In Florida and Across the Nation, Decreasing Sales Not Reining In High Home Prices

Echoing an assessment of the South Florida real estate market by yesterday’s Miami Herald, MSN.com’s Money Central reports that overall, U.S. home sales are in decline while prices remain sky high. Numerous reports shows sales of existing homes at their lowest levels in two years, while new homes are selling at their slowest pace in a year. At the same time, the number of homes sitting on the market has reached a level not seen since 1998.

You would think that would give prospective buyers some relief — and the increase in inventory doesn’t hurt. But overall, the nation’s median prices have not fallen off their torrid pace.

“Prices are not (just) holding their own — they are appreciating at double-digit rates,” said Walter Moloney of the National Association of Realtors (NAR).

Average U.S. home prices rose 12.95 percent in 2005, according to data released Wednesday by the Office of Federal Housing Enterprise Oversight (OFHEO). Prices did slow as the year drew to a close, however. Appreciation in the fourth quarter, ending December 31, was 2.86 percent. But with an annualized rate of 11.4 percent for the quarter (similar enough to the 12.55 percent at the end of the third quarter), economists see no evidence of a slowdown.

“Despite recent indications that a slowdown may be forthcoming, house-price appreciation during 2005 continued to hover at near-record levels,” said OFHEO Chief Economist Patrick Lawler.

MIDDLE AMERICA

Monday, the U.S. Commerce Department released sales data indicating that sales of new homes dropped 5 percent in January to their slowest pace in a year. The NAR followed that Tuesday with a report that sales pace for existing homes had slowed to a two-year low.

“The market has slowed down. Stabilized, I think would be a good word for it. It is nothing like it was three, four years ago. …The market really slowed down starting maybe in October,” said Carole Baras, a St. Louis Realtor with 24 years of experience.

There are many more homes on the St. Louis market than last year. Prices — $150,000 is about average for a three-bedroom, two-bath home — are “pretty stagnant.” Baras expects spring to inject some energy into sales, but she isn’t looking for the price increases of 5-10 percent a year that local agents have become accustomed to.

St. Louis’ stabilizing prices are by no means the story everywhere, however, as 26 midwest metro areas posted record appreciation in the fourth quarter. The national median price was $211,000 in January for all housing types, according to the NAR, an increase of 11.6 percent from January 2005, when the median was $189,000, and yet another record. Despite a 2.8 percent slowdown in existing-home sales, single-family home prices rose 13.1 percent to $210,500. Similarly, condominium sales fell 10.6 percent, as prices rose 5.5 percent last year to $216,900.

SALES HOT IN THE SOUTH

At least part of that rise is due to 2.6 percent growth in sales in the South can be attributed to Hurricanes Katrina, Rita and Wilma — which devastated the Gulf Coast last fall, but led to a 40 percent increase in home sales by the end of the year. Nationally, tight supply has kept prices from falling along with sales, according to the Realtors.

“Although housing inventory levels have been improving, it is far from being a buyer’s market in most of the country, and we see the momentum of double-digit appreciation being sustained in home prices,” NAR President Thomas Stevens said.

As homes stay on the market longer, there are more of them for buyers to consider and — theoretically, at least — increase their bargaining power and create pressure to bring prices down. That balance in power between buyers and sellers is a historically more normal situation than the overheated “sellers’” markets of recent years. The NAR predicts sales beneath the record levels experienced over the last two years, but still coming at a strong, historically high pace.”

FLORIDA HOME LOAN RATES

Mortgage interest rates have been bouncing around in Florida and across the country. Freddie Mac reports that the national average for a 30-year, conventional, fixed-rate loan (the industry benchmark) was 6.15 percent in January, down from 6.27 percent in December. Nationally, the average mortgage rates are currently 6.33 percent, however, and the rate was just 5.77 percent in January 2005.

According to the Realtors, home sales are easing in the priciest markets where an increase in mortgage rates will have the biggest impact on buying power. Sales dropped 10 percent in the Northeast, 7.7 percent in the Midwest and 3.5 percnt in the West.

“The writing seems to be on the wall at this point,” said Chris Low, chief economist at FTN Financial in New York. “Prices are still falling. Meanwhile, the supply continues to rise.”

Realtors like Baras have expressed amazement at the increasing numbers of first-time home buyers who borrow 100 percent — or more — of the purchase price to secure their home. In addition to producing no down payment, Americans are sometimes financing closing costs as well. In a slower-growing market like the nation is expected to see in the upcoming years, such buyers will have virtually no home equity for years. Expectations are changing, too.

“It’s amazing to me. They expect more and they’re buying more. The first-time buyer, when I started in the business, they were willing to do a lot of fixing up, get a small house, build up some equity. Now, young people are looking for move-in condition. They are not prone to doing some work. They have to have a big bedroom, because maybe the furniture they already bought is huge. It’s a completely different buyer,” Baras said.

Locally, Miami-Dade, Palm Beach and Broward County real estate have risen so high that affordable housing is a huge concern even for the middle class. With Florida home loans likely to become more of a stretch for new buyers this year, conventional wisdom dictates that prices will come down. But so far, they have only levelled off… and with these reports from the NAR and OFHEO, who is to say that the growth won’t continue?