According to the Florida Association of Realtors, home prices across Florida continued to rise in October as sales dropped, notably in southern areas directly impacted by Hurricane Wilma’s march across the state.

According to the association, following the storm some lenders required a home inspection of properties before they would release mortgage money. Some insurers stopped issuing new policies as the hurricane neared.

Despite storm problems the state’s median home price rose 28 percent in October to $241,000, from $188,800 in October 2004. In September 2005, the median price was $247,800. FAR records show the statewide median sales price in October of 2000 was $116,100. This represents a 107 percent increase over the five-year period.

Despite cosistently strong prices many realtors across the state report gains in housing supply, giving buyers a larger selection of homes to consider. Across the state 16,029 existing single-family homes sold last month. This represents a 5 percent decline compared to the same period of time last year.

Interest rates for a 30-year fixed-rate mortgage averaged 6.07 percent in October, a slight increase from the average 5.72 percent in October 2004. These figures reflect the lock-in rate for closings that typically occur 30 to 90 days after sales contracts are written.

According to statistics in the Daytona Beach metropolitan statistical area (MSA) 1,037 homes sold in October for an 18 percent gain over 881 home sales a year ago. In one of the state’s larger markets the median home price rose 35 percent over the same time period a year ago- from $165,000 in October 2004 to $223,300 in October 2005.

Other larger MSAs with strong sales and price increases include Jacksonville, with 1,504 home sales in October for a 38 percent gain over October 2004 sales numbers; and Tampa-St. Petersburg-Clearwater, with 3,735 homes sold for an increase of 4 percent over the same time period. Prices also rose in both markets over the year. In Jacksonville, the median price rose 20 percent to $191,600; in Tampa-St. Petersburg-Clearwater the median price rose 35 percent to $225,700.

Among the state’s smaller MSAs, Lakeland-Winter Haven posted a 24 percent gain in home sales in October, with 513 homes changing hands compared to 414 homes a year ago. The market’s median sales price rose 50 percent in October to $173,500; last year, it was $115,500.

Additional MSAs that posted gains in the number of homes sold in October include Ocala- 482 homes sold representing a 15 percent jump; and Tallahassee- 393 homes sold representing a 18 percent increase. In addition the median sales price in those markets rose. In Ocala- 38 percent to $159,200; and in Tallahassee- 19 percent to $172,700.

Despite increased interest rates, mortgages continue to be sought.

Sales of existing homes fell a more-than-expected 2.7 percent in October, a fresh sign that the red-hot housing market is cooling. Housing demands from displaced hurricane victims slowed the decline.

Though prices rose at the fastest clip in more than a quarter-century, the number of unsold homes rose to the highest level in 19 years. Analysts predict that this backlog will dampen future price gains.

The findings build on a report last week on the Florida housing market. Indicative of national trends, signs of cooling are showing up throughout the state, though sales are still good and median prices continued to rise in October.

Statewide, October sales fell 5 percent from October 2004, though Florida Association of Realtors officials attributed most of the decline to disruptions from Hurricane Wilma. The statewide median price in October was $241,000, up 28 percent from $188,800 a year ago.

And in Metro Orlando, a ballooning inventory that hit the highest level in eight years was a clear indication of a cooling market.

Sales in the Orlando market slowed in October from September, the second consecutive monthly decrease, though sales rose from October 2004 and activity for the year is ahead of last year’s record pace. Orlando’s existing-home median price in October rose to a record $246,790, after falling in September for the first time in a year.

In its report Monday, the National Association of Realtors said that sales of existing homes and condominiums fell by 2.7 percent in October. Analysts expected a 1.1 percent decline. It left sales at a seasonally adjusted annual rate of 7.09 million, a sharp decline from a sales rate of 7.29 million units in September- the second-fastest pace on record.

The decline in sales increased the number of unsold homes to 2.87 million, the highest level in more than 19 years. It would take 4.9 months to deplete that inventory level at the current sales pace. The median, or midpoint, price of an existing home sold last month rose by 16.6 percent to $218,000, compared with October 2004. Despite the downturn significant price depreciation is not anticipated.

Economists indicated Monday’s report signaled that the booming housing real estate market was beginning to slow as a result of rising mortgage rates.

According to David Lereah, chief economist for the Realtors, “The housing sector has likely passed its peak. The boom is winding down. I expect continued softening in housing if rates remain at these levels or go higher.”

Economists predicted the proliferation of unsold homes would help dampen the surge in home prices that precipatated double-digit price gains in 69 US cities this summer.

Despite a slight drop off in existing home sales last month, this year’s figures are still ahead of the pace from October 2004, according to a National Association of Realtors report. that in October, existing homes sales for both single-family and condos declined moderately.

The survey indicated that “total existing home sales,” comprised of single-family, townhomes, condominiums and co-ops, were down 2.7% to a seasonally adjusted annual rate of 7.09 million units. September’s total existing home sales rate was 7.29 million. Overall housing remains strong in comparison to the previous year, with sales for October 2005 coming in 3.7% above the October 2004 level of 6.84 million.

“The accelerated trend in existing home sales that began in 2002 remains intact despite fluctuations in interest rates,” says Bob Walters, Chief Economist of Quicken Loans. “Overall interest rates have been favorable toward housing for several years, and a positive employment outlook coupled with strong consumer sentiment continues to drive the industry’s robust performance.”

These numbers are supported by the Florida home loan market. As previously discussed, Jacksonville housing numbers, along with other areas of the state, have remained strong in recent months.

Before Al Gore invented the Internet, the process of buying a home required driving around through various neighborhoods, extensively interviewing agents and realty companies, and completing all the transactions in person. Times change. In the last three years, Mike and Elizabeth Harvey have bought and sold houses from Florida to Maryland — and five of the six transactions were done primarily online.

They researched neighborhoods and real estate agencies, communicated with their Realtor across hundreds of miles and multiple time zones, even sold a house in Fort Myers. As far as the couple is concerned, the process couldn’t have gone better. ”Especially being a long-distance seller, I didn’t have to worry about the time difference, we did 50 to 75 percent of our communication online,” Mike Harvey said. “I can’t imagine how they did this before the Internet.”

Much of the home buying process can be done at home by anyone with an Internet connection, with more and more consumers inclined to buy real estate that way. According to a study by the National Association of Realtors, a whopping 74 percent of homebuyers use the Internet for research before entering the market. Another study done by the California Association of Realtors shows that 96 percent of consumers feel the Internet gives the buyer more control.

Even more amazing is the fact that 23 percent of buyers actually found the home they wanted online, up from 14 percent just one a year ago, according to Joseph Ballarino, co-owner of Amerivest Realty of Naples. The company’s website saw 50,000 visitors in October, up 25 percent from 41,000 in the same month last year. Real estate companies are seeing the trends and responding. Any information people like Mike Harvey could want about an agent or a company is usually available online. Real estate websites now have it all — everything from detailed home listings to extensive photo galleries.

In addition to details regarding the actual property, the sites include information about its neighborhood, such as local tax data, where schools are located and how they rate.

”We never believe our website is complete. We have a development team to continually add features and technologies every single month,” Ballarino said.

BIG ON DETAIL, QUICK TO REPLY

Since more than 75 percent of Amerivest’s real estate agents say their clients go to the website at some point, the company is always rebuilding community profiles, updating lists of available inventory, and adding content, photos and descriptions. Coldwell Banker’s website now offers 3-D home tours, as well as an innovative tools called a ”lead router,” said Charlie Young, senior vice president of marketing for the New Jersey-based company. What the lead generator does is take online messages written by visitors to the site and converts them to voicemail, which is then immediately sent to the agent.

Research has shown that a majority of consumers will choose the first agent to respond to their inquiry, making a quick response optimal. The company has also dramatically shifted its marketing focus to developing and driving traffic to its website.

”We respond to 80 percent of our inquiries within 12 hours. When consumers do research online, it makes our sales associates more productive because they spend less time viewing homes with customers and more time talking about homes that the customer is actually interested in,” Young said.

Thanks to the complex mapping, satellite imagery, and photo and video galleries, buyers don’t have to even go to a home on many occasions. After the Harveys moved to Southwest Florida from Orlando, they spent two and a half weeks researching Fort Myers real estate online, narrowed their choices to two homes and bought one of them days later. Investment buyers like Tony Garufi will sometimes take it a step further and even buy homes “sight unseen.” The information that most real estate websites provide is thorough and detailed enough.

Garufi has been in the business in Albany, N.Y., for 25 years and recently began investing in Florida real estate. He visits Lee County a few times a year to conduct research in person, tour neighborhoods and familiarize himself with the surroundings. The rest of the time, he does his research online and his real estate company, The Ellis Team of Re/Max Realty in Fort Myers, sends him everything he needs electronically.

GETTING YOUR DETAILS VIA E-MAIL

Re/Max started looking to incorporate the Internet more in its business in 1997, when it first tracked customer usage of its website, said agent Brett Ellis of the aforementioned Ellis Team.
The real estate giant found that most of its customers went to the website at some point in the transaction.

”In 1997, we sold 100 homes from our website alone,” Ellis said. “That’s when we decided to integrate it into our business.”

The company even put its multiple listing data online. A limited amount of information is available to the general public through the Internet Data Exchange, or IDX. For those who sign up as members / customers, more detailed information can be retrieved through the Virtual Office Workplace, or VOW. The group puts all transaction details and documents online so customers can access them any time they want. Amerivest is working on doing the same.

A growing number of websites are also…

• …. providing tools for customers to expand their search to markets beyond their local area.
• …. allowing the prospective buyer to exclude properties based on certain criteria such as price, number of bedrooms / bathrooms, etc.
• … making it possible to view only listings that have photos.

Internet usage is outpacing any other medium, and has clearly brought about an incredible sea of change in the way people live and conduct business. With electronic systems benefiting both buyers and agents, it’s no wonder that Florida and the rest of the nation have seen record sales growth in the past five years. Of course, historically low mortgage rates, which until recently spurred incredible buyer demand, may have contributed a little as well.

Marineland is a tiny incorporated town located along State Road A1A, about halfway between Jacksonville and Daytona Beach. Until recently, the number of resident dolphins outnumbered the number of human beings. Now, however, it’s a prime example of the Miami real estate boom.

A planned development of more than 270 homes — plus commercial space and possibly a hotel — could boost the town’s population by about 3,000%, assuming this project survives a challenge by environmental groups.

Flagler County, which includes Marineland, is one of the state’s fastest growing areas, thanks largely to nearby Palm Coast, a planned development that has grown immensely in the last decade.

At it stands right now, however, Marineland, remains home to only an oceanarium and the University of Florida’s marine research lab. The proposed development would likely bring 100 to 250 full-time, along with a few more seasonal residents.

The homes and businesses would be built by Centex Destination Properties on 40 acres owned by Jim Jacoby. He’s an Atlanta businessman who bought the Marineland ocean attraction and the surrounding property in 2001 with plans to develop it.

Marineland Mayor Jim Netherton, who works at the Whitney Lab and has lived in the town since 1975, said the project is necessary for the town to survive. With only eight residents, it’s hard to maintain a town commission and keep the government operating.

”As far as I’m concerned, this is crucial for the continued existence of Marineland,” Netherton said.

The Florida Wildlife Federation and Friends of Matanzas Inc. have filed a challenge to the proposed development, saying it allows too many new homes on the space. The dispute will go to state administrative hearings or mediatio. It could take months to be decided, but is an interesting tidbit regarding various types of Florida commercial loans and projects.

The Florida state government landed a major conservation victory last week, according to the St. Petersburg Times. By voting to spend $350 million for three-quarters of a historic ranch that’s home to panthers and bears, the legislature handed the Sunshine State its biggest ever land conservation purchase. Governor Bush lauded the acquisition of Babcock Ranch (pictured) which straddles Lee and Charlotte counties, as “a historic purchase.” As the largest conservation effort in Florida history, other officials hailed it as the crowning jewel of the state’s program.

Some environmental groups worry, however, that the Babcock deal signals that the Florida Forever program - the state-run program administered by the The Division of State Lands that buys land to preserve Florida’s future - is in trouble, and going to get worse.

Keith Fountain of the Nature Conservancy, which works with state agencies to line up environmentally sensitive land purchases, says that conservation groups simply cannot buy as much as they used to. “Land prices are going up and up, and the amount of land we get for every dollar is significantly less,” he said.

As the nation’s largest conservation land-buying program, Florida Forever has $300 million to spend annually on property to save it from development. The funds come from bonds paid off by the sale of documentary stamps on Florida real estate transactions. The program succeeded the similar Preservation 2000, a 10-year program launched in 1990, and combined, the two efforts have spent $4 billion on 2.2-million acres of beaches, forests, prairies and scrubland.

The problem? You can’t buy Florida land for what it cost in 1990. Or anywhere close. Real estate prices have risen dramatically across the board, and more and more buyers have the capital to out-bid public agencies for property. This is why environmental activists fear Babcock is as much an ominous sign as it is a victory. Florida didn’t even have enough money to buy the 74,000-acre ranch parcel right away — instead, it plans to buy a little at a time over the next four years. If all the money comes out of Florida Forever, it will drain the fund so no lands can be purchased elsewhere.

State Senator Paula Dockery of Lakeland, who chairs the Senate Environmental Preservation Committee, hopes the state will use some of its projected $3 billion budget surplus to fund the Babcock purchase in full, which would prevent cleaning out Florida Forever. Dockery, who helped write the Florida Forever bill in 1999, recognizes that the preservation money doesn’t stretch as far as it used to, but she sees no way to increase funding.

From sand dunes in the Panhandle to swamps in South Florida, the state has a long list of areas targeted for purchase in the upcoming years. The list contains 98 properties totalling some 2 million acres, and to buy them all would cost an estimated $3 billion, double what the state has left to spend between now and 2011. With skyrocketing Florida home prices and funding that hasn’t kept pace, environmental groups are at a loss for how Florida’s pristine areas will be saved.

Cragin Mosteller, a spokeswoman for the Florida Department of Environmental Protection, said Florida Forever “will continue to move forward,” thanks to creative spending strategies. The state has bought the development rights to many properties, which is cheaper than buying the property outright, for example.

Nevertheless, officials have begun scaling back ambitions, removing land from the target list. The advisory panel that compiles and ranks the Florida Forever list, the Acquisition and Restoration Council, dropped a number of proposed purchases off its “must-buy” list, downgrading them to “wish-list” status.

“We’ve got to be real careful we don’t focus on anything but the best resources; that is our highest priority,” Mark Glisson, the council’s director, told the Tallahassee Democrat.

Some efforts to preserve vast areas of Florida’s dwindling wilderness are being cut back. For instance, only 11,000 of the 31,000 acres of the Annutteliga Hammock in Hernando County (which has been on the Florida Forever list for 10 years) have been acquired so far, at a cost of $35 million. Obtaining the remaining land would cost another $36 million, so last year the state trimmed 6,000 acres out of its proposed acquisition plan, and may trim it yet again.

The longer it takes to acquire land, the more it is likely to cost. Rising demand and prices have taken a major toll on Everglades restoration plans and other vital environmental causes. There is risk that some land not soon acquired will be developed or grow far too expensive for land acquisition programs to secure it. When Florida Forever goes up against developers or land speculators, the state is usually at a disadvantage because its offers must be tied to appraised value.

Last month, a tract of Central Florida real estate - over 27,000 acres of valued citrus and ranch land near Frostproof - that the state had been trying to buy instead was sold to a South Florida developer.

“Nobody likes to talk about a crisis, because there are a lot of other fiscal needs in this state,” said Andy McLeod of the Trust for Public Land. “But the chance to meet the requirement that the voters, the legislators and the governor put forward for this program is not being fully achieved.”

The Florida home loan market is a popular destination for those in search of a second (or third, or fourth …) home. This holds especially true for international buyers, those looking “to add to their holiday portfolio of homes,” according to Mark Zilbert, president of Zilbert Realty Group in Miami Beach. He estimates that 90% of foreign owners are buying property throughout the state that falls into this category.

In an effort to quantify and understand this population of international buyers, the National Association of Realtors - in cooperation with the Florida Association of Realtors - teamed up to produce a Profile of International Home Buyers in Florida report. The results of this effort were expected: International buyers are playing a significant role in Florida’s real estate market.

Between May 2004 and May 2005, about 15 of every 100 home sales in Florida, went to individuals outside the country. This number is based on a May 2005 survey of 986 Florida Realtors who closed 1,844 home sales transactions to non-U.S. residents in the previous year.

What’s the breakdown of this survey? Europeans accounted for 58% of all Florida home purchases by foreign buyers, while citizens from the United Kingdom were responsible for one-third of all international purchases. Others countries represented included:

• Germany - 7%
• Canada - 7%
• Venezuela, 7 %
• Colombia - 5%
• Brazil - 3%
• France - 3%

Roughly half of the survey participants said they have seen an increase in the percentage of international home buyers in the past five years.

Florida real estate boom aided by international buyers

According to a National Association of Realtors survey released this year, international buyers have a substantial footprint in the Florida real estate market. Here are some results from the report:

• Home sale volume in Florida to international buyers from May 2004 to May 2005: 15 %.
• European buyers among international buyers in Florida: 58%.
• International buyers purchasing a vacation home in Florida for family and friends: 38%; purchasing rental properties for investment: 37%; purchasing second home for part-time work in the United States: 17%.
• Length of time international buyers plan to spend in home: 27% of buyers plan to spend three to six months each year in the home; 19% plan to spend one to two months; 17% plan to spend two to four weeks; 10% plan to use for less than two weeks; 27% are undecided.
• The median price of a single-family homes and townhouses purchased by international buyers: $299,000.
• The median price of single-family homes and townhouses purchased by all buyers in Florida: $196,200.
• Volume of international buyers in Florida who pay cash: 36%.
• Volume of U.S. domestic home buyers who paid cash for a home in 2004: 8%
• About 76% of buyers from the United Kingdom purchased single-family detached homes or townhouses in Florida, with 24% purchasing condos or apartments.
• Most popular markets for U.K. buyers: Miami-Fort Lauderdale, Orlando and Naples-Fort Myers.
• About 62% of German buyers bought single-family homes or townhouses, while 56% of Venezuelan buyers and 68% of Canadian buyers purchased condos or apartments.
• About 67% of all Latin American buyers purchased Miami-Fort Lauderdale real estate versus 16% of all European buyers. Orlando was the top spot to buy Florida properties among all European buyers.

The source for these numbers is the Profile of International Home Buyers in Florida, published by the National Association of Realtors.

Breaking down the percentages

Zilbert, who specializes in selling Florida condos to international and domestic buyers, said the bulk of real estate investors he works with reside in other countries - and many of the pre-construction condo buyers he works with in Miami are international real estate investors.

While the Miami real estate market has historically been a strong market for South American buyers, “that’s changed completely, 180 degrees,” Zilbert said. “There is such a strong influx now from Europe. I’m now starting to see India, the Middle East, a little bit of the Far East. There is a tremendous number of younger Russian citizens who have done very well for themselves and are making enormous investments. The whole world is discovering it now. It is still relatively well priced. It still makes a lot of sense for Europeans to buy here.”

He referred to international buyers as “the only consistent year-round buyers we have. Every other base is more seasonal.”

Other studies of the Florida home loan market

An economics group at Wachovia Corp., a large financial services company, issued a report in September titled, How Sustainable Are The Forces Driving Florida’s Latest Housing Boom? that highlights trends in international real estate business in Florida.

This survey stated that international buyers are drawn by the usually sunny weather and historically affordable prices in Florida. Furthermore, it continued, many Latin American buyers have historically sought South Florida home loans as a refuge from potential political strife in the home countries. This last factor has been particularly important in recent years, which have seen a huge influx of Venezuelan buyers.”

According to the analysis. however, this boom may not last. It reads: “With economic growth slowing in Europe and the U.S., and housing values rising less rapidly in the U.K., demand may cool off slightly over the next few years.” The second-home market for U.S.-based buyers “will also likely cool off a bit.”

The response from real estate agents

Liza Mendez, broker-owner at Pedro Realty, a company that specializes in the Miami and South Florida real estate market, said she specializes in working with many Central American and South American clients who are either buying or selling property in Florida.

Her clients typically have roots established in the United States, tend to be highly mobile, and are not looking for luxury properties. “They’re coming and going,” she said, adding that her international business has been fairly steady during her 20 years in the business.

Mendez said high property taxes and rising prices in the state are discouraging to some of the buyers that she works with.

“Some of them are finding the prices so high that the returns are just not there,” she said, though inventory has begun to expand, giving buyers “a little bit of breathing room.” And other clients are wondering “whether this is the best time to sell,” she said, given some softening in the market. She has seen recent activity in the real estate market with residents of Costa Rica and Mexico.

As the Florida market remains fairly strong, international buyers and potential home owners from the United States share a common trait: they don’t seem phased by the recent hurricane damage throughout the south.

“It’s just par for the course,” Mendez said. “It’s just part of where you live.”

If you have read any of our Florida home loan and real estate news over the past two months (or kept up on these topics using other publications), you’ve probably figured out that the real estate boom is effectively over. That is about the only thing that’s clear at this stage. Having peaked, will the market plateau or plummet? How far will home prices fall? How high will Florida mortgage rates climb? Does the market now favor buyers?
No one knows. The consistent record growth of the past five years has given way to great uncertainty as 2005 draws to a close. Freddie Mac, the Mortgage Bankers Association, and the National Association of Realtors, among others, are projecting slower sales in 2006, but expert opinions vary on how much lower. How the national and Florida markets will shape up by this time next year is anyone’s guess. But just because things are in flux does not mean all is lost. There is still room for effective maneuvering and profiting on both sides, and below, Florida Home Loan has listed a number of techniques for buying and selling effectively under current conditions…

1. Get a grip. Both buyers and sellers need to take a step back and fully comprehend where the property in question is positioned inside its own sub-segment of the market. For the seller, a modestly-priced single-family home might generate more demand than you might think (with buyers priced out of larger purchases) while the condos everyone bought a year ago to flip for profit might be harder to move (as an abundance of them are now for sale with decreased demand). For buyers, the current down cycle provides some of the best opportunities in some time, but many sellers will still be in denial over pricing. Do not expect concessions immediately. Wait it out.
2. Consider take-backs. If a potential buyer lacks the 10-15 percent down payment needed to qualify for a standard Florida mortgage, don’t shut the door. Consider a second mortgage to fill the gap. An entire industry exists for just this reason — to purchase your properly drafted take-back notes for cash. Qualified Florida real estate lawyers can help you with whatever you need to get done and answer any questions.
3. Concessions such as closing costs. If you are a seller having trouble setting your house apart, or a buyer struggling to find the deal that truly works for you, closing costs might be the unlikely catalyst. Normally these are the buyer’s settlement fees to pay, but if the seller offers to contribute some of all of them, that could mean many thousands of dollars — enough to get a deal done. There are plenty of expenses in addition to the home price, and smart buyers and sellers both recognize their role in negotiations.
4. Talk it over… With each other and the experts. To succeed in such a challenging real estate environment requires intelligence and resourcefulness. Bring whatever it takes with you to get the deal done. Talk to Florida real estate agents. Consider a number of options from mortgage lenders. Receive strategy, advice and insight from as many people in the know as you can. You can never know too much, or be too prepared.

Follow these four steps and you will be on your way to securing a terrific deal and making profit — even when the overall conditions make it seem difficult.

As we’ve previously documented, mortgage rates have been rising for 11 consecutive weeks. If last week is any indication, however, this trend may finally be over. Why is this the case? Because 30-year fixed interest rates fell for the first time since August. A mixed bag of economic data, including a slowdown in housing starts, led to the decrease.

The benchmark 30-year, fixed-rate mortgage fell 10 basis points to 6.32%, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week’s survey had an average total of 0.35 discount and origination points.

One year ago, the mortgage index was 5.72% - four weeks ago it stood at 6.24%.
Meanwhile, the benchmark 15-year, fixed-rate mortgage fell 11 basis points to 5.88%. Also, the benchmark 5/1 adjustable-rate mortgage fell 8 basis points, to 5.85%.

“Lower oil prices — at least compared to the last several months — have helped to alleviate some of the inflation fears that the market has been experiencing lately,” says Frank Nothaft, chief economist for Freddie Mac. “That helped to reduce upward pressure on interest rates last week, allowing mortgage rates to ease a bit.”

A cooler housing market

The bulk of this week’s rate decline happened late last week, after the Census Bureau reported that housing starts slowed to an annual pace of 2.01 million in October, down from September’s pace of 2.13 million. Starts were down 2.3% from the previous year.

To keep things in perspective, any time housing starts are at an annual pace of 2 million or more, it’s a sign of a healthy home-building market. October’s new housing market wasn’t as hot as expected, but it was still quite robust nevertheless. Interest rates and the costs of building materials have been rising post-Katrina, making homes less affordable, so it’s no surprise that housing starts have fallen a bit.

Another economic report, one that measures business activity in the Federal Reserve’s Philadelphia district, showed an unexpectedly large drop, as well. Lower oil prices, plus evidence of a cooling economy, led to lower yields on U.S. Treasury notes as well as lower rates on mortgages.

Refi applications decrease

Other numbers showed that fewer people applied to refinance home loans around the country, according to the Mortgage Bankers Association. The group’s seasonally adjusted refinance index was down 6.9%from the previous week, and the four-week moving average for refinance applications was down 4.6%. In other words, more people were applying to refinance when rates were rising from 6.24 percent to 6.42 percent than when rates were falling during the last week. It’s important to note that if you’re dissatisfied with your Florida home loan, NOW would be a very good time to refinance as rates have dropped slightly.

Those who applied for a Florida home loan last month, but didn’t lock in the rate, could benefit if numbers continue to fall. This process always takes guess work, but with luck you can secure rates as they hit the bottom of the dip.

In recent years, the popularity of Adjustable Rates Mortgages (ARM) has risen tremendously. This has especially been the case with Florida home loans of this nature. Nearly a third of all mortgage loans are currently in thie form. Now, it’s time for those consumers to pay up.

While there are several types of ARM, they all share one feature: After an initial period of fixed payments with low rates, the loans adjust — usually to the prevailing yield of one-year Treasury bills plus a margin of one to three percentage points.

For example, a borrower with a 3/1 ARM pays at the initial interest rate for three years and the loan adjusts once a year after that. A one-year ARM, which has a lower initial rate, adjusts after one year and a 5/1 adjusts after five. There are also 7/1 and 10/1 ARMs. Individuals who took out a 3/1 ARM in late 2002 or early 2003 will soon get socked with big increases in their monthly mortgage payments.

The Mortgage Bankers Association estimates that some $330 billion worth of ARM will adjust in 2006 and $1 trillion worth will reset by the end of 2007.

According to Freddie Mac, the average ARM loan is about $300,000. Therefore, a trillion dollars probably represents more than three million homeowners who will face bigger bills in the next two years. If you took out an 3/1 ARM for $300,000 back in late 2002, your initial interest rate was probably around 5% and your monthly payment has been about $1,610.

Keith Gumbinger, vice president at HSH Associates, a publisher of consumer loan information, says 3/1 ARM coming due today would readjust to a rate of 7.1%, a jump of more than 2 percentage points. (Most 3/1 ARMs, however, have 2 percentage point caps; they can’t be raised more than that until they readjust after another year). The new payment would look like this: $1,995 a month — a difference of $385, or more than $4,600 a year.

One-year ARM holders, whose initial rates last year were just over 4%, will also see their payment increase a lot, but because of caps, they still won’t be paying as much as 3/1 ARM holders, at least until they reset again. Holders of 5/1 ARMs coming due later in 2006 and in early 2007 should not have to undergo increases as large. Their rates were higher to begin with - about 6.6%in early 2002 - being raised to 7.1%would only add about $100 to their monthly payments.

“Most borrowers have some financial cushion so the impact won’t be immediate; spending an extra $380 is manageable at first,” said Gumbinger. “But it’s safe to say there are some who will find themselves in budgetary difficulties a year or two down the road.”

Refinance into a fixed rate

How are consumers reacting to this news? What should you do if you have an adjustable rate Florida home loans? Many ARMs holders are transferring their debt into fixed-rate mortgages, according to Bob Moulton, founder of Americana Mortgage Group on Long Island. This will shield them from further rate increases, but it does entail a bit of sticker shot as well.

A 30-year fixed rate at 6.43%, for instance, will still add about $260 a month to the borrower who had a 3/1 ARM. And the individual in question will either have to pay about $3,000 to $5,000 in closing costs out of pocket or add that sum to the mortgage principal, sending monthly bills higher.

Think about your options. Initially, ARM borrowers received the benefits of low payments, but now they’re going to be seeing an increase in interest over the next year or so. This could lead to added pain for an already shaky real estate market.