Analysts Offer Mixed Views On Market Decline
Forecasters agree that the Florida housing market, along with the rest of the nation, is in a downturn. Predictions differ, however, when it comes to how big of one. The National Association of Realtors believes that housing sales should level off and remain at historically high levels. The recent rise of Florida home loan rates is significant, but not enough to derail the state’s housing market.
“Economic growth and job creation are providing a favorable backdrop for the housing market, but rising interest rates have an offsetting effect,” said David Lereah, the Realtors’ chief economist, who expects the 30-year fixed-rate mortgage to rise to 6.9 percent by the end of the year.
U.S. gross domestic product growth is slated for 3.7 percent in 2006, while the unemployment rate should average 4.8 percent. Meanwhile, existing-home sales are projected to drop 6.0 percent to 6.65 million this year, down sharply from a record 7.08 million in 2005. That amount would still equal the third-highest sales year on record (2003), however. New-home sales are looking at an even steeper decline, with a likely fall of 10.9 percent to 1.14 million from a record 1.28 million last year.
The national median price for all existing housing types will increase 6.4 percent this year to $221,700, according to the Realtors, while the median new-home price is expected to rise 2.3 percent to $242,700. The Consumer Price Index projects inflation of 3.4 percent in 2006, with inflation-adjusted personal income growth of 3.8 percent. That’s not a bad list of conditions, but not all economists are as optimistic.
“Speculation played a much larger role that we would like, with mortgages used for investment rising to a record-breaking 12.1 percent of the market in the fourth quarter. This leaves us worrying about market correction, now that cancellations for new homes — largely condos — are on the rise, and speculative investment appears to be cooling,” said Diane Swonk, chief economist of Mesirow Financial.
In her April issue of Themes on the Economy, Swonk says that in 2005, four out of 10 homes were purchased by non-occupying buyers. This means an enormous 40 percent of homes were bought for vacation, second-home and investment purposes. She predicts that the home sales are forecast to slide more than 8 percent in 2006, with much of the slowdown occurring in the second half of the calendar year.
“Sales actually surged a bit at the start of the year in response to unseasonably warm winter weather, which increased buyer traffic; however, some of those gains are now being given back,” Swonk said. “I believe we will see housing starts drop at a more aggressive 11 percent rate in 2006 from 2005. The give back to early weather-related drops is expected to be greater for starts than it is for sales.”
She agrees with the NAR about a single-digit appreciation in housing. With median single-family home prices forecasted to rise between 6-7 percent in 2006, the market is still looking stable in spite of the decline from the double-digit appreciation rates of recent years. Other factors dampening appreciation include are rising energy prices, the Alternative Minimum Tax Rate, and a push by Realtors to lower sellers’ expectations.
So when will the effects of the slowdown be felt? While every market is different, most likely we will see the impact in 2007, not 2006, experts say. With Florida home loans edging upward, and the slow-moving fallout from tighter economic shifts, that’s when you will start to see a more significant decline… and possibly the loss of jobs in certain markets. For now, it’s still a great time to apply for a Florida home loan, with buyers seeing more leeway in the market.
