Home Prices Fall, Flippers/Investors Take Break

Farewell, flippers! See you later, investors! Step right up, Florida home loan seekers! This is currently a buyer’s market.

As sky-high home prices cool down, investment activity goes along with it, “particularly in high-end markets in some juiced-up parts of the country where speculation was most rampant,” said Mark Zandi, chief economist at Moody’s Economy.com.

The record low Florida home loan rates and speculators that once drove prices higher are gone. Observers expect housing prices to stagnate or decline slightly, though a steep crash for housing prices is unlikely. As the market slows, both builders and buyers are getting used to the changes.

On a recent conference call, Ara K. Hovnanian, the president and chief executive officer of homebuilder Hovnanian Enterprises Inc. said that real estate investors “have largely pulled out.”

“Investors were a bigger part of the market than many thought, including ourselves,” said Hovnanian, whose company builds primarily in the Northeast. Would-be Florida real estate flippers are not only not buying new properties, they’re selling what they already own, adding to the record number of homes already on the market.

Evidence of investment slow down

Stocks in the sector have fallen dramatically. Hovnanian, for instance, is trading near $30 a share, down from its 52-week high of $73.40. Rival Toll Brothers Inc. trades around $27 a share, down from a 52-week high of $58.67.

Developers, waiting for the affordable Florida home loan phase to die down, have started canceling projects. With land prices falling in some areas, Hovnanian has walked away from about $5.6 million of deposits on land parcels it had options to buy, lopping 5 cents a share off the company’s second-quarter earnings. Along with other home builers, it’s taking a break.

Buyers in some cooling markets know they’re in the driver’s seat. Agents say clients are putting in bids well below the sellers’ asking prices, or simply waiting.

“Home prices have risen to where buyers can’t afford to buy,” said Keith Gumbinger vice president at HSH Associates, which publishes consumer loan information.

The national median existing home price was $223,000 in April, according to the National Association of Realtors. While that was a 4.2 percent increase from April 2005, the organization predicts that prices this year will rise only 0.8 percent.

Others aren’t so sure they’ll rise at all.

Lower Florida home loan deman leads to inventory of homes

There was a 4-month supply of unsold homes on the market in April 2004; it rose to 5.8 months in April 2006, according to the Department of Commerce. Contract signings for new homes are down sharply and cancellations are up.

“It’s a more difficult market and our salespeople are no longer just taking orders; they have to sell,” Hovnanian said on the call.

Most observers say housing prices will only slide dramatically if the Federal Reserve continues to raise interest rates. The Fed’s target short-term rate is currently 5 percent. If it passes 7 percent, many owners will be making late Florida home mortgage loan payments.

For now, everyone seems to be waiting around. Investors cannot afford to build, while applications for Florida home loans are down as potential owners hope prices fall further.