Last year banking companies were still paying top dollar to acquire a toehold in Florida, traditionally one of the fastest-growing states.
Now those banks and their Florida-based competitors face spiking credit costs as lower demand from speculative buyers collides with rapidly falling land valuations, grinding the Florida housing market to a halt.
The result, according to many who follow the state, is an economy in danger of slipping into a recession even if the nation as a whole manages to dodge one.
Gregory Miller, the chief economist at SunTrust Banks Inc., said Florida has "recession-like conditions." He estimated that economic growth there slowed to 2.5% in the second half of 2007 — "anemic" by Florida standards — and said it would not have grown that much if not for continued — though slower — population growth and foreign investment propped up by the weakened dollar. He predicts that it could fall further this year.
Jacqueline Reeves, the managing director at Bell Rock Capital LLC, said in an interview Monday that "the investment community is questioning the competence of credit and the capital structure" of many banks based in the state. "The residential real estate market in the state is still quite soft," she said.
Florida's November sales of single-family homes fell 12% from October and 30% from a year earlier, according to the most recent data from the Florida Association of Realtors. The median sale price fell 3% from a month earlier and 10% from a year earlier, to $215,800. The only states with worse depreciation are California and Michigan, and the nation as a whole averaged appreciation of 1.8%, according to the Office of Federal Housing Enterprise Oversight. Home prices in Florida were appreciating at a 25% annual pace as recently as early 2006, according to OFHEO.
December data has yet to be released, but during the fourth quarter bank executives repeatedly warned that residential developers and home builders in Florida were under intense pressure as the year drew to a close, prompting several to boost loan-loss provisions significantly.
In October, BankAtlantic Bancorp Inc. of Fort Lauderdale reported a $29.6 million third-quarter loss and said nonperforming assets rose 659% from the end of the second quarter. Lloyd DeVaux, the $6.5 billion-asset company's chief operating officer, said at a conference in November that the state's operating environment was "the worst downturn that we've seen in 16 years" and that no bottom was in sight.
Florida's slumping housing market has also stung a number of out-of-state banks.
Regions Financial Corp. of Birmingham, Ala., said last week that problems in Florida, particularly Miami, contributed to his company's decision to set aside $360 million for problematic loans, or four times what it provided for in the third quarter. C. Dowd Ritter, Regions' chairman, president, and chief executive, said during a Jan. 3 conference call that the Florida real estate market deteriorated faster than expected.
He said residential development loans the $138 billion-asset Regions made in certain markets went "at a very quick pace" from performing to being in trouble. "It's exacerbated by declining land values and by difficulty in people being able to obtain mortgages," he said.
Mr. Miller said Florida's housing market recovery hinges on the viability of individual markets. Miami, which had a condominium boom in previous years, is working through housing inventory that could extend for another two years, while Jacksonville may be "materially lower" with an eight-month supply. In November home builder permits fell 46% in Florida from a year earlier, according to data from the OFHEO.
Ms. Reeves, who is based in Boca Raton, Fla., said demand for commercial and industrial loans in Florida has become "tepid" as banks have raised interest rates to account for the increased risk in other parts of their loan book. "In many ways that's a good thing," she said. "You don't want businesses out there overstepping the economy."
Over a 12-month period that ended July 1, Florida had its slowest population growth of the decade, 1.1%, according to data the Census Bureau released in December. It gained just 35,300 people from elsewhere in the nation in 2007, the lowest number since the bureau began issuing such data in 1990.
However, overall economic activity held up reasonably well in the state last year. Third-quarter cumulative net lending by Florida banks and thrifts rose 3.6% in 2007, to $121.7 billion, according to the Federal Deposit Insurance Corp. Assets at those institutions rose 3%, to $161.9 billion.
And Florida still has healthy employment trends, though unemployment there rose from 3.3% in January 2007 to 4.3% in November, according to the latest statistics compiled by the Labor Department. That compares with a national level of 5% in December reported last week. Florida's employers added 18,000 jobs in November , the Florida Agency for Workforce Innovation reported. The agency says Florida's employment should grow at a 1.8% annual rate through 2015.
Jeff Davis, an analyst at First Horizon National Corp's FTN Midwest Securities Corp., said, "Florida may be a four-letter word now, but I believe that it will become a seven-letter word again in two to three years."
