Wednesday, June 08, 2005

On Monday I wrote a post about the California housing market demonstrating the disconnect between stratospheric rises in housing prices there combined with unimpressive job growth. Moreover, that job growth has been highly dependent on the property development sector itself: California's employment recovery over the last two years has been twice as dependent on construction and real estate than has the rest of the country.

Since we all had so much fun with this little exercise on Monday (come on, admit it, you did enjoy yourselves, didn't you), I thought I would do the same today for another raging housing market -- Florida.

The Sunshine State has indeed been frothy. Over the last five years no market has seen larger house price inflation than West Palm Beach, and over the last four quarters, eight of the ten hottest real estate markets have been in Florida. That being said, the Florida real estate boom seems on much more solid footing than the bubble in California.

From April 2003 to April 2005, US minus Florida job growth has been 2.5%, while over the same period Florida job growth has been an impressive 6.4%. Already Florida is on a completely different plane than is California. In addition, 18.7% of all new jobs in Florida have been in either construction or real estate, whereas for the rest of the country that figure has been only slightly lower, at 16.7%. Thus Florida, unlike California, has not been inordinately dependent on the property development sector for its job growth.

While 50-70% of all new mortgages in California markets are ARMs, Miami-Ft. Lauderdale is "only" 41% ARM in 2005:I; Orlando, 38%; Tampa-St. Pete's, 35%. Again, Florida stands on much firmer ground.

The number of existing houses on the market in Florida continues to rise (5.8% y-o-y) whereas they are actually falling in California (-2.0%), and the monthly cost of owning in Miami is 36% higher than renting while in Los Angeles it is 51% higher and in the Bay Area, 69% higher.

Does this mean there is no bubble in Florida? The amazing run-up in prices since early 2004 suggests that maybe Florida is just getting to the bubble gate a bit slower than California. Miami's affordability index has quickly slid from 99.35 in 2000 to just 75 last year. Thus in the General's opinion, the place to watch for fall-out from a popping bubble is still California, which makes Florida's froth look downright reasonable.

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