year.
2At the end of 2010, at least 23% of all U.S. homes had negative equity, with outstanding mortgages exceeding their market value. Deutsche Bank projects that this figure will grow by the end of the year to an alarming 48%.
3With the unemployment rate still around 10%, it's difficult for many people to service their mortgages. As a result, about 8 million Americans are at least a month behind in their payments, with 5 million more than two months behind.
4No less than 18% of all dwellings in Florida are vacant - no tenant, no rent. This is 63% higher than a decade ago. The state faces a particularly dire predicament, but it's not alone. Throughout the United States, the rate of uninhabited homes is 11%. It's hard to imagine what prices would be like in Tel Aviv if 10% of its apartments stood empty.
But there's more. Real estate experts say they expect many more homes to be put on the market from foreclosures or by people just fed up waiting for prices to recover.
5The credit rating agency Moody's forecasts that housing prices in Florida will drop a further 11%.
6While stock markets kept rising over the past year, U.S. housing prices fell 5.7% in the year to January 2011. Sales of new housing dropped during the same period by 19%.
7At least 2.9 million family homes in the United States are in foreclosure proceedings. In 2010, more than a million were repossessed by banks, a record high. The result: Foreclosed homes accounted for 26% of all residential sales last year.
8These figures are just averages; in many places the situation is much worse. In California 60% of the houses sold last year were at some stage of receivership. The result: Prices in that state fell in each of the last five months. In 2006, the average price of a house in California exceeded $530,000. Now that figure is $317,000.
9Has the ideal of home ownership vanished from the American psyche? In 1996, around 89% of Americans said they preferred owning a home rather than renting. Now it's only 63%.
10The current downward spiral has brought average U.S. housing prices down 27%, a sharper decline than during the Great Depression in the 1930s. How much does this represent in dollars and cents? Since its peak, the U.S. housing market has lost at least $6.3 trillion.
What about here at home?
Does all this say anything about our real estate market? The situation of the Israeli market is almost an inverse of Florida's: record prices, 100% occupancy, no foreclosures or mortgages in arrears, no empty homes - and the inventory of housing units under construction is limited.
But markets in both Israel and the U.Sץ respond to one key principle: supply and demand. According to many people, such as the managers of Mizrahi Tefahot Bank, which is supposed to sense the mood among borrowers, the demand for loans is beginning to drop - which will sooner or later lower prices.