Palm Beach Apprecition Remains Strong, But Home Sales Continue to Drop

As home price appreciation slows … down … significantly across the country and state, Palm Beach County at least isn’t feeling the negative effects yet.

The county’s one-year growth - 20.57 percent - ranked 22nd out of 275 metropolitan areas, according to a federal report. Moreover, the area’s five-year home-price growth of 138.39 percent puts it among only a handful of areas with triple-digit increases for that period.

On the surface, that’s good news. However, it’s offset by a dramatic drop in Florida home mortgage demand, as the number of homes sold year over year has dropped and a huge expansion in inventory has taken place. The number of homes for sale in Palm Beach County rose to 22,206 in July from 7,701 in July 2005.

“Higher interest rates and greater inventory levels are apparently having a significant impact, with the largest effects being felt in areas that have recently experienced the greatest appreciation,” the housing enterprise oversight office report states.

Inside a report: Florida home loan details

There’s another important aspect of a report from Fannie Mae and Freddie Mac that suggest the results shown in Palm Beach County, in particular, should be evaluated with caution, an analyst said Tuesday. These two companies have low shares of adjustable-rate mortgages, the analyst said, but Palm Beach County’s share of adjustable-rate Florida mortgages is high.

“The last estimate I saw was about 57 percent for purchase loans,” said James Lawler of Vienna, Va.-based Lawler Economic and Consulting. “The OFHEO index for [the Palm Beach housing market] would contain very few observations.”

Annual appreciation rates in the single digits are on the horizon, the report suggests - something Florida and Palm Beach County haven’t seen since at least the start of the five-year housing boom. Insider, though, claim a return to single-digit appreciation rates is healthy.

After all, for the past 50 years, national home prices have risen an average of 5 percent a year. This year, home prices are expected to rise 3.2 percent, nearly 75 percent less than last year’s 12 percent rate. It’s not a bad time for a break.

As demand for Florida mortgage loans returns, a natural equilibrium will form between buyers and sellers. This will maintain balance in the market. There’s also little to fear overall in Florida. The Sunshine State always ranks near the top of healthy real estate areas in the world, due to its climate and appealing living situations.