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Boomers may yet prop up home prices

A University of Florida report gives some credence to hopes for an eventual upturn, though it predicts much milder appreciation.

By JAMES THORNER, Times Staff Writer
Published March 10, 2007

As the housing downturn consumes their livelihood, home builders and Realtors soothe themselves with a steady mantra: The seas are turbulent now, but retiring baby boomers will keep the market afloat.

Researchers at the University of Florida suggest they may have a point.

A flow of relatively wealthy retirees of the generation born between 1946 and 1964 is Florida's best chance of achieving steady, if unspectacular, home price appreciation over the next two decades.

That's the conclusion of a report "The Florida Housing Boom" published this week by UF's Bureau of Economic and Business Research.

UF timed the release with the start of a Florida legislative session that will take up whether to trim property taxes after the run-up in home values, said David Denslow, a research economist at the bureau.

"What kind of surprised us is how closely the initiation of the last boom in Florida tracked the increase in the flow of retirees," Denslow said "That's going to continue on out. We think the demographics are strongly in Florida's favor."

Looking back at the boom that lasted from 2000 to 2005, the study concluded that Florida homes appreciated 31 percent faster than homes in the rest of the country.

Two converging phenomena set off the price explosion: Retirees cashed out of expensive homes up north and migrated to warmer climes just as Florida constricted housing supply through tighter zoning and depletion of developable land.

Previous Florida real estate booms had not been as lucrative for homeowners. During the 1980s, 1,000 people moved to Florida every day, but home prices rose no faster than inflation. The difference, Denslow said, was that land was cheaper in the 1980s and unencumbered by growth-management rules that would take effect in the 1990s.

The study suggested that any correction in home prices from the 2005 peak - prices have sunk 10 percent to 15 percent in many communities - will prove temporary.

"We think prices will rise about 2 percent a year over the rate of inflation after this current period of adjustment," Denslow said. "I have to confess I don't know how long the adjustment will last."

A UF survey of real estate professionals released this week by the Bergstrom Center for Real Estate Studies held that prices have already bottomed out. That view isn't universally shared: The number of homes for sale in the Tampa Bay area, about 40,000, is quadruple the inventory of 2005. Oversupply tends to drive down prices.

Denslow's study predicts that higher home prices will force Florida employers to increase wages. We won't be pricey like California, Denslow said, but neither will we remain a poor-man's paradise.

"We've got to adjust to the fact that Florida is now a higher-cost state," he said.

James Thorner can be reached at 813 226-3313 or thorner@sptimes.com.

[Last modified March 9, 2007, 23:36:36]