What’s the long term future of Flagler County’s real estate market?

Baby Boomers will profoundly effect the market over the next 15 years.

By most estimates, the number of Baby Boomers in the US exceeds 62 million souls.  This huge wave is approaching retirement age.  Some have retired already.  But it’s not just the size of the Boomer generation that makes them important to the Florida real estate market, it’s the amount of money they have.

The Boomers are, by far, the wealthiest generation to ever retire.  There are three reasons this is so:

Wealth transfer – Boomers have reached the age where they are, or will be, losing their parents. (My wife, Shirley, and I lost all four parents within the last 6 years.) Their parents’ generation, conditioned by their experience living through the great depression, are the most frugal generation to date.  Collectively, they have locked up trillions of dollars in net worth, primarily in the value of their homes and conservative investments. With the exception of the few wealthiest parents, their estates will pass with little or no tax consequence to their Boomer children. 

Home equity – Boomers themselves have built equity in their homes.  Remember the days when we had to purchase a home of equal or greater value (trade up) to defer capital gains taxes.  These days are gone.  A couple filing jointly can realize up to $500K in capital gains without paying taxes as long as they have lived in their home two of the past five years. That can amount to a lot of cash to bring to Florida, where prices are still a bargain compared to many urban markets.

Two paychecks – The Boomers are the first generation to retire, primarily, as dual wage earning families.  This means not only greater earnings, but also twice the chance to accumulate wealth, two retirement accounts, and two social security accounts.

We have a confluence of two strong market forces, the growing demand of the Boomers and the constrained supply.  We’ve already covered the demand side but what will cause a constrained supply of available homes in the future? Remember, we’re not talking about the present correction period of softer prices with a large inventory of available property. We’re talking about long term forces that will drive the overall direction of pricing over the next 10 to 15 years.

To paraphrase Mark Twain, "They’re not making any more land."  Much of the most desirable land has already been developed.  Environmental and conservation regulations have become more stringent.  Environmentalists are becoming more vocal and numerous.  Consequently, its becoming more time consuming and expensive to convert raw land into developable land.  For instance, Landmar has been fighting for two years to gain approval for a marina development at the old cement plant site on Colbert lane.  After jumping through several hoops and forging a multi-party agreement with another developer, the Searay boat manufacturing folks, and government agencies, they finally gained the recommendation from the Flagler County Planning Board for approval of the required zoning change.  Was their battle won? Hardly. When the issue came before the Flagler County Commission a few weeks later, the commissioners bowed to the voices of a few agenda-driven citizens artificially amplified by the unbalanced reporting of the Daytona paper to place unrealistic requirements on the developer.  Back to the drawing board.

Add the shortages of building material, dearth of qualified subcontractors, and the inefficient and lengthly permitting process, and you have an extended building cycle.  It now takes nearly twice as long to move from contract to certificate of occupancy as five years ago.  Doubling the build cycle has the same affect on the market as halving the supply.  By the way, what 65 year old wants to spend 10% of the rest of their life waiting for their retirement home to be built?  Existing homes become more competitive, increasing demand on that sector.

Of course not all 60 million Boomers will retire in Florida. Some will stay where they are. Some will go to Arizona, California, etc.  But, believe me, many will come here.  With such strong market forces at work, we’re bound to suffer occasionally from imbalances in supply and demand.  These conditions will create short-term run-ups and slowdowns in the market, but the overall trend will be upward. 

Toby Tobin

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