Marketplace Property Insurance Crisis Tops Trends
Spiraling insurance rates threaten Florida’s vast real estate market and, ultimately, the state’s economy, says a University of Florida researcher.
“The entire economy will have to adjust to these higher insurance costs,” says Wayne Archer, director of UF’s Center for Real Estate Studies, which recently completed a new quarterly survey of Florida real estate trends. “It’s a big enough hit, just like gas prices, that it will ultimately affect every business and every price that is property intensive.”
The unusually active 2004-2005 hurricane seasons precipitated the higher rates, and while these have already struck homeowners and apartment owners (who are passing costs on to tenants by raising rents), commercial tenants haven’t been affected on a large scale yet, Archer says.
Industry executives, real estate lawyers, market analysts, title insurers, financial advisers, market research economists, real estate scholars and other experts in the field from around the state were asked a series of questions by UF’s Survey Research Center in July. Commercial
Commercial leases are usually for longer periods, of at least five years, and as these agreements are renewed over the next few years, building owners are likely to respond to the cost by increasing rents, resulting in their tenants raising the prices of their products, Archer says.
“The most dramatic increases will be in the cost of real estate, but consumer prices will also go up some, just as rising gas prices put pressure on costs across the board,” says Archer.
The center’s new statewide quarterly survey identified the insurance crisis as the biggest trend in Florida’s real estate market. The softening housing market was the second most mentioned trend.
“The respondents were very conscious that the housing market is softening,” Archer says. “With inventories of single-family homes building up, they’re apprehensive about what might begin to happen to prices and sales. They’re even more concerned about condos and think prices could begin to fall in some cases.”
While 69 percent of the survey respondents expect condo prices to lag behind inflation or even decline, only 47 percent were as pessimistic about single-family home prices, Archer says. And while nearly 70 percent expect a downturn in absorption rates—the rate at which properties can be leased or sold—61 percent expect the same pattern in single-family housing, he says.
Condo Conversions Losing Pace
Condos typically are a more volatile market than single-family housing and frequently a magnet for speculators who have no professional real estate experience, Archer says.
The recent explosion in apartment-to-condo conversions is beginning to slow, says Archer.
Unusually low interest rates over the past few years encouraged many people to buy homes, which left a weak market for apartments, encouraging apartment owners to convert their rental units into condos to capture would-be buyers.
For more information, go to: www.news.ufl.edu/2006/09/19/insurance
costs. To get a look at what Realtor®-led groups around the state are proposing to the legislature, see the article “Property Insurance Crunch”.