Florida Home Loan Experts Remain Confident About Market

In early December, a report published by the University of California, Los Angeles — Anderson Forecast, predicted that the real estate and construction industries are headed for a slowdown that could last several years and result in the loss of 800,000 jobs - 500,000 in construction and 300,000 in financial services.

“Housing is in a perilous position,” concluded UCLA Anderson Forecast Director Edward Leamer, but he added that the downturn in housing won’t push the country into recession.

Fortunately, for those interested in the Florida home loan market, a recent survey shows that industry insiders don’t subscribe to the dour Anderson Forecast view. All of them believe the boom that began in 2002, and resulted in 20 to 30 percent annual price increases, is over.

While it’s true that sales of existing homes and new construction are falling (with Florida housing inventories on the rise) - and that interest rates are expected to ratchet further upward - there will NOt be a bust.

“Prices on average will flatten,” said Hank Fishkind, an economist with Fishkind & Associates in Orlando. “Some niches, like condos, might see a reduction. But we’re not going to see anything that’s inconsistent with what Florida has experienced in the past.”

Here’s what a few experts contacted by the Herald-Tribune had to say about the state of Florida home loans …

Grant I. Thrall, University of Florida geography professor, real estate market analyst: Believes real estate sales and prices will vary according to location and product type. Coastal areas, which have experienced the greatest appreciation in recent years, will stagnate, while interior areas will experience price increases.

Prices in sub-markets, such as Gainesville and DeLand, will start to catch up with major markets, such as Jacksonville and Miami. By contrast, the condominium market, especially in southeast Florida, is in for a big hit.

“The Fort Lauderdale-Miami condo market is overbuilt. People who bought units . . . expecting a 20 percent return won’t get that,” Thrall said.

Florida should look at the California housing market when predicting the future, Thrall added.

“People will continue to migrate to Florida until the benefits are less than what they can get elsewhere — until the cost of living gets too high and quality of living declines. There’s now a net outmigration from California and that will eventually happen in Florida, but not for another 10 years.”

Hank Fishkind, economist with Fishkind & Associates, Orlando: Points out that the number of real estate closings in the Sarasota-Bradenton market is dramatically lower than during the summer.

There were about 1,400 closings per month in June and July - and just over 1,000 per month in September and October. At the same time, new home sales peaked at 320 per month in July and August. They are running about 275 a month for the last few months.

Fishkind expects these trends to continue in 2006. The result will be a flattening of prices in most segments and a possible decline in the condo market. He added that the Federal Reserve will continue to push up interest rates and mortgage rates will hit 7 percent by the middle of 2006.

Mark Vitner, Wachovia senior economist: Thinks sales and prices will slow in Florida, but the downward momentum won’t be dramatic.

“All the stars have been perfectly aligned in Florida,” Vitner said. “Demographics have remained strong. Unemployment is the lowest in the country. Interest rates are incredibly low. The weak dollar has encouraged European buyers, while the turmoil in Latin America has brought in Latin American buyers. And on top of that you’ve had speculators.”

He predicts real estate prices will increase by half as much as in 2005, or about 10 to 15 percent.

Marvin Rose, president of Rose Residential Reports in Tarpon Springs: Says the real estate market entered a cooling period in the fourth quarter, as the number of mortgage applications decreased.

“It’s long overdue,” Rose said. “The last two years have been characterized by a sense of urgency. Buyers have been afraid that if they didn’t buy today there wouldn’t be anything left for them to buy tomorrow. That made builders and developers very bold about increasing prices. But that can only go on for so long.”

His conclusion: Sales will probably drop by 5 to 10 percent in the year ahead. But prices won’t go negative.

“They’ll just level off,” he said.

Joseph Kalish, senior macro strategist for Ned Davis Research in Venice: Predicting a 5 percent drop in real estate sales across the country and a low, single-digit increase in prices.

The main reason, he says, is the continued rise in interest rates.

“We’ve long held the view that it will take 30-year mortgage rates of 6.5 percent to really begin to impact the housing market,” Kalish said. “We’ve gotten pretty close to that a couple of times, but we’ve never broken through.”

Kalish added that condo construction and sales will probably be impacted more than single-family homes.

Jack McCabe, chief executive of McCabe Research and Consulting in Deerfield Beach: Forecasting that long-term mortgage rates will hit 7.5 percent in 2006 and credit requirements will be tightened substantially.

Speculators, who have gobbled up properties across Florida in recent years, will start selling, resulting in continued inventory growth and the leveling off of prices.

“In some cases prices will go down, but it depends on product type,” McCabe said.

The condo conversion trend in southeast Florida is already over and it has been overdone in Manatee County, McCabe said.

“My prediction is that there will be a glut in condo conversions in Manatee in 2006. The competition will cause developers to offer more incentives to buyers.”

Nicholas Buss, senior vice president, PNC Real Estate Finance: Predicting a 10 percent decline in sales on a nationwide basis and a steady pullback in prices as 30-year fixed rates climb to about 7 percent.

“A lot of people have been saying that as long as interest rates stay below 9 percent the impact on the market will be slight,” Buss said. “But we think the benchmark has moved downward. Buyers may be more sensitive as rates approach 7 percent.”

The Florida real estate market is less susceptible to rising rates, though, Buss said.

“Florida has unique influence that you’re not seeing in other parts of the country. Europeans and Latin Americans continue to drive demand, and you have the whole second home market phenomenon as people from other states flock to Florida. These are factors that aren’t interest rate-related.”

Overview: This seems to be the sentiment echoed throughout the survey - while the Florida home loan market may not remain as incredibly hot as it’s been in recent years, there’s no reason to panic or expect a major leveling off any time in the near future.