Monday, December 19, 2005

Florida Housing ready to bust?

I've been PC in most of my comments but that is going away. Florida housing is ready to bust, and here's why:

1. Prices too high - why the hell should a house be close to 10x the median wage? The area of Florida in which I live anything less than 200k will buy you a trailer. If you're lucky it won't blow away the next time a tropical storm threatens the state. I believe the median wage where I live is $30,000/yr. The average house costs $230,000. $230k buys you a three-bedroom, two bath, 2 car garage in a boring subdivision that is a good 30-45 mile drive from anywhere that pays decent, meaning it's a two hour daily commute. Great, I'll pay $230k for a boring house surrounded by boring houses so I can drive 2 hours a day and spend the weekend listening to the neighbors brag how their house has appeciated X dollars this year or how their new $75 clearance toilet makes the bathroom look great which should increase the value $10,000.

2. Area - Florida is not the nirvana that everyone makes it out to seem. It looks like an idyllic setting when coming down to visit Mickey the Mouse with palm trees everywhere and a pool behind every house. Move down here and the picture changes. This state is full of in and out transients who have overbuilt this state and are generally ruining it. Drive on I-75. It seems that every third vehicle is a moving van or trailer, some heading away but many more coming. The heat is oppressive. Sure, the winters are spent without shoveling snow which has it's pluses. Yet summer stretches from April to November with an unrelenting heat and oppressive humidity that is unmatched anywhere else in the states. Little wonder that the true population of Florida didn't begin until air-conditioning was invented. Oh and the year-round swimming. That only lasts the first year. After that, water is only warm enough from swimming from April until October. It's really not any different from northern states except a couple extra months of swimming. The ocean is COLD until early/mid June. (<75'F). It cools down below 75 sometime late October or early November. 75 sounds warm until you swim in the Gulf in August when the water temp is close to 90'. Try swimming at 75 after being in at 90 and it's like taking a cold shower. Trust me on this.

3. Industry - there is not enough high paying jobs moving into this state to support the population growth. For every job that is coming there is someone out of state that wants the job as well as 2-3 people in-state. Many jobs are being created that are low-paying call center and service industry jobs (Hotel workers, retail, etc). This is while the overpriced housing is continuing to rise.

Outcome: Real estate bust. Money from the rest of the country can only pour into Florida real estate for a finite period of time. Interest rates are still pretty low on a historical basis but they are looking high after being used to 5% mortgages the past 3 years. (kind of like 75' water feeling cold after being in 90' water). Add a couple hurricanes that have driven property insurance through the roof and you have a 'perfect storm' brewing.

For those who don't believe me, look at what happened to Florida real-estate in the 1920s. Around the area I live crummy apartment complexes are turned into condos, sold to people who gladly pay a $1500/month mortgage for an apt. that commanded a rent of $850/mo. A few complexes around here were casualties of the last Florida condo bust of the 1980s. Condos were bought up by big developers and turned into apartments after people walked away from mortgages. Some people think it will be different this time. It certainly will. The hurt will be worse.