Report: Housing no Longer Driving the Economy
Even as the demand for Florida mortgage loans increases in some areas, the housing market is still facing a long road to recovery. Two major reasons for this fact are slowing growth and rising inflation in the economy.
These factors are squeezing the housing sector; the former causes family incomes to rise more slowly and the latter has been driving Florida home loan rates and interest higher. As a result, real estate is no longer fueling the economy, as it had since the 2001 recession the report concedes. Nevertheless, 2006 should be the third strongest year for home sales in history, while residential investment and housing consumption are still contributing strongly to GDP growth.
The Freddie Mac report
Freddie Mac released its August Economic Outlook this week. It states that homeowners are combating rising risks in the economy through Florida mortgage loan refinancing - trading in adjustable rate mortgages for fixed rate products and consolidating first and second mortgages into first mortgage loans to lower monthly payments.
The report estimates that $500 billion in first Florida mortgages and $650 billion in second lien Florida home loans will be refinanced this year and that a total of $155 billion was pulled out of home equity through refinancing in the first half of the year. However, as price appreciation slows, homeowners will be increasingly unable to use such refinancing to balance higher interest rates with slower income growth.
Housing starts are dropping due to slowing housing market activity and figures for the second quarter came in at 1.88 million units for the second quarter, below the July estimate of 1.91 million. Consequently, Freddie Mac downgraded the forecast for the end of the year from 1.92 million to 1.90 million units. The report points out, however, that this is still 50,000 more units than were built in 2003.
Single-family Florida mortgage loan activity is expected to run 13 percent behind last year, primarily because of decreasing refinancing activity, which had represented 44 percent of all applications in 2005, but will drop to 38 percent this year.
At the same time the total outstanding mortgage debt will be up 12.6 percent across the country this year versus 2005, reflecting still strong construction, sales, and cash-out refinancing activity.
