Naples-Marco Island
The Naples-Marco Island-Bonita Bay area has long been one of Florida's and the nation's fastest growing metropolitan areas. The region's economy is largely built around well- heeled retirees and tourists, many of which now come from overseas. The Naples area boasts the sixth highest level of per capita income in the nation, and receives more than three times as large a share of its income from investment sources (interest, dividends and rents) than the nation as whole. While the region has historically seen its population swell in the winter months and shrink in the summer, the year-round population has soared in recent years. This growth, however, has set off a wave of slow growth activism, which has severely constrained new construction.
Total permits for new homes, condominiums and apartments peaked back in 2002 at 7,300 units. By contrast, the past year has seen just 6,134 permits issued, and most of that has been for new single-family homes. While constrained, residential construction has still been quite formidable, with 20,000 single-family homes and more than 12,000 condominiums and apartments completed over the past five years. During this period, Collier County added 54,000 full-time residents and 22,000 full-time households.
While the population and housing completion numbers suggest the housing market is in pretty good balance, there has clearly not been enough construction to meet demand, particularly when you add in demand for second homes and vacation properties. At last count there were only about 100 new homes for sale in Collier County, and about 1,000 more under construction. With few new homes available, demand for existing properties remains strong. Naples boasts the highest home prices in the state, with the median price of an existing home topping $490,000 in July. Prices for existing single-family homes have risen 31 percent in the past year and are up 164 percent over the past five years.
The high price of housing has forced many Collier County workers to seek housing in neighboring Lee and Charlotte counties, where prices are more affordable. As a result, high housing prices have not yet begun to choke off economic activity. In fact, quite the opposite seems to be the case. Nonfarm employment increased 4.5 percent over the past year, while the unemployment rate has fallen to just 2.7 percent. There is a huge backlog of road, sewer, and public works projects in the pipeline, which should help keep construction running at a strong pace for the next few years. Condominium construction is also poised to take off, once the county decides to move forward in granting building permits on many long delayed projects. Until that happens, housing prices will continue to rise at a fairly rapid pace, although we expect appreciation to slow to something in the low double digits over the next 12 to 18 months.
Fort Myers-Cape Coral
Spillover demand from the Naples area has added fuel to an already red hot housing market in the Fort Myers areas. Permits for new single-family homes have surged 58.9 percent to a record 20,050-unit annual rate. Permits for condominiums and apartments have been lagging, however, reflecting ongoing resistance by local governments to new condominium development.
Demand for new homes is being driven by strong local economic growth, the spillover of buyers priced out of Naples, a growing number of retirees and part-time residents, and a rising tide of overseas buyers. Nonfarm employment has increased 4.7 percent over the past year, resulting in a net gain of 9,400 new jobs. Not surprisingly, some of the biggest gains have been in construction, where payrolls are up 9.4 percent. The gain reflects the recent strength in homebuilding, as well as repair and rebuilding efforts from hurricane Charlie, which clipped the northern portion of the county last summer. Hiring is also up solidly in most other industries, including business and professional services, retail trade, and the leisure and hospitality sector. The unemployment rate has fallen to just 3.1 percent.
With the economy humming, population growth has remained incredibly strong. Lee County has added 94,000 new residents in the past five years, which translates into 40,000 new households. When combined with the general rising trend of homeownership nationwide and the growing demand for second homes and vacation properties, we estimate buyers have been looking to purchase 65,000 new homes, townhouses, and condominiums. That matches up nearly perfectly with the 65,500 units delivered over the past five years.
Although the math works out really well, prices for existing homes in Lee County surged 44 percent during the past year, which marks the second largest gain in the state and one of the largest gains in the country. Such a run up in prices would not occur if the market were truly in balance. We suspect that a combination of factors are behind the surprisingly strong demand, including stronger than reported population growth, rebuilding efforts from last summer's hurricane, spillover from folks priced out of Naples and displaced from Charlotte County, and exceptionally strong demand from European buyers. In addition, there appears to be a fair amount of speculation in the Lee County market from investors.
We expect economic growth and house price appreciation to moderate slightly over the coming year. After rising close to 5 percent this year, we expect nonfarm payrolls to climb around 3.5 percent in 2006. More modest job growth, along with modestly higher mortgage rates and a weaker euro should help curb demand for new homes, and allow supply and demand to move into better balance. Prices for existing homes should rise much less rapidly during the next year or so, with prices climbing 15 percent to 20 percent over the next 12 months, and 8 percent to 10 percent the year after that.
Punta Gorda-Port Charlotte
Port Charlotte and Punta Gorda are still recovering from the devastating affects of Hurricane Charley, which hit Charlotte County last summer and destroyed more than 5,000 homes throughout the county. Rebuilding efforts have come a long way. All but one of the county's manufactured housing parks have re-opened. There are still an estimated 2000 homes awaiting demolition, however. Moreover, there is an acute shortage of affordable housing in the county.
Economic conditions have improved considerably over the past year. Nonfarm employment has increased 4.1 percent over the past year and the unemployment rate has fallen back down to 3.7 percent, which is 0.7 percentage points below where it was the month before the hurricane hit. Much of the growth reflects rebuilding activity. Charlotte County, however, has been growing at a fairly healthy clip for the past fifteen years, a period which has seen its population swell by 51 percent.
Growth is being driven by the availability of relatively inexpensive developable land. Charlotte County has historically had some of the most affordable land prices in Southwest Florida, with a vast supply of vacant developed lots overhanging the market from the days when General Development Corporation first started building homes in the region back in the late 1950s. Permits for new single-family homes have surged 10.2 percent over the past year. Multi-family permits, however, declined 15.4 percent, which left total construction up just 1.6%.
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