FORT LAUDERDALE, Fla. – Businesses tied to the real estate industry say they’ve started to feel the effects of the housing market slowing down in South Florida.
Feeling the brunt of a declining market are mortgage lenders, inspectors, appraisers, real estate agents and remodeling companies, among the list of businesses.
“It’s a ghost town,” says Bruce Gubnitsky, the owner of BG Appraising and Consulting, of the “steady decline” in business. Gubnitsky says he has noticed the steep decrease in the number of requests he’s been getting for new jobs. During the height of the housing market, he was getting about 15 requests for appraisals a week – and now it’s down to about five a month, he said.
The housing market is a large driver of the economy, and one sale alone can trigger multiple transactions and deals with other businesses, studies have shown. In 2021 alone, the housing market accounted for 24% of Florida gross state product, according to the National Association of Realtors. But companies have reported about a 50% decline in business compared to last year, and levels that were lower than a normal year like 2018.
“We’re already starting to see this: We are going to see a contraction in agent force, we are going to see a contraction in collateral businesses such as mortgage lending, inspectors, and appraisers,“ said Ken H. Johnson, a real estate economist with Florida Atlantic University. “There is going to be fewer of all these collateral businesses, and I believe that most everyone’s income will go down, especially if they are tied to transaction-level income.”
The start of the business slowdown
Gubnitsky isn’t alone in seeing a decline in business.
The mortgage industry overall is seeing at least a 40% to 50% decline in business for purchase applications for a mortgage, and at least an 85% decline in refinance options when compared to last year, noted mortgage lender Bobby Fountain, with Cross Country Mortgage.
He estimates that he would put it at about 25% lower than a normal year.
“Overall, it’s lower revenue,” he said. “And you have some people who jumped in the business when it was booming for a quick dollar, but now that it’s hard they start to leave.”
Some businesses across the country have already begun the process of layoffs in light of a contracting market. Redfin, a residential real estate brokerage, reportedly laid off about 13% of staff as it believes that the slowing of the housing market will continue into 2023, and various mortgage brokers have laid off staff.
Other businesses also are being hit. Construction and remodeling companies report that they are seeing fewer clients than they were a year ago, and home inspectors are getting fewer orders as well.
Sam Dorvil, managing member at Custom Homes Building and Remodeling, said he has seen about a 50% to 60% decline compared to last year, a decline that has been happening since the beginning of the year.
“I am seeing now smaller projects from the standpoint that people are being a little bit more careful,” he said. “They still have immediate needs, but the consumer just wants to hold onto their money.”
The housing market’s impact
Purchasing a home also triggers more spending, in various industries, according to an analysis of the National Association of Home Builders.
In the first year of closing on a home, the typical buyer of a new single-family home will usually spend about $9,250 more than a non-moving homeowner. As well, the buyer of an existing family home spends about $5,240 more than a non-moving owner.
The total economic impact of a home sale in Florida was about $112,500 per sale, or about the equivalent of two jobs.
“Whenever there is a home sale, both the buyer and seller bring in several businesses with the transactions,” said Patty DaSilva, broker with Green Realty Properties in Cooper City. “There’s the title companies, the inspectors, the appraisers, the real estate attorney, etc. That doesn’t even take into account the secondary items, like remodeling and painting.”
Home sales have plummeted in South Florida, in part due to rising mortgage rates that have doubled since the beginning of the year and prices that don’t seem slow due to a shortage of homes. According to the latest numbers from the Broward, Palm Beaches and St. Lucie Realtors, closed sales declined by about 20% in Palm Beach County and 30% in Broward and Miami-Dade counties.
“Those things that are tied to the variable cost of a home, the downturn [in price] does hurt, but it’s a drop in the bucket compared to the number of transactions,” said Johnson.
Future of the real estate economy
It’s hard to quantify how long the economic impacts will last and how large they will be. It could be six months before things start to level off, or it could be a year or two before it starts to normalize.
But for the most part, local businesses say they are able to weather what happens. Some may have to spend less on certain extracurriculars, but some noted it is the natural evolution of the housing cycle.
“This is the third or fourth time that I have seen this happen,” said Adam Zipper, with Strock & Cohen, Zipper Law Group. “It’s the ebb and flow of the business. We had a few years of unsustainable increases and now we are seeing unsustainable decreases.”
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