EconSouth - Fourth Quarter 2007
The Southeastern Economy in 2008
Conditions in many residential housing markets across the Southeast continued to deteriorate during 2007 as sales figures and construction activity declined, home inventories rose, and home prices fell. Much of the downturn is concentrated in the Florida market, where weakness intensified. However, various Georgia housing markets experienced significant declines starting early in the year, and weakness appears to have spread to other areas of the Southeast during the second half of 2007.
Florida builders hit hard
During the spring of 2007, home builders offered large incentives and, in some instances, cut prices to home buyers. For a time, those approaches appeared to help stop the slide. By fall, however, builders found that sales incentives were no longer translating into sales. Builders also reported that home buyers cancelled contracts in record numbers during 2007. In response to weak sales, homebuilders continued to curtail construction and lay off workers.
By the end of the third quarter of 2007, year-to-date single-family permits were down 52 percent in Florida compared with a year ago, and multifamily permits, dominated by condominium units, declined by more than 44 percent, according to the U.S. Census Bureau. However, while single-family construction came to a virtual standstill in many parts of the state and permitting of condominium projects dropped sharply, developers are finishing condominium projects that were already under way.
Existing home sales also stagnate
The Florida Realtors Association reported that during the third quarter existing home sales declined 29 percent compared with already low sales from a year ago, and condominium sales declined 27 percent. The single-family median sales price for existing homes in the state declined almost 7 percent in the third quarter compared with a year ago, and condominium prices declined almost 5 percent. Southeastern states posted negative growth in existing home sales into the third quarter of 2007 (see the chart), according to the National Association of Realtors.
Sagging housing not limited to Florida
Office and industrial real estate also softens
Regional office and industrial vacancy rates remained relatively stable during 2007. Office vacancy rates in Atlanta continued to be high despite solid absorption during the third quarter. In Miami, Nashville, and Jacksonville, however, vacancy rates remained relatively low. Vacancy rates in Tampa, Orlando, and Fort Lauderdale also remained low but were trending upward in the third quarter. Contacts indicated that weakness in Florida's housing market had translated into slackness in the office sector as service firms related to housing consolidated or closed.
Industrial vacancy rates were uneven across the Southeast. During the third quarter, vacancy rates in southern Florida and Tampa industrial markets increased slightly compared with a year ago, but vacancies in the Orlando and Jacksonville markets fell by nearly 2 percentage points, according to CB Richard Ellis Group Inc.
Looking ahead to 2008
Across the Southeast, foreclosures will add to available inventory and hold down housing prices. An optimistic forecast would have declines in housing activity for the region as a whole continuing until the middle of 2008, with a subdued recovery coming afterward. However, weak housing demand may persist beyond the middle of 2008, especially if some borrowers lack access to affordable credit. The extent of the impact of foreclosures on housing prices and housing wealth is also uncertain.
Commercial development should remain strong along the Gulf Coast in 2008 but will slow from high levels as some of the initial hurricane-related rebuilding winds down. Commercial construction in the rest of the Southeast will likely feel some pressure from weak housing markets in the coming year, especially for developments such as retail space, which tends to be built near residential developments.