From a small northwestern observatory…

…and welcome to Florida.  I’ve been in the southeast corner of the U.S. for the past two weeks in a hearing.  I happen to love Florida, and if I ever get around to retiring, I’ll probably end up here.  Thanks to personal choice, some business, and just a little bit of kismet, I get to travel here at least 3 or 4 times a year.  Indeed, by the end of April, I will have made 3 trips here in 2012, with at LEAST two more planned.

In many ways, Florida is the poster child for the current economic problems plaguing the U.S.  It has all of the hotbutton issues in one place — overbuilt housing, lending practices to match, and huge demographic shifts.  The latter is almost humorous — Florida is jokingly referred to as “God’s waiting room”, not withstanding the fact that suburban Las Vegas, Orange County, California, and Scottsdale, Arizona, are all fighting for that moniker.  Indeed, about 15 years ago, I was relegated to represent my university at the annual meeting of the American Association of Retirement Communities.  I learned (among other things) that the two Carolinas, when taken together, actually get as many retirees every year as does Florida.  However — and here’s the funny part — the “source” of Florida’s retirees is primarily the New England and Mid-Atlantic region.  The “source” of the Carolinas’ retirees is Florida — they’re called “half-backs” because they move to Florida, find the weather to be abysmal, and move half-way-back home.

Being that as it may, Florida is still the destination for seemingly millions of retirees, a large proportion of whom seem to be “snow-birds”.  They live in Florida 6.01 months of the year (just enough to qualify for Florida citizenship, and thus preferential Florida taxes) and then head back up north on March 31 every year.  (I was in Florida on March 31, and the out-migration seemed to clog the interstates).

Before the melt-down, the whole housing industry in Florida existed to provide half-year housing for these snow-birds.  Pick what you want — condos, townhouses, detached homes, we’ve got it at every price-point, size, color, and configuration.  It would be hard to imagine a housing solution that wasn’t available in Florida.  Financing? No money down?  No problem.  Move right in.  While a surprisingly large number of homes were paid for with cash, there was certainly lots of available financing for the retiree who didn’t want to tap his funds for a down payment.  And why tap your funds?  When the stock market is growing at 10% per year, and real estate is going up by 15% per year, who would avoid a 4% mortgage?  And what bank wouldn’t make that mortgage?  After all, Grandpa and Grandma are great credit risks, and if they die before the loan is paid off, certainly the property can be re-sold for a profit.  It’s a win-win, right?

Yeah, we don’t need to re-visit the meltdown, but the aftermath is a fascinating war zone.  First, a lot of cond0-dwellers simply walked away.  A lot of single-family dwellers tried to hang on, but often to no avail.  Nothing would re-sell, so the market just froze.  But, remember that a LOT of the buyers paid cash or had very low LTV loans.  Those folks are particularly harmed — they are sitting on nearly unsellable property, with no end of the pain in sight.

If you visit Sarasota or Naples or any of the dozens of “retirement” communities on the Florida coast, you’ll get two distinct pictures.  The beaches are filled, the hotels are filling back up, and the neighborhoods look healthy.  Visit the county government complex, though, and you get a distinctly different picture.  Floridians are a distinctly tax-averse lot, and so many county and city governments thrived on fees paid by developers.  With that market frozen, the local government finances are a mess.  Couple with it an actual and meaningful decline in property tax collections, and you get a local finance problem that won’t get fixed anytime soon.

With that in mind, millions of Americans (and an increasing number of South Americans and Europeans) see Florida as the best of all retirement solutions.  The weather is great most of the year, there is excellent infrastructure and health care, and plenty of recreational opportunities.  The cost of living is among the lowest in the U.S., providing ample opportunity for “worker bees” who move here to care for the retirement cadre.  However, the housing market continues in the doldrums.  A good friend of mine, with excellent credit and not unsubstantial resources, recently bought a Florida condo.  The BEST loan he could get was 40% LTV, and even that was a paperwork nightmare.  There is plenty of demand for Florida housing, but the financing side of the equation continues to be an issue.  Unless and until the financing problem gets fixed, the housing problem will still be with us.