Spain has always aspired to be the “Florida of Europe” so what can we learn from Florida’s spectacular housing market recovery, and are there any grounds for optimism?
Last week I joined a panel at the SIMA Madrid International Real Estate Exhibition comparing the holiday-home markets of Spain and Florida. I explained the situation in Spain, whilst Dean Asher, President of the Florida Realtors Association (www.floridarealtors.org) and Teresa Kinnery, CEO of the Miami Association of Realtors (www.miamire.com) enlightened us on the situation in Florida and Miami.
My presentation was a cheerless affair as I explained how almost every market metric was still heading in the wrong direction, whilst Dean and Teresa were all smiles as they explained how the property market in Florida has staged the most extraordinary recovery, with every single metric heading in the right direction.
Take Miami: After a savage crisis in 2008/2009, in which prices crashed and inventories bulged, they then went on to clock up record yearly sales in 2011 and 2012, and are on track for another record in 2013, with the highest level of sales in Miami’s 93 year history.
Today in Miami:
- House prices are rising fast (+24pc for single family and +17pc for condos), though they are still around where they were in 2003
- Sales prices are almost equal to asking prices
- Housing inventories have dropped dramatically (-75pc compared to August 2008)
- Time on the market is falling
- Sales volumes are up
- Cash sales are up
- International buyers are up dramatically
In Spain, on the other hand, all those housing market metrics except the last two are still going in the wrong direction.
So what is driving the property market recovery in Florida?
To start with, the US economy is doing better than Spain, and mortgage financing is easier and cheaper to come buy. But if I understood correctly, there are three specific drivers behind Florida’s recovery:
- Foreclosures and distressed sales quickly led to dramatically lower house prices that brought the market back to life.
- Institutional investors were big buyers in the early stages of the recovery, which helped build momentum and confidence.
- More than anything, it seems that increasingly diversified international demand is the biggest driver behind Florida’s recovery. International buyers from countries like Venezuela piled into Florida to get money out of Banana Republics and into hard assets. Now Canadians are also taking advantage of lower prices for lifestyle/investment reasons.
So what about Spain? Are there any signs of similar factors rescuing the coastal housing market?
It has taken a long time to get there, but lower prices in popular destinations like the Costa del Sol are bringing buyers out of the woodwork. It is now reasonably easy to find bargains, and international demand is responding, up 13% last year. I expect the trend to continue with prices under further pressure as banks, the Sareb, and vulture funds liquidate portfolios. Simply put, lower prices are stimulating international demand, like they did in Florida.
No doubt Spain would have been much better off with a faster adjustment and recovery like Florida, and it doesn’t help that the official figures still give the rest of the world the impression that Spanish house prices have barely declined in what everyone knows is one of the world’s biggest housing busts. But prices are getting interesting, and word is getting out.
Why has Spain taken so long?
It usually pays to cut your losses quickly, and Florida proves the point. So why have Spanish property prices taken so much longer to fall? Some say it’s because Spanish vendors are just obstinate, but I guess it’s more to do with the US financial system being better placed to absorb losses more quickly than the Spanish system. In the end it’s because the US is a much bigger, stronger economy that could cope with the hit.
Vulture funds have been circling for years, now more than ever, but no big deal has been done; mainly because Spanish financial institutions were not willing or able to recognise the necessary losses a deal would entail (investors are looking for discounts of 70pc to 80pc), but also because Spain lacks professional property management companies that investors need to deal with big portfolios. Nevertheless, it’s reasonable to expect that deals will start being done, which might push down prices in the short term, as investors look to liquidate fast. Distress investors helped Florida recover, and they may yet help Spain too. The signs are promising.
DIVERSIFIED, INTERNATIONAL DEMAND
International buyers have been the main driver behind Florida’s recovery, and increasingly diversified and growing international demand is one of the few bright spots in the Spanish housing market. Foreign demand for Spanish property grew 12.7pc last year (whilst local demand fell 18.4pc), and foreign buyers now come from a bigger mix of countries. On the Costa Blanca, foreigners are now around 30pc of the market, as they were in Miami in 2011. That is all good news.
The trend is positive, and I expect lower prices to attract foreign investors in greater numbers, though Spain could do more to attract buyers from Latin America and Middle East. If the trend continues, then foreign buyers will help reduce inventories and stabilise prices in popular coastal areas in the next year or two. But unlike Florida, I don’t expect a rapid turn around.
Does Florida point the way?
Can we expect Spain to follow in Florida’s footsteps? Dean Asher of Florida Realtors certainly thinks so: “Don’t worry, it’ll happen here too,” he told me. I’ve come to the conclusion that there are cautious grounds for optimism, assuming that recent steps by the Spanish Government don’t snuff out international demand. I see house prices getting interesting, institutional investors getting interested, and foreigners from a greater mix of countries buying in increasing numbers. But, unless there is a dramatic increase in foreign buyers in the next two years, I don’t expect a spectacular rebound like Florida, more like a gradual recovery. But this stage, any sort of recovery will be welcome, and better late than never.