The nascent economic recovery will continue if politicians in Washington can settle their differences and agree on the rules.
Ted Jones, the chief economist for Stewart Title Guaranty Co., likes to stump his clients with this question.
What changed in the November elections?
Answer: Nothing, except it's now legal to smoke pot in Washington and Colorado.
But behind the humor, there's serious worry that politicians in Washington, D.C., are going to screw up the nascent recovery in Florida and elsewhere. Jones says that's a common concern as he travels around the state.
“We don't know what the rules are,” he warns clients. “My biggest sense of concern is Washington.”
Jones says he believes the ongoing fiscal crisis will lead to a partial shutdown of the federal government as the political parties battle over taxes and spending. However, he doesn't expect the U.S. to incur a debt downgrade because politicians can't afford the spike in interest rates that would surely follow.
Despite the political challenges, Jones remains upbeat about the economic recovery. His firm, Stewart Title, is a subsidiary of Stewart Information Services Corp., a global title insurance and real estate services company. Jones, 58, makes about 150 presentations to investors a year on real estate and the economy and was recently meeting clients in Fort Myers.
“It's all about consumer confidence and business confidence,” Jones says. Cash on deposit has grown 71% in the last four-and-a-half years, suggesting investors have the wherewithal to fuel the recovery once they're confident government can establish the fiscal rules. “I'm not telling you we're going to like the rules,” he cautions. “We'll know the rules by May,” he says.
“As consumers become confident, they'll come here and buy more,” he says, referring to Florida's Gulf Coast.
There are already signs that the recovery is under way. Consider:
The inventory of existing homes for sale has fallen below the six-month threshold that's considered equilibrium. During the bust, the inventory of existing homes reached 30 months' supply based on the pace of sales. “We're on a really good trajectory here,” says Jones.
The foreclosure crisis is abating. During the bust, financial-data provider CoreLogic reported there were five distressed homes for every for-sale listing. That shadow inventory has shrunk to two homes in distress for every listing. “We're getting through the distressed real estate,” Jones says. “Phoenix has done the same thing.”
The volume of home sales is increasing. “We're selling as many units per month as we did during the peak,” Jones says. “Investors have been very large purchasers.” The percentage of cash transactions is close to 30%, or double what it has been in prior years.
The economic downturn took its toll on the baby boomer generation born between 1946 and 1964, but Jones says one-third of them are very successful and have money to spend. “One-third of the boomers will retire and two-thirds will work until they die,” he says.
Existing-home values will continue to increase sharply until builders start catching up with demand. Nationally, Jones says builders are only building half as many homes as will be needed. “We haven't built any housing since 2006,” he says.