Brits in Florida Could Get Burned
Your Florida villa could turn into a liability in a cooling market. But if you plan to invest, remain patient until the market bottoms out.
A combination of overdevelopment and a string of US interest rate rises means many British second home owners are heading for a difficult few months — especially if they are depending on rentals to cover their mortgage costs.
Investment bank Goldman Sachs recently went so far as to predict that "nominal US home prices may be headed for an outright decline in 2007". And Florida, the most popular US State with Brits, looks set to suffer more than most.
As the state's largest single overseas nationality (in 2005, 4.3 million of the 76 million tourist visitors were from the UK), Britons have benefited from a 100% average house price rise in the last five years. But now economists are predicting a slowdown in the rentals market because there are just too many holiday homes chasing too few tenants. And that spells disaster for the many Brits who rely on rentals to cover their overheads.
Writing in the Sarasota Herald-Tribune, Michael Braga agrees: "The southwest Florida market for rental properties is all whacked out. Where demand is highest - in the affordable segment - the supply of apartments and rental houses is tight. But at the higher end of the market, there is a glut of properties aching for tenants." This suggests that certain sectors of the market are still quite buoyant — depending on where and what you buy.
A local rental firm claims that if no new rental units come to market, it will take six months to rent all the units on their books. The message is, if you plan to buy in Florida and rely on rentals to fund the mortgage, you may want to think again.
The Rising Costs of Florida Property
As oversupply pushes rental returns down, UK holiday-home owners are facing other rising costs:
- the impact of rising interest rates on mortgage costs
- higher insurance premiums as a result of last year's record hurricane season
- rising annual property taxes (which track rising house prices)
These factors make it tougher for holiday-home owners to justify the high costs of maintaining their second homes or investment properties. Some have already bailed out and taken a financial hit as prices are slashed across the state, despite some unscrupulous developers making sales by suggesting that a certain level of annual rental returns are guaranteed. But developers cannot predict future market conditions any more than you can, so beware.
Overall, the Florida property market looks set to become one of the least healthy in the US. The Florida Association of Realtors reported in July 2006 that sales of existing single-family homes and condominiums have seen double-digit falls every month for the past six months — and is predicted to remain slow for the next 18-24 months. In further bad news, the Palm Beach Post reported that in Palm Beach County, a relatively wealthy part of the state, foreclosure filings (repossession orders) rose 34% in June compared to last year.
Downturn is Good News for Some
As in any market experiencing a reversal, there are already vultures hovering. With an eye to the long-term investment opportunity, institutional investors are back on the scene. Property consultant Jack McCabe said: "I have just been contacted by five of the largest hedge funds in America, and they are all interested in the opportunity to buy distressed properties."
The current state of the property market means that potential investors should remain patient — the market has not yet bottomed out. Existing property owners should try to ride out the upcoming rough few months rather than cut and run unless you're prepared to dump your property at a significant discount.
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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Mayfair Consulting Limited is an Appointed Representative of The Mortgage Times Group Limited, 279 Tottenham Court Road, London , W1T 7RJ , which is authorised and regulated by the Financial Services Authority no. 303007.
