Have No Worries About Jacksonville Affordability
Speculation continues to run rampant that the strong housing bubble will soon burst. Nationally, however, the only time average home prices actually fell was during the Great Depression when unemployment approached 25 percent and incomes were declining.
The future is FAR from that bleak.
While prices in selected local markets around the country have fallen recently, the state of the Jacksonville real estate market is not in danger this year. The demand for housing, new and existing, is driven by a number of factors that will continue to be largely favorable for Northeast Florida over the coming 12 months. The more important of these factors include:
- Affordability of housing
- New jobs
- Rising income
- In-migration
Housing affordability is a crucial component of the demand equation and is affected by changes in mortgage rates, cost of construction, real estate prices and income levels. The National Association of Realtors‘ affordability index calculates whether a family making the median income - given current mortgage interest rates - can afford to buy the median-priced home in a particular city, metropolitan statistical area or county.
Results of the affordability index in Jacksonville
An affordability index of 100 indicates that the family has just enough income at current interest rates to buy the median-priced home. An index of 120 would indicate that the median family-income levels are 20 percent more than needed to buy the median-priced home. For the South, in general, the November 2005 index was 120.8.
The affordability index has decreased slightly in recent months because of rising mortgage rates and home prices. While home prices are expected to increase, the rate of increase will be more moderate on average, with forecasts in the 6-percent to 8-percent range. The forecast for mortgage rates also indicates higher rates, 6.7 percent in 2006, about one-half of one percent above current levels.
Whether mortgage rates continue upward to the 6.7 level will depend on inflationary expectations. If the Federal Reserve is able to hold inflation down, mortgage rates, as well as long-term Treasury bond rates, should not change dramatically.
The housing affordability index should not be confused with the ACCRA Cost of Living Index. The Cost of Living Index still shows Jacksonville to be one of the most affordable metropolitan areas in which to live. The lower cost of living, favorable weather, high quality medical care, jobs and recreational opportunities, continue to attract thousands of migrants to Jacksonville and Northeast Florida each year. This in-migration is expected to increase rather than decrease over the coming decade as the baby boomers approach retirement age.
Effects of the economy on Florida home loans
The national economy continues to improve, with two million new jobs expected to be created in 2006 and the national unemployment rate falling to the 4.8-percent range.
Florida has been a leading state in creating new jobs recently. This past year, the Jacksonville metropolitan area civilian labor force increased by 4.5 percent while the state civilian labor force increased by 4.7 percent.
The Jacksonville Blueprint for Prosperity recognizes the need for new jobs and higher income levels. To the extent that Jacksonville achieves these goals, it will sustain the housing market in the future for Northeast Florida.
For all these reasons and more, expect real estate prices to grow at a more moderate rate. Anyone seeking a Florida home loan, or looking to sell his/her current property in The Sunshine State, stands to find a suitable deal.
