A primary Naples developer’s thoughts on the real estate bubble and Naples’ market
The following article was in the Bonita Daily News Sunday, January 8, 2006 as a Guest Commentary by Aubrey Ferrao. To save space without giving Mr. Ferrao’s complete bio, suffice to say that Aubrey is one of the major developers in the Naples / Bonita real estate market. I am unable to provide a link to the article, so I will type it as it appears in the paper.
Recently a Global Insight analyst listed Naples as the most overvalued housing market in the country. Another study a few months ago, by National City Corp., ranked Naples near the top of overpriced markets.
However, Florida’s pre-eminent economic forecaster, Fishkind and Associates, has just predicted a gentle leveling of Southwest Florida housing prices. Lawrence Yun, an economist with the National Association of Realtors, went further saying, “If there is one region in the country that I am least concerned about the prospect of a home price decline, it would be in the Florida market.”
So how can “experts” reach such divergent conclusions? The answer is that those studies positing a “bubble” relied on Census Bureau Data encompassing extremely large regions called Metropolitan Statistical Areas (MSAs) that often include a disparate mix of neighborhoods. Both concluded, in effect, that homes in Naples’ high-priced neighborhoods are beyond the reach of those who live in outlying Collier County. While indisputable, this has nothing to do with the price stability.
The Economic Development Council of Collier County says the country is “widely regarded as having more millionaires per capita than any other area in the U.S.” This is based, in part, on the “fact that Collier County residents, on average, receive more of their income from unearned [non-salary] sources than any other place in the United States.” In other words, the people bidding up the price of high-end homes are among the richest in America. This is not, however, reflected in most housing market studies.
Affordability studies treat the person with a $100,000 investment income, typically requiring $2 million in savings, no differently than a salaried earner with the same income but no savings. Wealthy investors may also appear poor on paper because unrealized capital gains are not counted as income. Or they may not appear at all, if they spend too little time here to be included in county income statistics.
Affordability studies err also by assuming that historical Collier County price data indicates how much current buyers can afford. For good or ill, however, this area has little in common with the sleepy resort and fishing community it was a generation ago. In 1960, the entire county had fewer than 20,000 residents. Half the current population has arrived since 1990.
Yet this error has been made not only with regard to the Naples area, but the other premier vacation and resort boom-towns which have emerged in the last few decades. While there have always been American Monacos, enclaves for the very wealthy, their growing prominence is new and relatively unexamined – driven by dramatic increases in the number of very wealthy Americans as well as technologies that allow them to manage businesses and portfolios from virtually anywhere.
The names of these locations are well known especially to the tens of millions for whom the American Dream has become not just a home but a second home in a perfect resort setting. Telluride, Nantucket, Catalina Island, Martha’s Vineyard, Jackson Hole, Lake Tahoe, Sun Valley, Fisher Island, Montecito, Carmel, Pebble Beach and, of course, Naples – all share characteristics that have made them magnets for the affluent. All have spectacular environmental attributes, and highly desirable winter or summer climates. Additionally, they have attracted healthcare, aviation, cuisine, shopping and culture on a level normally found only in large metropolitan areas.
Luxury homes in all these locations are marketed not to local communities, the focus of affordability studies, but to a national and international customer base. While demand in this handful of premier locations is increasing, prime developable space in most, including Naples, is limited severely by both geography and land use regulation. The imbalance will intensify as Baby Boomers, the richest generation in history, search for upscale vacation and retirement homes. Moreover, the Census Bureau predicts that almost half of all the U.S. population growth in the next decade will take place in three states – Florida, California and Texas. Conservative estimates put Collier County at 500,000 year-round residents around 2025.
This is not to say psychology may not yield fluctuations in the Naples market but price increases in America’s premier resort communities have been the result of a growing realization among those who can afford to live anywhere they want that the best spots are mostly taken. I would love an opportunity, if the local market turns south for a while, to pick up prime Naples real estate at bargain basement prices. Based on 25 years in the Naples real estate market, however, I don’t expect to get the opportunity.
