By Alex Sifakis, President
The article was originally posted by Realty Trac
In 1901, the Great Fire destroyed almost all of Jacksonville, Florida, but the city rose from those ashes to become the Bold New City of the South. In 2008, the Great Recession did some heavy damage to the city’s real estate market, but just like in 1901, Jacksonville has risen, and now the real estate market is the only thing on fire.
Jacksonville, with a population of 1,400,000— the 40th largest MSA in the country — has had three years of price appreciation, averaging 14 percent annually, and yet, median home prices are still 20.6 percent below 2006 highs. Rents have also been steadily increasing, averaging 4 to 5 percent per year over the past three years, so yields from investment properties have stayed extremely strong.
Additionally, inventory levels are still extremely tight. Since April 2013, inventory levels have averaged just 4.69 months of inventory (MOI), far below the six to seven months you would expect in a “normal” real estate market. When you couple these outstanding market fundamentals with a thriving jobs market, tremendous population growth, a rapidly growing tech and entrepreneurial scene, and a revitalized downtown, it is easy to see why Jacksonville is on the radar of Fortune 500 corporations, millennials and real estate investors alike.
Jacksonville: A Thriving Real Estate Market
Everyone knows Florida — and Jacksonville — was hit hard by the real estate crash. Most people also know that the market has recovered significantly over the past few years. What a lotof people don’t realize is that home prices in Jacksonville are still far below their 2006 highs — and that this presents a remarkable opportunity.
Our company, JWB Real Estate Capital, will purchase more than 500 properties in 2015. We renovate them and lease them, and then sell about half of those properties to our investor clients.
What about the other 250 properties? Practice what you preach, right? We will add them to our own rental portfolio, which currently stands at 480 properties. That sends a pretty clear sign about what JWB thinks about the current opportunity in Jacksonville.
The high median home price in Jacksonville was $223,000 in June 2006. The low median home price in Jacksonville was $119,500 in January 2012. The current median home price as of
October 2015 was $177,000. While many markets across the country have seen home prices approach, or even eclipse, their 2006 highs, Jacksonville still has some significant room to
grow.
The Florida real estate recovery was held up by the slow pace of foreclosures — in 2014 RealtyTrac reported that foreclosures in Florida were taking 935 days, on average — almost three
years. These “legacy” foreclosures are depressing the real estate market to this day. However, since current mortgage defaults hover around all-time lows, the Jacksonville market should see a “bounce back” effect from the burning off of these legacy foreclosures over the next few years. Many media publications, in their quest for page views, have been banging their drums about a potential “new housing bubble.” It’s easy to see why the general population is concerned — home prices have risen dramatically in the past few years. As opposed to the 2001 to 2006 boom, however, home prices are currently rising due to high demand created by affordability (for homeowners), and high rental yields (to investors).
Real estate is very local, and some high-flying markets could potentially be ripe for a correction — but Jacksonville is not one of them. What is the reason we are so confident in this?
Current inventory levels are low. Everybody knows that supply and demand drive prices. In the real estate market, the balance between supply and demand is described by the “months of inventory” (MOI) on the market. The premise behind MOI is pretty simple. If no new homes for sale were added to the market, and home sales continued at their current pace, how many months would it take for the current supply of houses on the market was exhausted?
An equilibrium market is defined as 6 to 7 MOI. An MOI above seven months means there is an oversupply of houses, and therefore, home prices should rise more slowly than normal (or even decline). An MOI below six months means there is an undersupply of houses, and therefore, prices should rise more quickly than normal. The best part about MOI is that it is a leading indicator, which means it can be used to predict what will happen in the future. In June 2006, the Jacksonville median home price was at an all-time high of $223,000. Inventory levels were at 5.7 MOI —
within the “normal” range. A year later, in June 2007, prices had fallen slightly, to $210,000, but inventory had skyrocketed to 11.7 MOI — and soon thereafter, home prices fell off a cliff.
Anyone tracking inventory levels over that year from June 2006 to June 2007 would have seen, very clearly, what was about to happen.
As of October 2015, MOI in Jacksonville stood at 4.1 months. Since JWB started tracking inventory levels in April 2013, Jacksonville has averaged 4.69 MOI. Seasonal fluctuations are expected, as MOI will be higher in the winter, when there are fewer home sales, and lower in the summer, when there are more home sales. The extremely tight supply of houses over the past few years
is what has caused home prices to rise significantly, not the “irrational exuberance” of 2003 to 2007. The burn off of REOs will reduce inventory to the Jacksonville market, and therefore, we expect inventory to stay relatively tight, with above-average home price gains, until home builders can crank up their production to meet demand, which should happen sometime in the next two to four years. Barring some external shock to the market, at that point MOI should level off in the six to seven month range, and we should see average home price gains going forward.
Job and Population Growth
The Jacksonville economy has been booming. Paul Mason, economist with the University of North Florida, said the jobless figure fell to 4.9 percent in October 2015, down from 5.1 percent in September. That is the lowest rate since April 2008 and lower than the national unemployment rate of 5 percent.
Three Fortune 500 companies are headquartered in Jacksonville. In Florida, Miami is the only city with more. The economy has always been very diverse, driven by logistics (world class international port, situated at the intersection of three major interstates), healthcare (Mayo Clinic, Baptist Health, UF Health, St. Vincent’s, Nemours, etc.), finance (Citi,Wells Fargo, Bank of America, JP Morgan Chase, Deutsch Bank, etc.) and the military (two large Navy bases; NAS Jax and Mayport). The falling unemployment rate can be attributed to a plethora of new companies opening up a headquarters, regional office, or new store in Jacksonville. The following announcements have been made in just the past two months:
•Sept. 15, 2015: International banking giant Macquarie Group choses downtown Jacksonville over 20 other cities to be its Southeastern headquarters. Will initially be adding 125 high-wage jobs.
•Oct. 7, 2015: Ikea announces plans for a 294,000 square foot store in the St. Johns Town Center (already home to Nordstrom, Coach, Louis Vuitton, The Apple Store, etc.).
•Oct. 27, 2015: Fidelity Investments announces it will be adding 300 high-wage jobs to its Jacksonville offices, which already house 800 people.
•Oct. 28, 2015: Google Fiber announced it will be expanding its high-speed Internet services to Jacksonville —currently Google Fiber is available in only three U.S. cities.
•Nov. 2, 2015: AT&T officially launches its Gigapower 1-gigabite Internet service in Jacksonville — the 18th market to get the service.
•Nov. 19, 2015: Deutsche Bank announces plans to add 350 high-wage jobs to Jacksonville. It already has 1,700 people in Jacksonville. DB opened its first Jacksonville office in 2008 with 100 people.
• Nov. 19, 2015:Resource Solutions , a global recruiting firm with offices in 24 countries, chooses Jacksonville to open its second U.S. office, with 75 high-wage jobs.
Announcements like the ones above have caused many national publications to stand up and take notice. In 2014, Forbes named Jacksonville the #4 city in the country for finding a job, the #2 city for tech job growth — and a top 10 city for attracting college graduates.
Global Trade Magazine named Jacksonville a top 10 city for logistics infrastructure. And just last month, Thumbtack.com, a business development website, named Jacksonville the number two city in the country for its favorable outlook for small businesses. Of course, new jobs will bring new people, and, predictably, Jacksonville’s population has boomed over the last decade and
a half, despite the economic downturn. According to Census Bureau data, the Jacksonville MSA has seen 24 percent population growth from 2000-2013, which is among the highest in the country, and better than Miami (16 percent) or Tampa (20 percent). Job growth and population growth are meaningful to the real estate market, of course, because all of these new residents
need places to live. More people drive more demand for housing, which drives increased home and rent prices. Urban Core Revitalized By Tech, Entrepreneurial, Foodie Scene
In addition to a rising real estate market and a booming economy, Jacksonville is a great place to live. National publications are taking notice, and in October 2015 Huffington Post named Jacksonville the #1 “Secretly Coolest City in Which You Can Get in On the Ground Floor.” Why is Jacksonville so “secretly cool?” A thriving tech and entrepreneurial scene (remember the Forbes
accolades from the list above) — led by OneSpark, Jacksonville Community of Entrepreneurs, Startup Jax, the STEM Hub, CoLab Jax, etc. — has led to an influx of millennials living in the urban core. Millennials are looking for great places to eat and drink, so many new high-quality offerings have sprung up to cater to this crowd. This change has become very visible in places like 5 Points and Hemming Park. In the heart of downtown, a few years ago Hemming Park was devoid of life (except for a few panhandlers). Now, thanks to a public-private partnership, Hemming has sprung to life — during the day you can listen to live music, let your children play with giant foam pieces in a kiddie area, grab a coffee at Vagabond’s coffee trailer, or grab takeout from Café Nola and sit and enjoy the fountains. The new Hemming Park would fit right in in New York, San Francisco or Austin. It isn’t just entrepreneurs, hipsters and millennials that have contributed to the revitalization of the urban core, however. The city itself has been investing many public dollars into downtown, and many private developers, including the owner of the Jacksonville Jaguars, Shad Khan, are now entering the fold. The city and the Jaguars are looking into partnering up on many transformative projects for downtown, including a new amphitheater, a new multi-use indoor practice facility, and The Shipyards, a 43-acre riverfront mixed-use development.
Other downtown development projects underway include:
•“Healthytown” — A 30-acre riverfront mixed-use development by local heavyweight developers Peter Rummell and Mike Balanky.
• 220 Riverside and Unity Plaza — 280 luxury residential units and waterfront amphitheater and recreation space opened in 2015.
• Brooklyn Riverside — Over 300 new residential apartments opened in 2015.
•Wholefoods — Opened a brand new store in the Brooklyn area of downtown in 2015.
•Intuition Ale Works— A local craft brewing company is opening a new brewery and rooftop taproom in the stadium district in early 2016.
What This Means for Investors
Obviously, current Jacksonville market fundamentals such as median home prices and inventory levels make Jacksonville a great place to invest in the near future. A thriving jobs market, tremendous population growth, a rapidly growing tech and entrepreneurial scene and a revitalized downtown will continue to make it a great place to invest over the next 10, 20, 30 years.
After adding over 500 properties to our own and our clients’ portfolios over the last year, it is clear that at JWB, we believe the Jacksonville real estate market has plenty of fuel left to burn.
