Florida Economic Outlook

U.S. economic conditions deteriorated significantly late last year, after the financial crisis intensified. Real GDP fell at a 5.7 percent annual rate during the first quarter of 2009, following a 6.3 percent annual rate decline in the fourth quarter. Output has fallen 2.5 percent over the past year, marking the sharpest drop in output since the third quarter of 1982. Weakness is extraordinarily broad-based throughout the economy, with even the historically recession-resistant education, healthcare and government sectors seeing signs of strain.

We believe the fourth quarter of last year and the first quarter of 2009 will mark the darkest hours of this recession. Successive quarters should see conditions gradually improve. The recession, however, will likely drag on through this summer, but the worst has likely passed. This means the current recession will be the longest and deepest since the 1930s. Afterward, we expect a recovery to gradually build momentum. Many of the hardest-hit sectors, including housing, financial services and commercial real estate, will take longer to recover to historically healthy levels, but the recovery will eventually reach every corner of the economy.

Florida faces an even more difficult road to recovery. The Sunshine State went into recession a full nine months ahead of the nation, and excesses in housing and commercial real estate are considerably worse than the nation as a whole. Nonfarm employment is on pace to decline by nearly nine percent peak-to-trough, producing an aggregate loss of close to 720,000 jobs, including a net loss of 430,000 jobs this year. The unemployment rate is expected to top out at around 11 percent and would rise even further if not for the significant out-migration of prime working-age adults to neighboring states and Texas.

Housing Remains Front and Center
The housing bust is clearly Florida’s largest immediate problem. Single-family housing is extremely overbuilt, particularly along Florida’s central Atlantic coast, in southwestern Florida, in central Florida, in the outlying areas around Orlando and in many other of the outlying areas around the state’s other major employment centers. Permits for new single-family homes have tumbled 90 percent from their peaks nearly four years ago and the inventory of vacant, developed lots remains excessive throughout much of the state. Condominium development also got considerably out of balance, with far too many high-end units built in Miami, the Florida panhandle and many other metropolitan areas.

The median sales price of an existing home shot up to $255,000 at the peak of the housing boom in November 2005, as measured by the Florida Association of Realtors. Prices are currently down roughly 45 percent from that peak. Some markets, including areas around Fort Myers, Tampa and Fort Walton Beach, will see peak-to-trough price declines of 60 percent or more. Sales of existing homes are off 45 percent from their peak but have shown signs of stabilization recently. A large proportion of recent transactions, however, have been foreclosure sales or distressed transactions.