Impact of South Florida Housing Market Slump Proves Wide-Ranging

Slumping market indicators like liquidity appear to be making it more difficult for prospective home buyers to get approved for home loans.

It’s true for Florida home mortgage seekers and it’s true in the Bahamas, just a short plane ride to the east.

According to the managing director of Bank of The Bahamas International, Paul McWeeney, the assumption is based on the realities of the current economic climate and not on up-to-the-minute numbers from the industry.

“The Central Bank’s statistics are not real time, therefore I don’t have them, but because of the contradiction in system liquidity, naturally credit growth slows,” he said.

“Given that mortgage lending is a component of overall credit growth, you have to assume a level of home mortgage growth has slowed as well.”

Indeed, the increased Florida mortgage activity and short-term credit that marked much of 2001-2005 appears to have slowed. The mortgages are becoming harder to get, despite rates at most lending institutions that still hover around historic lows.

According to Rory Higgs at The Bahamas Mortgage Corporation, a dwindling number of applicants now meet the debt-to-income requirements with fewer therefore qualifying for housing loans through his program.

The trend towards more conservative lending coupled with fewer borrowers holding the down payment needed suggests the red-hot housing market may be starting to cool, said one analyst.

A higher inflation rate - the International Monetary Fund predicting a 2.7 percent hike for 2007 - is also likely to dampen mortgage lending. That movement downward would seem to follow a historical precedent, given a similar drop in the U.S.

There, in the last three months of 2006, house sales fell in 40 states, with the Florida housing market leading the way. The median price also declined in those major cities just coming off of a boom period.

Perhaps of most interest to our market and with the most impact was the falloff in Florida’s housing market. The National Association of Realtors reports that sales (as well as home prices) in the Sunshine State dropped more than 30 percent in the last three months of last year.

American economists suggest that the U.S. economy may be headed into a recession, driven in no small part by uncertainty around the War in Iraq and the government’s position.

While the Bahamas’ niche market is expected to remain relatively buoyant, given its focus on high-income foreign buyers, the Florida mortgage loan industry will likely continue to follow a downward trend.

Analysts can only continue to speculate until the Central Bank releases its numbers, expected early next month. But if those predictions prove true, that could spell bad news for an economy touted as the hottest in years.