SNL Regional Report: Housing tailwind aids Florida

By Harish Mali and Kiah Lau Haslett, SNL Financial staff writers

Bankers in Florida say the housing market is improving and could soon drive loan growth, rather than acting as a headwind for their balance sheets.

Such a development would be welcome news for Florida-based banks, whose dependence on real estate-related lending left many in dire straits after the housing bubble burst. Home prices have plunged 50% across the state, and as much as 60% in select markets, from the peak. In addition, 68 banks have failed in Florida through the cycle.

The downturn left thousands of properties in foreclosure, where they remained for some time due to the state's slow judicial foreclosure process. But the tide appears to be finally turning, with home prices rising and inventories declining in the Sunshine State.

Housing's pushing us now

John Corbett, president and CEO of CenterState Banks Inc.'s main banking unit, Winter Haven, Fla.-based CenterState Bank of Florida NA, said May 15 at the Gulf South Bank Conference that the Florida housing market has now become a tailwind for banks.

"The real estate market is accelerating," Corbett said, adding that when properties are moving onto the market, buyers are bidding them up above carrying values.

Corbett said the inventory of condominiums in the Miami market went from 18 months of supply to virtually nothing overnight as investors from Latin America and elsewhere came into the area and purchased real estate.

However, Corbett said he did not expect the same thing to happen in his bank's market--though the supply did shrink considerably after companies such as Blackstone Group LP purchased significant amounts of foreclosed homes with plans to convert them to rental properties.

With the purchases in CenterState's market and in southern Florida, the inventory has shrunk considerably to five months of supply from close to 19 months in January 2009.

William Smith Jr., chairman, president and CEO of Tallahassee, Fla.-based Capital City Bank Group Inc., told a similar story and said "Florida is on the move again." The executive said May 14 at the Gulf South conference that lots of land is selling and homes are staying on the market for fewer days.

And Home BancShares Inc. Chairman John Allison told conference attendees that Destin, Fla., which like many other areas in the Florida Panhandle came under severe stress during the credit crisis, is a boom town right now, with buyers coming into the market.

"It's amazing, the number of people coming in to cash deals. Anything that's on the water, you can sell. Anything that's income producing, you can sell," Allison said. He noted that residential lots five miles away from the coast still lack buyers. It will be a long time before those properties are purchased.

By the numbers, news also good

Recent data released by the Florida Realtors supports anecdotal reports that sales activity has risen. Through March 31, the Florida Realtors reported that pending home sales increased 23.4% from year-ago levels, while a property's median number of days on the market fell to 57 days from 62 days in February and 72 days a year earlier.

Meanwhile, the inventory of homes on the market has declined 26.0% from one year ago, falling to 5.3 months from 8.0 months a year earlier.

As the supply of homes declined and the pace of sales increased, median prices in March rose too, climbing 15.2% from year-ago levels. Zillow.com shows that the largest increases have come in the metro Miami and Orlando markets, where prices have increased 12.1% and 10.8%, respectively, from March 2012.

People are again moving to Florida because they believe the state is far more attractive than higher-tax states like New York, Allison of Home BancShares said. Between 1995 and 2010, Allison noted that $2 trillion moved around the U.S. and Florida was the largest beneficiary, receiving $86 billion in new income. Meanwhile, he said that higher-tax states like New York and California saw decreases of $58 billion and $30 billion, respectively, during the same time period.

The Sunshine State has shown signs of job growth, with the unemployment rate falling below the national average to 7.2% in April from 7.5% in March and 8.9% a year earlier. Unemployment levels have fallen drastically from their peak.

More good potential, but impact may wait

A true rebound in the economy likely would support loan growth of Florida-based banks--a welcome change for them, considering growth has remained anemic even through the first quarter of this year.

SNL data shows that Florida-based commercial and savings banks continued to report contraction in loan portfolios in the first quarter. That group saw linked-quarter median loan contraction of 3.54% in the first quarter, according to the data. Florida-based banks actually reported modest linked-quarter increases in the balances of construction and development loans and commercial real estate loans, but experienced decreases in the amount of mortgage and commercial and industrial loans on their books. Some of this impact could be seasonal.

Florida-based banks experienced year-over-year increases in loan balances in all categories except for construction and development loans, according to SNL data.

CenterState sees lending trends potentially improving soon and expects its loan pipeline to show positive signs for the remainder of the year after a seasonally slow first quarter.

Corbett said the increased level of pending home sales is beginning to translate into new construction. The leisure and hospitality industries continue to serve as the biggest boon for Florida's labor force, which rose more than 3.5% from year-ago levels in every month for the last six months.

But construction employment in Florida boasted the second-fastest growth rate of any sector in Florida over the last 12 months, climbing 2.5%.

And new construction would certainly help local banks restart their loan growth engines.