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Housing market expert sees chances of crash here as ‘very, very, very low’

STORY BY STEVEN M. THOMAS (Week of November 23, 2023)

There was an upbeat moment last Tuesday at a housing market lecture at Quail Valley River Club.

The lecture was sponsored by Marine Bank and attended by many of the top real estate brokers and agents on the island. The speaker was Ken Johnson, Ph.D., a former commercial real estate broker turned academic.

Mid-lecture, Johnson, an entertaining speaker who is now a dean at FAU’s College of Business and a renowned housing market statistician, projected a graph showing housing prices in Vero Beach between January 2000 and September 2023.

There were two lines on the graph. One, which slanted upward, straight and steady, from the lower left corner to the upper right, showed the historical trend of Vero housing values. The other snaked up and down, rising to a dizzying peak in 2006 before collapsing far below the trend line in the 2007-2012 housing crash and then rising to another exhilarating high, way above the trend line, during the covid housing boom.

“I have done this before,” a smiling Johnson said to the packed room. “I know when you look at this chart [with current prices way above the trend line, just like in 2006] you are thinking, ‘It’s going to happen again. Prices are going to crash and it’s all going to come tumbling down.

“To give away the ending, the odds of that are low.”

Drilling down in a phone interview with Vero Beach 32963 after the lecture, Johnson emphasized the point, calling the odds of a 2006-style crash “very, very, very low.”

“The housing and economic ingredients are completely different this time,” he told the crowd at Quail Valley, also noting that current high prices are not as far above the trend line as in 2006.

“The premium in [Vero Beach] housing prices at the peak in 2006 was about 65 percent [above the historical trend]; today it is just over 40 percent,” Johnson said.

The early-century crash was fueled first of all by so-called “liars’ loans” that allowed people without jobs or financial resources to buy houses they could not afford. As reckless money poured into the lotto-like market, builders got exuberant, buying all the land they could find and building houses as fast as they could build them. That resulted in a major oversupply of housing that eventually caused prices to fall.

As they fell, more and more people found themselves underwater with their mortgages, owing more on their houses than the houses were worth. Many of those people walked away from their homes, bringing on the foreclosure crisis, which Johnson said “was like gasoline being poured on the fire” of the developing downturn.

Mass foreclosures in places like California’s Inland Empire, Las Vegas, Phoenix and South Florida drove prices down even further and faster, bringing on a full-blown housing crash that continued until the market finally found a bottom in 2012.

“Last time, there was an extreme oversupply of housing,” Johnson said. “This time we are significantly short of units, especially in Florida. And there is no fear of a foreclosure crisis because people have so much equity in their homes. Even if someone [had financial reverses and] had to sell, it’s likely they get more than the mortgage balance.

“The story is completely different this time around,” Johnson continued. “We are way undersupplied with housing and demand is strong, [driven by population growth]. Household formation is huge. The growth is wild. Florida’s population increased something like 2 percent in a year, which is amazing for a state of 22 million.”

“We see people coming in from all over the country and from other countries, from South America, Central America, the Caribbean, and many of them are bringing wealth and businesses and jobs with them. Miami has become the Hong Kong of the Caribbean.”

Other expert sources and statistics strongly back Johnson’s points.

According to Freddie Mac, Florida has a housing deficit of 5.13 percent, the fourth highest deficit in the country. The number means that there are only enough houses and apartments for 95 percent of the state’s population, which leads to families doubling up in units, living in substandard housing and ending up homeless.

Locally, looking at apartments, an important component of the overall housing picture, the three-county Brevard/Indian River/St. Lucie area is projected to be short 10,000 rental units by 2030, according to BuildFlorida2330, an online housing projection tool.

Indian River County is projected to have 2,500 fewer units than needed – even with a number of large apartment complexes under construction or opening here this year.

At the same time, Florida continues to attract as many as 1,000 new residents per day. It was the fastest growing state in the U.S. in 2022, the year mentioned by Johnson when the population increased by 1.9 percent, according to the U.S. Census Bureau.

“Demand is just too strong for a housing crash to be likely,” Johnson said.