Market Overview

As we conclude the fourth quarter, there are various signs of recovery. Economic growth seems to be initiating itself again, stock prices have continued to show resilience, and consumer confidence appears to be building. We have noted more stability in real estate prices over the course of 2009 and it would seem that the most precipitous price declines are behind us, although downward pressure on prices remains.

In various subdivision and condominium appraisals that we have done, our analyses have revealed a 12-24 month supply, dependent upon the particular market, as calculated with existing absorption levels. This period could be reduced substantially if demand levels return anywhere near historical averages. Nationally, sales of existing homes surged in Oct., aided by the Obama administrations decision to extend the $8,000 tax credit for first time homebuyers out to April 30, 2010, but seemed to weaken again in Nov.

The commercial market continues to be lackluster. Widespread bank stability and the return of more aggressive lending are prerequisites for strength in the commercial market. We anticipate the forthcoming year will involve continued slowness in the commercial real estate sector. Tight underwriting standards may usher in more creative and seller financing options.

Unemployment remains very high and exceeds the national average in this area. Unemployment has climbed steadily since 2007. The Florida rate hit 11.5% in the final quarter and is hopefully cresting. Unemployment is one of the biggest obstacles to economic recovery. We believe that unemployment will continue to range from 9-11% through much of next year. We believe full confidence must be regained in the credit markets before unemployment levels will improve. It is difficult for the economy to mend itself without job growth.

Vacancy levels have climbed over 2009 in virtually all sectors of the market and will likely persist for some time. Appraisals often require modeling of excess vacancy levels in order to obtain a meaningful analysis. Stabilized projections have to take into account the extent of over-supply presently in the market. We still believe that purchase opportunities clearly exist for investors with ample holding periods, who can purchase now and benefit from increasing occupancy in forthcoming years. Clearly, now is the time for those who are cash laden to consider getting into the market. We advise seeking out steal-of-a-deal buys and anticipating a holding period of five or more years. There are many weak properties in the market that are prime targets for acquisition.

Delinquency and foreclosures remain at high levels but should hopefully crest in 2010. Florida has the nation’s second highest foreclosure rate. Retail sales increased some in this quarter, but will have to accelerate much more before any sort of expansion in occupancies can be anticipated. Higher vacancies in the multi-family sector, self-storage, office, and retail markets are expected to persist.

In conclusion, we are optimistic that the market is beginning a transition towards improvement but see it as a very slow and relatively flat process.

MARKET OVERVIEW......by R. Shawn Brantley, MAI, CCIM
FOURTH QUARTER - 2009