While real estate softens in the rest of the country, three out of four wealthy Floridians remain optimistic that their homes will continue to appreciate in value, according to a survey by Harris Interactive and The PNC Financial Services Group, Inc., a wealth management company.
They are more optimistic than those in other states, the survey found. Nearly three quarters (73 percent) of South Floridians expect to see double-digit increases in the value of their primary homes over the next five years, with half anticipating an increase of 20 percent or more. By comparison, just over one in four of the wealthy outside the area expects a 20 percent hike in value, said the report.
"Florida's residential real estate market is more complex with its heavy influence from three sources of buyers and sellers -- domestic, Latin America and Europe," said Nicholas Buss, Ph.D., senior vice president and PNC's real estate economist. "As a result, there are factors beyond U.S. interest rates and other domestic issues, such as geopolitical matters and the strength of the U.S. dollar overseas that are outside the wealthy consumer's control and, thus, less likely to restrain their continued optimism."
He added: "Over time, market conditions and global factors will tell us whether or not the wealthy in Florida have been lulled into a false sense of security."
Highlights of the real estate findings in Florida include:
- Nearly three quarters of Floridians surveyed said they expect to see double-digit increases in the value of their primary homes over the next five years.
- Just one in 20 wealthy South Floridians (5 percent) expects any decline in the value of their primary homes over the next five years.
- Just one in five South Floridians say they got rich through real estate, but those who did are twice as likely to expect their real estate values to continue to increase.
- Nearly nine in 10 (89 percent) who say residential real estate is a major source of their wealth are expecting double-digit increases over the next five years, and 81 percent are expecting an increase of 20 percent or more, compared with 42 percent nationally.
- Four in 10 (39 percent) South Floridians surveyed said that a major decline in housing prices would pose no threat to their family's wealth. One in five (19 percent) said it would pose a threat.
- Sixty percent of those surveyed strongly or somewhat disagreed said that even if housing prices were to decline by as much as 20 percent within the next two to four years, they would be concerned about the long-term effect on their overall wealth. An equal number (60 percent) strongly or somewhat disagreed that they would delay major purchases, and only one in five strongly or somewhat agreed that there would be a need to make lifestyle changes to reduce household expenses.
Of the 38 percent of wealthy South Floridians who own a second vacation home or condo, more than half (53 percent) said they made their last purchase more than five years ago, though 47 percent purchased more recently. Nearly two-thirds (62 percent) note they purchased their second home or condo simply for their ongoing personal use. Only 20 percent said they bought property as an investment. Another 19 percent indicate they own residential rental property, such as an apartment or condo for rent.
Thirty-five percent of those Floridians who said residential real estate is a major source of their financial assets, own rental properties -- slightly more than twice residential rental ownership of people who don't list real estate as a source of their wealth (15 percent).
But some caution that today's real estate craze bears striking resemblances to that of the Florida real estate craze of the 1920s that ended in a massive real estate bust that sent prices below pre-boom levels.
According to historians, easy travel, made possible by the new automobile, allowed people to visit and buy vacation homes in Florida. Prosperity was everywhere with a burgeoning national economy. Easy credit meant a large number of buyers. Populations were growing. Rising prices attracted speculators who bought and sent prices soaring even higher.
Reportedly, nearly one-third of the population of Miami were real estate agents. Eventually, after paying higher prices themselves, they could no longer attract other investors into buying at even higher prices. Panic selling ensued, exacerbated by two natural disasters, the devastating hurricane of 1926 that flattened Palm Beach and other playgrounds of the rich, and a fruit fly infestation that ruined Florida's citrus crops. Florida's economy was destroyed long before the Great Depression took over.
Yet, other economic news suggests that Florida will weather a national slowdown. Over 1000 people a day move to the state, with nearly 440,000 new residents expected next year. Florida has one of the lowest unemployment rates, 3.5 percent, well below the national average of 5 percent. The home ownership rate is 77 percent, well over the national average of about 70 percent. Further, aging boomers and other retirees want to live in warmer climates, making the activities and casual lifestyle of Florida appealing.
