Tuesday, 22 October 2013

Tampa Employment Reaches Record High

After considerable delay due to the government shutdown jobs report was released today showing 148,000 jobs created nationally in September and falling short of analyst estimates of 180,000. In addition a substantial amount of the increase was due to seasonal government hiring including school teachers and staff.

Tampa Reaches New High in August 2013

While the Tampa numbers for September have yet to be released the numbers for August numbers have just been made available: Employment reached a new high at 1,264,590. The previous high of 1,262,967 was reached in July 2007. In addition the unemployment rate dropped to 7.0% from the 7.3% recorded in July. Tampa unemployment follows a seasonal trend with August marking the beginning of the winter cycle. From July 2012 to April 2013 the unemployment rate fell from 9.3% to 6.7% before rebounding back to the 7.3% in the summer

Graph of uneployment showing consistent mid-year seasonal spike.
The September numbers are still to come and should be unaffected by the shutdown. Thereafter it is unclear how the numbers will be affected moving forward. We do note however that government employment has been trending down in Tampa generally and that the recent gains are entirely due to the private-sector. 

Wednesday, 16 October 2013

Tampa Home Prices Remain Affordable

Despite a strong recovery Tampa home prices remain affordable to the majority of middle-class buyers according to a new study byTrulia. The study sites affordability concerns in several markets as a result of recent price increases. In Tampa however 73% of middle-class families can afford an average price home costing a maximum of $216,000. 

Among the locations where homes are most affordable Tampa also stands out as one of the most desirable places to live. Consider that in Miami for example, only 51% of families can afford to own a home and West Palm Beach where the percentage is 58%. Of major Florida centres Orlando seems the closest competitor where 69% of families can afford an average home of $222,000.

Tampa also shows relative strength among affordable markets in terms of economic development. We recently compared the Toronto to Tampa market in terms of a number of benchmarks including average price to average household income. In Tampa it took the average family earning $58,000 approximately 3.58 years to save for the average detached house costing approximately $204,000. In Toronto by contrast it would take the average family making $68,000 some 9.3 years to purchase an average home costing 635,000.

Monday, 14 October 2013

Flood Insurance Increases Pose New Opportnities

On October 1, 2013 changes to FEMA flood insurance program took place which are expected to have dramatic effect on real estate values in Florida and other States where there are a number of flood zones.

This writing summarizes the effect of the changes, it's effect on the current portfolio, and identification of opportunities moving forward.

Identification of issue.

Email administers a mandatory national insurance program for properties in high-risk flood areas. This is accompanied by a complex series of flood maps and surveying elevations for any given area which dictate the amount of risk. When building new homes in the flood area it is possible to simply adhere to the FEMA guidelines and thereby reduce the amount of risk and has the rate of insurance payable. Below is a picture of a stem-wall  upon which new home is to be built in the flood area.

The system has only been implemented however since the mid-1970s and continued through the 1980s. Living by the water has always been popular and many of the homes in flood risk areas were constructed well before that time. The map view below shows new houses built on a stem-wall on the one side of the street with older houses built at road level on the other (see height of door/entrance).

View Tampa Port Land Lots in a larger map

As can be seen the stem-wall is almost as high as the first floor of the house without one so that the older house would be almost underwater before the newer one were even affected. On a purely risk-adjusted basis the market rate of insurance for the older house would be in excess of $10,000 per year. To compensate for this a series of subsidies has been put in place for older homes to normalize insurance rates. However as a result of several recent natural disasters which severely depleted the fund the subsidies were legislated to be phased out effective October 1, 2013. The phaseout is gradual for most homeowners except in cases where the homes have been recently sold. Nevertheless even homeowners who remain in their homes have complained of rates doubling wild new purchasers (of older homes) have seen rates increase up to 3000%.

The obvious effect of this is to diminish the economic value of these older homes as the flood insurance premium alone would be sufficient to otherwise carry a much newer or larger property. As a result there have been several political initiatives by governors of affected states including Florida to cause amendments or reversal of these policies. It seems unlikely however that they would be entirely reversed as a result of funding constraints.

Effect on Current Portfolio

The units in the rental portfolio were all newly constructed so as to avoid the subsidized premiums. Other than normal rate increases they should not be affected.

New Opportunities

Assuming that the increased rates remain in force, they also present some unique opportunities: many of the properties affected by the increased rates are in desirable waterfront areas where there is a lot of new construction activity. The factors outlined in this paper may be responsible for causing yet more transformative change  as old properties are replaced with new.

A further opportunity lies in the exemption from the mandatory insurance for properties which are owned free and clear. This would include properties which are purchased with funds borrowed from another country provided that there is no US mortgage registered against the property. The majority of rental investments are financed in this manner as limited other options exist. 

As the properties can be purchased for a nominal premium over the cost of comparable vacant land and are in good areas, they produce excellent income during the hold. At the same time this income gives the investor far more flexibility than with the raw land.

As with many strategies the trick is not just identifying the opportunity but also having the resources to implement. Check out our websites and blog for information on our rental management and construction activities.

Left: Picture of one of our current new builds showing height of stem wall.

Saturday, 21 September 2013

Tampa Prices, Sales Continue Strong Growth

Tampa home prices continued to show strong growth in August 2013 with the median price of 23.1% over August 2012. The average price was up 15% and close sales improved 10% over the previous year. At 4.4 months supply inventories are starting to creep back into the system but still down 22.5% from the almost 6 months of inventory in August 2012.

These statistics are particularly positive as they come in three months after major interest rate increases. There was further good news on the interest rate front this week as the Fed indicated no intention to clawback its bond and mortgage-backed securities buying.

One of the major underlying reasons for the strong real estate recovery in Tampa has been employment. After seeing rates peak of over 12 1/2% in 2012, Tampa has staged a remarkable recovery. Unemployment has returned to national average rates and was under 7% for most of the spring and summer of 2013. Well the August unemployment rate has not been published the total nonfarm employment is the highest it has been in a six-month period After a brief pullback in June and July. Construction activity has also been a strong performer recently where it had been virtually non-existent after the housing crash. Tampa is the 16th most active new construction market in the United States in 2013.


Saturday, 17 August 2013

Construction Underway at Port Tampa Beach Homes

Construction is underway at our new development of beach homes in the Port of Tampa where we have joined and number of premiere local and national builders in developing this exiting downtown area less than 2 miles from the beach.  

Stem wall picture July 2013
Our own designs follow the "coastal vernacular" style that has recently gained popularity elsewhere in Florida. The main theme combines traditional design elements with the latest in construction materials and technology.The model home depicted above is located at 7220 Mascotte St. and should be completed by year end.

For further information on this or our other models please contact me.

Wednesday, 7 August 2013

Tampa # 16 in U.S. for New Home Construction

When we first went to Tampa in 2010 to buy foreclosures I recall saying to one of my partners who was with me that it seemed like a long time before they would be building again. I would never have thought that by this time construction would be booming again (Forbes: Summer 2013 from McGraw Hill Study). 

Actually it makes perfect sense: Nothing has been built since the market crashed in 2008 and the population has continued to grow. The unemployment rate reached as low as 6.7% over the summer and is still well below the national average so the prospects for continued migration are good. Improving economic prospects nationally should also boost the influx of vacationers and retirees.

We are proud to have teamed up with a construction manager previously from one of the country's largest builders for our own project: A collection of Key West Style Beach Homes in South Tampa less than 2 miles from the beach. You can view 3D Models of the development with the latest version of Google Earth here and then downloading this KMZ file of the models.

Wednesday, 6 February 2013

Tampa Employment Surges Back

Since July 2012 the unemployment rate in Tampa has fallen from 9.4% to 7.9% in December and is now in line with national averages. Having come back from a high of 12.5% in 2011, the area carries impressive momentum into the new year.

A better measure of economic activity is the simple employment number, cut adrift of the percentage of people looking for work. The graph below shows Tampa employment through the entire cycle from 2002 to present. After being literally decimated in 2010 employment has recovered impressively. More people are employed in Tampa now than during the majority of the “bubble” up to ’06. Only during the height of employment in ’07 were things any better and the current number is rapidly approaching those levels. The rate of employment growth coming out of the trough is also superior.

Contrast the median house price from 2000 to present below. Prices started to come off at the same time as employment but took longer to find bottom in early 2011. Since that time they have steadily recovered to early 2003 levels. The employment chart reveals that there are a lot more people working in Tampa then there were in 2003 (or 2004, 2005 or most of 2006). Mortgages, although cheaper are harder to qualify for, but many people also are forced or prefer to rent, still feeling the effects of the crash.

It is also noteworthy that this revival in employment has occurred almost entirely without the construction sector which continues to suffer. While we saw a surprising amount of new homes being built in November of 2012, the sector employment data below paints a different picture (Construction Sector Tampa Employment: Bureau of Labour Statistics).

Construction is a significant sector of the economy. Even with the building activity we saw, Tampa has not yet returned to the “virtuous cycle” in which construction activity itself contributes to employment and house price growth. The sharply declining inventories of available homes however bode well for an imminent return.

If the economy has been growing as it has without the construction industry, one can only imagine what happens when it kicks in.