Given the unprecedented amount of construction currently underway, with over 100 mid and high rise structures either under construction or proposed in Dade County, one only has to ask whether Miami's economy, or any economy, is strong enough to justify such a building boom. The latest numbers are impressive. After adding 30,000 jobs in 2004, businesses and local government are poised to create at least another 25,000 new jobs this year. The unemployment rate plunged to generational lows in recent months, and is currently just 4.8%. Yet even with a strong economy and continued interest from visitors and investors from abroad, there is no question that the supply of condominiums coming to market over the next three years, which is significantly greater than what was delivered in the last ten years, will test today's seemingly unwavering demand.
Miami is not particularly indicative of the rest of Florida, or even the rest of South Florida for that matter. While the rest of Florida is booming, Miami's ties to the global economy and Latin America in particular, distinguish it from nearly every other city in the hemisphere. The city serves as the major financial, transportation and service hub for Latin America. More than 500 multinational firms, including such well-known names as Kraft Foods, Caterpillar, Clorox, Microsoft, and ExxonMobil, have their Latin American headquarters in the Miami area and, of course, the region is a tourist magnet. There are, however, elements of Miami's boom present in other markets, particularly Florida's five other large metropolitan areas – Fort Lauderdale, West Palm Beach, Tampa-St. Petersburg, Orlando and Jacksonville.
Fort Lauderdale-Pompano Beach-Deerfield Beach
On the surface, Fort Lauderdale's sizzling housing market is beginning to show some signs of moving into better balance. Sales of existing homes have fallen 28 percent over the past year, while the inventory of unsold homes has increased slightly. The drop in sales, however, likely results from a lack of supply. The past five years have been characterized by an extreme mismatch between the supply and demand for housing. Broward County has added 150,000 new residents and 60,000 households during this period. When you add in demand for second homes and vacation properties, this growth translates into demand for at least 80,000 new homes, apartments, townhouses and condominiums. Unfortunately, builders have only been able to deliver around 48,000 new single-family and multi-family homes to the Broward County market during the past five years. With demand vastly exceeding supply, prices for existing single- family homes have soared 151 percent over the past five years, including a 28 percent rise over the past year. Prices for existing condominiums have also surged, soaring 38 percent over the past year.
The run-up in prices has set off a wave of condominium conversions. More than 6,000 apartments were converted to condominiums or slated to be converted during the first half of this year, marking Broward's largest condominium conversion wave ever. We expect a similar number of conversions to occur during the second half of the year. With apartment vacancy rates already low, however, the increase in condominium conversions does nothing to correct the supply/demand imbalance.
The biggest obstacle for developers in Broward County is the lack of developable land. With the Atlantic Ocean to the East and the Everglades on the West, Broward County has simply run out of easy and affordable land to develop for residential use. This is why permits for new single-family homes have actually fallen at the very time sales prices are soaring. Higher selling prices would typically illicit the opposite response.
The mismatch between the supply and demand for housing in Broward County is beginning to present a threat to Fort Lauderdale's long-term economic vitality. Ten years ago, homes in Broward County were relatively affordable, with the typical home selling for $109,000, or just 98 percent of the U.S. average. Today the typical home sells for more than $385,000, or 183 percent of the national average. Unfortunately, the most recent data point to little near-term improvement. Permits for new homes, townhouses, and apartments are running at just under a 9,000-unit pace, which is well below the projected 11,300 increase in households projected for 2005. As a result, prices will likely continue to rise at a fairly rapid pace.
So far, the run-up in housing costs does not seem to be hurting the region's overall performance. Nonfarm employment has risen 3.0 percent over the past year, reflecting a net gain of 21,400 jobs. Hiring is up virtually across the board, with some of the strongest gains coming in business and professional services, transportation and distribution, construction, and healthcare. Fort Lauderdale continues to attract scores of relocations and expansions, including DHL's recent announcement that it plans to create 600 new jobs near its headquarters in Plantation. The unemployment rate has fallen to just 3.7 percent, the lowest level since February 2001.
West Palm Beach-Boca Raton-Boynton Beach
Conditions are fairly similar up in Palm Beach County. Sales of existing homes are down from where they were a year ago, but tight supplies of both new and existing homes continue to exert pressure on prices. Prices of existing single-family homes have surged 26 percent over the past year and are up a startling 175 percent over the past five years. At $391,600, the median price of a single-family home is some is 86 percent higher than the national average. Prices slipped slightly in July, falling 3.7 percent from a record $406,800 in June. The drop, however, appears to have more to do with the mix of homes sold rather than any weakening in demand. Apparently there were fewer higher priced homes on the market. Overall sales of existing homes fell 16 percent in Palm Beach County during Jul y, marking their 11 th consecutive year-to-year drop. Once again, however, the drop is due to a lack of homes available for sale and not due to flagging demand.
Demand for housing still appears to be vastly outpacing supply. Nonfarm employment in the West Palm Beach-Boca Raton-Boynton Beach metropolitan area has risen 2.6 percent over the past year, as 14,200 net new jobs have been created. Hiring is up across most industries, with some of the strongest gains occurring in construction and financial services. The unemployment rate has fallen a full percentage point over the past year and is currently at a cycle low of just 4.0 percent.
The strength in the economy has encouraged a wave of in-migration, boosting the county's population by 145,000 residents over the past five years. That gain translates into 57,500 new households. Given the historically strong demand for second homes and vacation properties in Palm Beach County, the recent gains in households translate into demand for 87,000 new homes, apartments and townhouses. Builders have delivered 66,700 homes during this time period. The net result has been a supply squeeze, which has sent prices for existing properties soaring and set off a wave of condominium conversions, which is dramatically reducing the supply of rental housing.
While Palm Beach County has long been known as a haven for the rich and famous, most of the growth in recent years has come from prime working-age adults, looking for more affordable housing in areas such as Boynton Beach, Delray Beach, Wellington and the unincorporated areas of the County. Those affordable houses are tougher to come by. Back in 1995, the median price of a home sold in Palm Beach County was $128,100, or 115 percent of the national average.
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