Editor’s note: Contributing columnist, Steve Nicklas, expresses his views and insight on various topics in Marketplace column.
Real estate continues to be the real deal. Like real good. Real lucrative. Real positive.
Here in Nassau County/North Florida, in the state of Florida, in most parts of the U.S. The proof is in the delicious pudding of numbers.
Home prices flourished in 2017, rising 5.7 percent across the U.S. (according to Zillow). Things were even better in Nassau County, where home values went up 7.6 percent. Other areas of real estate also thrived, from commercial to retail to industrial.
And favorable trends appear on the horizon. Most forecasts are for slow, but steady appreciation in property values in 2018 – except in hot markets like Las Vegas and Seattle. There, values are projected to rise another 6 to 7 percent.
Largest Gains Forecast For Southeast
The blue-sky environment of the Southeast is even better. According to Realtor.com, the Southeast will realize the largest gains, led by Nashville with a projected 8 percent increase in home values. Meanwhile, Florida is well-represented, with Orlando, Lakeland-Winter Haven and Melbourne expected to see 7 percent increases.
Strong economic growth and an abundant supply of affordable property are propelling these high-growth markets. Heck, not even Hurricane Irma could derail the strong housing demand in the Sunshine State.
The bullish tone to the real estate market has drawn media attention. In its cover story on March 3, Barron’s magazine proclaims: “The Housing Market’s Rebound is Far from Over.”
The article highlights a multitude of positive attributes. “Abetted by a robust job market, low interest rates, and beneficial demographics, the nation’s housing market has been enjoying a Goldilocks sort of recovery—neither too cold nor too hot,” the article states.
Barron’s cites a strong demand, an insufficient inventory and modest price gains as a triumvirate for sustained housing growth. A caveat would be an unexpected spike in mortgage rates (impacting the finance costs).
Barron’s quotes a Wall Street manager who really likes housing stocks right now. “Housing is in the third or fourth inning of a nine-inning game,” says Bill Smead, lead portfolio manager of the Smead Value mutual fund.
Market Too Hot?
While the trends are mostly positive – area by area – there is a sneaky concern that the real estate market has gotten too hot, especially with housing. For instance, Javier Vivas, the director of economic research at Realtor.com, sees housing prices moderating this year – to closer to 3 percent growth nationally.
However, one prominent economist sees a demand for less-expensive homes from first-time buyers stabilizing the marketplace. “The key is the job market,” says Mark Zandi, chief economist at Moody’s Analytics. “Unemployment is low enough that everyone is benefiting from the good economy, including lower-middle-income households that took a while to enjoy the benefits.”
Housing Starts & Supply Shortage
Even though U.S. real estate is on the mend after the crash 10 years ago, new housing starts remain well below the peak in 2006. For instance, housing starts hit a record of 1.8 million in January 2006, but plummeted to 350,000 by March 2009.
A portfolio manager at John Hancock expects housing starts to continue to ascend, however. Sandy Sanders, manager of John Hancock Fundamental Large Cap Core, expects housing starts to reach 1.5 million a year in the U.S.
Nevertheless, there is a housing shortage. Zandi estimates there is a supply of 1.3 million houses in the U.S., dwarfed by a 1.6 million demand. While rising prices can eliminate some buyers, most U.S. consumers are in great shape financially. So they can afford to buy.
“The consumer’s health is about as good as it gets,” says Zandi.
New homes have been selling at a brisk pace. Sales of new homes climbed 10 percent last year, to an annualized number of 615,000. And Matthew Pointon, property economist at Capital Economics, is eyeing another 10% increase in sales in 2018.
Nassau County, Florida
Here in Nassau County, Fernandina Beach boasts the highest home values among the four towns. The median value of a home in Fernandina Beach is $302,000, according to Zillow. Callahan and Yulee are both in the $180,000 range, with Hilliard a little less. And Zillow describes the housing market here to be “very healthy,” with a low number of delinquencies.
The county property appraiser has a similar view. On his website, Mike Hickox depicts a “steady rebound of the local real estate market.” Last year marked the fourth year of property value increases here (while this year will undoubtedly become the fifth).
And the total market value of the county is higher than it was 10 years ago, according to Hickox. That value is now over $11.6 billion – up 6 percent year over year. New construction has certainly supplemented the county’s values.
Look around you. New construction is everywhere – in Callahan, Yulee, Amelia Island. Residential, retail, commercial. This inevitably boosts the economic outlook here. And that’s very real.
Steve Nicklas is a financial advisor and a chartered retirement planning counselor for a major U.S. firm who lives on Amelia Island. He is also an award-winning columnist. His business columns appear in several newspapers in North Florida and South Georgia. He has published a book of his favorite columns from the last 20 years, “All About Money.” The book is available in local stores and on Amazon. He can be reached at 904-753-0236 or at [email protected].)