Florida Housing Market Correction Should Not Be Confused with a Bust

Yes, the Florida housing market has seen better days. But that’s precisely why, according to Federal Reserve Vice Chairman, Donald L. Kohn, consumers shouldn’t over-analyze the current situation: it’s simply a correction.

Kohn sees no imminent bust or crash in housing at all. This is nothing more than a rebalancing of a marketplace that got too hot for too long in some parts of the country - and is now heading back toward conditions where prices are more in line with what Florida mortgage borrowers can afford.

“The reported declines in house prices in a number of areas should help to facilitate the rebalancing of supply and demand in those markets,” Kohn said.

Not all home sellers have fully grasped the altered realities in their own local markets - that they’ve got to reduce their asking prices if they truly want to sell - so the process is still unfolding. But repriced houses should stimulate greater numbers of potential buyers to make offers.

Expect positive housing market growth

Kohan also said we appear to be well on our way toward bottoming out … and eventually returning to positive growth in new home starts and resales.

Then, there are Florida mortgage rates. Today’s “unusually low” long-term mortgage rate environment “stands in sharp contrast to some past downturns in the housing market that followed actions by the Federal Reserve to tighten credit conditions significantly.”

Translation: Affordable mortgage money should help shorten this housing down cycle, compared with credit-squeezed periods in the 1980s, when mortgage rates sometimes exceeded 16 percent for fixed-rate loans.

A final key factor, according to Kohn: “Continuing growth in real incomes should underpin the demand for housing, and as home prices stop rising, help erode affordability constraints.”

In the end, therefore, reduced asking and selling prices on houses are integral parts of the self-correction and should help shorten the whole process. The Sunshine State is simply experiencing an inevitable slowdown after years of high Florida home mortgage demand.

Those times will return again.