The stock market’s recent volatility — which some analysts expect will continue for months — has rattled investors.
Now some real estate experts are wondering whether it will slow Southwest Florida’s fast-track housing market.
Part of the issue, they say, has to do with how investors often react when the stock market has rapid mood swings: When they see their portfolios plunge, they shy away from buying homes because they have less money for purchases and down payments; but when they see them rebound, they chase after juicy equity returns rather than real estate.
But the effect of seesawing equities on real estate is even more pronounced in Southwest Florida because of the region’s outsized dependence on buyers of second homes or investment properties, according to Daren Blomquist, vice president of Irvine, California-based Realty Trac.
“They can easily curtail purchasing if they get nervous about economy or their portfolio gets lighter,” Blomquist said.
In the Naples-Marco Island area, 49 percent of all single-family homes and condos are vacation homes or investments, Blomquist said — the fourth highest percentage among metro areas with at least 200,000 people. The Cape Coral-Fort Myers area ranked sixth, with 46 percent of all homes in this category.
By comparison, only 34 percent of homes in Florida and 26 percent in the U.S. are not primary residences, he said.
While the percentage of cash buyers has been falling over the past year, Blomquist said, they still are a potent force in the market, and are near their historic averages. And they are a bigger presence than they are elsewhere in the state or nation.
RealtyTrac said that in July, the percentage of cash buyers in the Naples metro area was 50.2 percent and 43.9 percent in the Cape Coral metro area. Statewide, 42.7 percent of buyers pay cash, and nationally, only 22.6 percent of buyers.
Naples investment adviser Andrew Hill said while investors have always valued the area’s real estate as a “quality asset,” the stock market’s erratic mood swings over the past week is “like children jacked up on sugar.”
If volatility is prolonged, he said, it could hurt consumer confidence and make some people less likely to buy — particularly since real estate can’t be sold instantly, like stocks and bonds can, and also requires ongoing carrying costs, like insurance, taxes and maintenance.
Naples broker Phil Wood said the big drop in equities early in the week spooked at least two potential buyers of second homes in his brokerage — one canceled a contract, and another backed away from signing one.
While the market rallied later in the week, neither has come back, he said.
If the market continues to swing up and down, he expects more buyer skittishness.
“It’s not always a question of not having enough money to buy, it’s that they prefer not to act until things stabilize,” he said.
Unfortunately, many analysts expect the ups and downs of the past week to continue because of global growth risks, particularly in China. In a video to investors, Dirk Hofschire, senior vice president of Fidelity’s Asset Allocation Research, said he expects “it’s going to be an elevated volatility environment for the foreseeable future.”
But Naples broker Mike Hughes, president of the Naples Area Board of Realtors, said volatility in the stock market might actually help the local housing market in the long run.
“The potential is there for people to cut back on the stock market and buy real estate as a hedge against volatility.
“The perception is that real estate is improving,” he said. “A lot of people knew a correction was coming, so I’m not too concerned right now.”
Hughes pointed to the fact that several homebuilder stocks closed higher on Friday than they did on Monday during the past wiggy week, including the stock of several individual public builders such as WCI Communities, Lennar and D.R. Horton.
The SPDR S&P Homebuilders Exchange-Traded Fund (XHB), which tracks the shares of companies ranging from builders to appliance and flooring makers, also was up slightly for the week.
Hughes expects that global turbulence may eventually encourage more foreign buyers to invest in Southwest Florida as well.
“When you look at where to put money in the world, the U.S. doesn’t look to bad,” he said. “I think once cool heads prevail, people will realize that they need to be invested in America.”
Many financial analysts agree, and point to strong employment and household growth as signs that the U.S. economy is strong. Gross domestic product grew 3.7 percent in the second quarter, according to data released Thursday by the Commerce Department, exceeding the 3.2 percent rise that economists polled by Reuters expected.
And the nation’s housing market continues to show positive signs. In July, housing starts rose to their highest level since October 2007, while the National Association of Home Builder’s measure of builder confidence is at its highest level in nearly a decade. Pending sales of existing homes rose too in July, up 7 percent from a year earlier.
Some in the local real estate industry say the stock market’s wild ride last week needs to be considered in light of the strength of the region’s housing industry since the recession ended.
Glenn Ginsburg, broker and owner of A Delta Realty in Naples, said that while jitters over the stock market “do impact individuals and their thinking,” ultimately the area’s tight supply will continue to keep existing home prices and sales high.
And Kathy Curatolo, executive officer of the Collier Building Industry Association, pointed to the healthy number of new homes sold and permits pulled in the region as signs that real estate remains resilient.
“It’s too early to tell what the effects of volatility will be in three or four months,” she said. “But thus far, we’re still doing well.”
