Economist calls Sarasota County recession resistant

Should the U.S. economy go into a recession, which remains possible but appears less likely, Sarasota County is in a position to weather the economic storm better than most.

During the Sarasota County Commission’s May 15 budget workshop, Sean Snaith, director of the Institute for Economic Forecasting at the University of Central Florida, gave his annual remarks to commissioners, setting the tone for the budget season.

Although he predicted a recession in 2023 during last year’s forecast, he told commissioners that still could occur, but even if it does, Florida and the greater Sarasota metropolitan statistical area stretching from North Port to Bradenton, while not recession-proof, are well-positioned thanks largely to continued population influx that bolsters the housing market.

As for the business of government, that means property value stability combined with tourism, sales and other tax dollars funding county operations should be adequate to meet the needs of a growing population.

“There were a lot of indicators that were pointing toward the U.S. economy going into recession, and there was broad consensus among economists that recession was going to happen in 2023,” Snaith said. “It did not happen and we ended the year with two very strong quarters of economic growth.”

However, it's not all good news.

“I might add that many of these indicators are still pointing in the direction of an economic slowdown.”

Snaith amended his prior year outlook to such a deceleration, but not necessarily a downturn, adding that post-COVID government fiscal policy has upended economic predictability.

“I think it's sort of scrambled the wires a bit and the signals that are lighting up are not as reliable in this environment as they have been,” he said.

Mortgage interest rates recently topping out at 8%, for example, have adversely impacted residential real estate here, but not significantly in the wake of the mid- to late-pandemic run-up in prices. 

Single-family closings were down 8.2% year-over-year in March at 1,453, down from 1,582 in March 2023. Prices slipped slightly as well at 1.9%, the median sales price at $500,000 in March compared to $509,500 the year prior. It still remains a sellers’ market, though, at a 4.7-month supply. Six months' supply is considered a balanced market.

Snaith said the surge in housing prices from 2020-2023 is not reflective of that from 2004-2006 because:

• Mortgage lending standards tightened during the pandemic and were far from the easy lending that fueled the housing bubble of 2004-2006.
• The wave of foreclosures and short sales that caused housing prices to plunge after 2006 will not repeat itself in the wake of the 2020-2022 price surge.
• Recent values of the mortgage credit availability index are a fraction of the levels in 2004-2006.

“You still have a shortage and very high median sales prices,” Snaith said. “I think the massive price gains we've gotten to are at the end of that episode here. But I wouldn't anticipate any of the price declines that we experienced in 2008 and 2009, which means that revenue based on property valuation should not take too much of a hit here going forward. I think Florida is in the best position it's been to handle a slowdown or recession at the national level in some time.”

If there is an area of concern it is commercial real estate, not including the apartment market that Snaith said continues to thrive thanks to a continued housing shortage.

The post-COVID hybrid and remote work environments in particular are driving down real estate investment trusts in commercial space, particularly office. The eventual resulting decline in assessed value of commercial real estate will adversely affect property tax revenues.

“I don't know what the mix is. I think it's somewhere in between,” Snaith said of the in-office work percentage. “Once people had a taste of it that's going to be part of the labor market going forward, so there will have to be some adjustment in the office space of commercial real estate because of that. To what extent I don't know.”

Other aspects of commercial real estate are at risk as well.

“Commercial real estate is a derived demand for other goods and services,” Snaith said. “Slowing down that demand in other areas of the economy can trickle down certainly into commercial real estate.”

The remainder of the workshop included mid-year financial reports as well as transit system updates and capital improvement project updates. The commission will enter the heart of budget season June 19-21 with fiscal year 2025 budget proposals and constitutional officer requests department presentations.