Brits beware getting burnt in Florida

Brits beware getting burnt in Florida


House prices in the sunshine state have been falling - but the slide could still have some way to go, reports Graham Norwood

Sunday March 11, 2007
The Observer


In a few weeks' time, holiday home owners in Florida will be battening down the hatches ahead of the typhoon and hurricane season. But should they be doing the same to avoid the effects of a stormy housing market?
Although estate agents remain predictably coy about recent price falls, corporate announcements since the new year paint a clear if depressing picture.

· Banking group HSBC, which has a large US mortgage division, says its bad debt provisions for 2006 will be 20 per cent higher than expected because of soaring default levels among home owners across the Atlantic;

· The US Commerce Department says the number of new US homes being built has hit a six-year low. The latest data shows November 'housing starts' down 14 per cent from October and a whopping 27.4 per cent lower than in late 2005;
· Profits at Home Depot, the US DIY store chain, fell 28 per cent during the final quarter of 2006, with the company blaming the cooling property market;

· George Wimpey, the successful British builder, says its US profits slumped 31 per cent in 2006 after customer cancellations rocketed. It has now stopped buying land for new homes across the US, except in Texas.

All of this seems a long way from sun-kissed Florida, where most British buyers in America have their holiday homes. But it isn't.

Agents admit holiday home prices in the sunshine state are down 10-15 per cent from early 2006 but many vendors say the fall is over 20 per cent. This is despite Florida being insulated from much of the US housing bubble, as 30 per cent of sales in some areas are to foreigners - a third of them British, says the National Association of Realtors (NAR) umbrella group.

The NAR says that in the final quarter of 2006 second-hand home sales in the US fell 10.1 per cent on the same period in 2005, and that 73 out of 149 cities suffered price falls. 'This confirms that 2006 was the year of contraction and, hopefully, that the fourth quarter was the bottom of this current business cycle,' says the NAR's chief economist, David Lereah.

But realtors (estate agents) in Florida insist that British buyers should not be alarmed.

Elaine Russell runs an estate agency in Boca Raton, an area popular with upmarket British buyers, and blames mortgage lenders and developers for the bubble. She says that when US interest rates fell to 4 per cent, lenders offered domestic borrowers cheap deals that many cannot afford with typical mortgage deals now at 6 per cent. Then too many flats were built 'and there's a glut in certain areas as investors put their dollars elsewhere'.

Typical of many combative US estate agents, Russell pours scorn on Britons who buy in emerging nations. She even advises checking the CIA's website before purchasing a home in any nation other than America 'as laws can change rapidly in these countries due to the regimes'. She adds: 'The climate is right for the foreign buyer to purchase more property in the US before the next swing upwards.'

Charles Weston-Baker, head of international sales at UK estate agent Savills, says the slump in prices has hit rock bottom: 'There's been a drop-off in interest in Florida from British buyers but with price falls of 10 per cent or 15 per cent there's now a more realistic chance of rents covering mortgage costs for new investors. It's an unexpectedly good result of a market that's corrected its prices.'

As ever in the world of property, this leaves the punter in a quandary. On the one hand it may be exactly the time to buy that US holiday home at a knock-down price. But some experts believe it's precisely the wrong time to buy, as there may be more falls to come.

'The continuing slide of the dollar means that Britons who already own property could lose another 5 per cent to 10 per cent [on the value of their homes] through currency changes alone, regardless of future house price losses,' claims Stuart Law of investment analysts Assetz.

'There's probably further to go before the market stabilises. There's great uncertainty over whether the chronic over-supply has worked its way out of the market,' he says.

'Investors hoping to sell their property are likely to face losses if they sell now. My advice is to take a five- to 10-year view and focus on maximising letting potential. The rental market could benefit from any house-price collapse. If the value of the dollar remains low, international tourism will soar,' predicts Law.

He is not the only pessimist: 'I don't know why investors buy in Florida. The properties aren't high quality in the main, there's little to do in the winter and prices are falling,' says Rupert Lee-Browne of foreign exchange consultants Caxton FX, which analyses overseas purchasing trends among its 10,000 UK clients.

'There has to be a compelling reason for Britons buying in Florida given the precariousness of its property market,' says Lee-Browne. 'But there isn't one.'

The next few months are critical for the Florida market, where sales traditionally dry up in late May as the typhoon and hurricane season starts.

This summer, even if the property market looks stormy, some homeowners will be able to survive anything thrown at them.

The newest homes have special hurricane flood diversion systems, created by the addition of a 2ft-thick concrete perimeter wall buried in the soil just outside the foundation, which is designed to prevent flood water washing away the home's base.

They have metal straps across roofs, especially gable ends, to keep them attached to the walls. Sometimes these 'tie-downs' are used across walls and floors, too, to keep them attached to foundations. Some more expensive homes are even 'wrapped' in a thin skin of Kevlar, the stuff that flak-jackets are made from, which is lightweight but still stronger than steel.

Some developers are also now including only minimal landscaping in developments as a result of recent storms where much of the damage to property was caused by flying trees uprooted by winds. The American Red Cross has even issued guidelines to house builders about 'bracing' garage doors - the part of a property most likely to collapse first in a hurricane, according to research.

Florida seems well prepared for this year's rough weather. But is it still in the middle of a stormy market whirlwind?