Fishkind Swims with the Tide

Fishkind Swims with the Tide

By Francis X. Gilpin

Associate Editor

The most-quoted observer of the Florida economy sees brighter days ahead for Manatee County but trouble looming in a growing segment of the expensive Sarasota County housing market.

Hank Fishkind, a former University of Florida economics professor who left academia to become a ubiquitous forecasting consultant, told business and political leaders gathered in Bradenton Jan. 12 that they should keep an eye on national trends if they want a heads-up about what could happen to important industries in their backyard.

A declining U.S. dollar means foreigners are returning to coastal Florida in droves to vacation. iWhen the euro rises 26% compared to the value of the dollar, that means that Floridais on sale,i Fishkind told the Manatee Chamber of Commerce crowd of more than 400 at Bradentonis municipal auditorium. iIf youire European, Floridais on sale.i

Mortgage rates generally follow the path of 10-year U.S. Treasury notes. So Fishkind says interest rates should increase and consequently slow residential home sales in the Bradenton area.

Like other economists, Fishkind sees long-term rates going higher because President George W. Bush wonit make progress on the federal budget deficit until 2007, at the earliest. iThe deficit has become structural in nature,i he says.

War, prescription drug benefits and trillions of dollars in new borrowing to fund a shift to partially privatized Social Security will ensure more red ink.

iAll spending has been rising at unsustainable rates,i he says. Federal outlays are 20% of gross domestic product while revenue is only 16% of GDP.

iWe will have to change policy. If we let that deficit grow like that over the next 10 years, we will be Argentina,i he says. iWe will bankrupt the U.S. economy.i

Fishkind sees the outlines of a Bush administration plan to do something about the overextended federal credit card, eventually.

President Bush will reduce the federal debt with tax reform, Fishkind predicts. Bushis ideas about tax reform are getting far less attention from the national news media than the sexier topic of Social Security privatization.

iWe are going to get, in my opinion, a Reagan-like tax reform program,i says Fishkind.

That statement prompted one nervous listener with a long memory to ask Fishkind: Will Bush tax reform lead to a real estate recession, as President Ronald Reaganis 1986 package did?

Fishkind doubts it. Commercial real estate is stronger and more balanced today than the 1980s when the industry was weakened by the excesses of the savings-and-loan scandals.

So what does President Bush have up his sleeve?

Fishkind believes the presidentis first-term tax cuts will be made permanent by the Republican Congress and Bush will propose a modified flat tax. A flat tax will bring in more revenue than the current confusing and loophole-ridden system, says Fishkind, thus beginning a long trek for the federal government back to fiscal sanity.

Deductions under a Bush flat tax will be limited to mortgage interest and property taxes, he says.

But those tax breaks wonit be enough to sustain the hot Florida real estate markets of the last few years, according to Fishkind.

Absent a direct hit, Florida counties shouldnit feel much economic pain from hurricanes, or the threat of future ones making landfall on the peninsula. iI donit think these hurricanes will have a long-term impact on the population growth or long-term economic activity in the state,i says Fishkind, citing the experience of the hurricane-weary Carolinas.

Still, sales of new homes in Manatee and Sarasota counties have dipped in the aftermath of the hurricanes that struck Florida last summer, according to data compiled by his firm, Fishkind & Associates Inc.

Closings on new single-family houses in Manatee peaked just before the hurricanes started in August and the average sales price has held steady at below $220,000 since then.

Population growth in Manatee is moderating. Job expansion will stay flat. Fishkind says that means Bradenton will continue as a bedroom community to Sarasota, where employment levels have fared better.

Sarasota has benefited from an increasing scarcity of developable land in Lee and Collier counties. Sarasota is reciprocating somewhat, says Fishkind, by showing a more pro-development bent in the countyis long-range planning documents.

Wealthy Baby Boomer retirees will start to arrive in waves, thanks to Sarasotais quality resorts and close proximity to major airports. iNaples comes to Sarasota,i Fishkind put in his slide presentation.

But there is one aspect of Sarasotais booming real estate industry that has Fishkind alarmed. The condominium market in the county is showing signs of excess capacity.

Sales of existing condos dropped off the table between May and October, the latest month for which Fishkind & Associates has data. That followed a huge run-up in new-condo closings last spring, from fewer than 300 a month to more than 500.

The softness in sales of existing condos may be pushing down prices for new ones coming on the market. The average price of a new unit in Sarasota only topped $400,000 once during the most recent six months for which data are available. Average new condo prices had spiked briefly above $800,000 for a couple of months in 2003.

Although there is no statistical evidence of overbuilding in Manatee, Fishkind says inventories of condos are rising in Sarasota. iThatis what makes markets nervous,i he says. iThis is a market thatis going to have some challenges.i

Projected growth (or not) for 2005

Hillsborough Manatee Pasco Pinellas Sarasota

Population 1.9% 2.8% 3.6% 0.5% 2.5%

Employment 3.7% 10.7% 1.6% 1.7% 2.2%

Single family housing starts

1.0% -16.2% 5.2% -7.6% -0.4%

Multifamily housing starts

-18.5% -13.8% -22.3%-45.4% -2.9%

Commercial real estate construction

7.6% 1.0% 6.8% 2.9% 5.3%

Overnight tourists

6.4% -25.4% 0.4%0.8% 4.1%

Source: Fishkind & Associates Inc.