Southeastern Florida is a hot spot for coronavirus infections and is currently suffering extreme economic damage. The “Tri-County” area of Miami-Dade, Broward, and Palm Beach Counties currently has almost 60% of all the Covid-19 cases in the entire State of Florida. Even adjusting for the large share of the state’s population, which is 28% of the state, this is a stunning statistic. The primary explanation for this high concentration within the state is the influx of people from New York, where the coronavirus has been running rampant in recent weeks. The volume of air travel to and from New York is high in all three of the international airports in these three Florida counties.
The economic impact of the coronavirus on this part of Florida is severe because of the area’s dependence on tourism, international commerce, shipping, the cruise industry, and entertainment-related businesses. The hotel business itself has been devastated, and the losses at those businesses reverberate through the rest of the local economy. Every ten job losses in the hotel industry leads to six additional job losses in other sectors. This knock-on effect is setting the area up to be especially vulnerable to weak housing market conditions in the near term.
That being the case, this market is one that we at RCLCO believe will have a particularly robust recovery after this economic and health crisis resolves. Pent-up demand for a range of goods, services, and housing will likely recover at a faster pace than the nation as a whole.
The biggest problem homebuilders had in southeast Florida prior to the health crisis was keeping up with demand. Now, mostly limited to selling homes through the internet, home sales are a fraction of what they were just two months ago. Many of the people who would have been their buyers are now unemployed or afraid of losing income in the near future. And when a buyer does step up in this environment, they often have trouble getting a mortgage.
This region of Florida is also known for its large number of active adult communities, marketed to people aged 55 and older. This group is less concerned about mortgages (many active adult buyers in this region are cash buyers), but some of them just saw their nest egg shrink when the stock market crashed and are delaying a purchase of a home in Florida. There’s a mix of results in this niche. In our research at RCLCO, we are finding that some active adult communities are struggling more than others in this economy. Retiree-oriented neighborhoods situated within master-planned communities (and those that ARE master-planned communities) seem to be holding up better than subdivisions that are not part of a larger planned community. Our analysis suggests that there is a “flight to safety” in housing just as there is in financial markets; master-planned communities tend to hold their values relatively well in economic downturns.
Another explanation for the differences in homebuying appetite among different groups of would-be retirees is that they have had widely differing exposures to stocks. Some got into cash in recent years, and some adjusted their portfolios gradually over the last few years to reduce exposure to risk, and they were not directly affected by the decline in stock values. Others had exposure, but have a let-it-ride philosophy, expecting a rebound at some point in the relatively near future. Then there are those who were highly exposed to stocks, lost their nest egg, and feel like they have to postpone retirement or at least put off the purchase of a retirement home in Florida for a while.
Rental developers and owners in South Florida have been reporting that April rent collections have come in at around 90%, which is better than some had feared, but May collections are expected to be lower.
The silver lining for apartment developers is that newer buildings will gain an even bigger advantage and bigger spread in rents over older buildings. Apartment buildings now in early planning stages have the opportunity to put in better HVAC and other healthy-building features. Long after the Covid crisis has passed, the impact on people’s perceptions and fears will linger, and they will prefer buildings that reduce their fears. Think: touchless technology, improved air conditioning systems, superior ventilation and air circulation, and measures to reduce the spread of illness between residents. With these upgrades, apartment buildings built post-Covid will have a competitive advantage over “2019 buildings” or older.
“We are including smart home technology in our new buildings that will allow our maintenance teams to monitor things like HVAC performance, and respond to problems, with limited physical interaction with the resident,” said Casey Cummings, CEO of Ram Real Estate.