Inventory is the Word in Palm Beach County

First, the good news from housing consultant MetroStudy:

• New housing starts in Palm Beach County hit their four-year low in the last three months of 2006, dropping 62 percent from the fourth quarter of 2005.
• Total inventory - including model homes, finished vacant homes and homes under construction - fell to a four-year low in 2006 as well.
• Overall housing supply declined 4 percent in the fourth quarter of 2006 compared with the same period in 2005.

Decline, decline, decline. This is the good news?

In these South Florida housing market times - when it’s quite possible to be “upside down” on your house (to owe more than it’s worth) or to lower your asking price and still not get an offer - declining housing starts, construction and inventory of homes are all good news.

Any recovery, however, could well be postponed into the second half of the year. Most analysts don’t even agree on whether the market has hit bottom, even as Florida mortgage rates remain near historic lows.

The inventory of existing homes, which was up 71 percent Palm Beach County alone in December, may grow as “re-listers” - people who couldn’t sell in 2006 - are likely to try again in the spring.

Analysts expect a further uptick in the region’s new-foreclosure filings as high-risk (bad credit Florida home loan) borrowers continue to default on loans and lenders tighten once-loose credit standards.

Many borrowers were investors who artificially spurred demand - and prices.

“Are home builders ramped up production to meet surging demand during the housing boom,” said Michael Larson, a real estate analyst with Weiss Research in Jupiter. “But it turns out a big chunk of that demand surge wasn’t ‘real’ demand.

“It was investor demand - people buying up one, two, three or more homes at a time to flip, rather than people just looking for a place to live.”

In Palm Beach County, new-home sales dropped 36 percent in just one year - comparing the fourth quarter of 2006 to the same period in 2005 - according to MetroStudy in West Palm Beach.

Further proof the local housing market has gone bust: Palm Beach County buyers closed on only 976 new homes in the fourth quarter of 2006 - down drastically from its boom-time peak of 3,123 closings in the third quarter of 2003.

Credit Suisse, a global financial services firm, estimates that investors accounted for 20 percent of all U.S. home sales in 2005. That percentage was even higher in the South Florida housing market, analysts believe - and the steep and speedy decline in new-home sales in Palm Beach County and the Treasure Coast seems to support that position.

Yet, as investors pulled back and sales stagnated, new-home construction continued - albeit at a slower pace. Inventory inevitably piled up, and investors who failed to flip for profit when the slowdown came got caught holding the house.

Amazing buyer incentives have resulted for those who are in position to buy.

Granite countertops in the kitchen and new cars in the garage, even. One new condominium in Delray Beach, is offering to pay the first year’s Florida home mortgage for buyers, worth as much as $40,000.

What’s next? New-home starts and sales generally move in the same direction when supply and demand are balanced. Even during the hectic boom years, when demand went through the roof, so to speak, sales rose accordingly.

But beginning in 2005 and lasting through 2006, sales began to go down but housing starts didn’t. Starts began to outpace sales. Supply then began to exceed demand. That’s not good.

Nationwide, the inventory of new single-family homes hit an all-time high in July. In Palm Beach County, the finished vacant inventory of new homes has now climbed to its highest level in 17 quarters - 1,259 finished vacant units, according to MetroStudy.

Besides euphoric investors, the lowest Florida mortgage loan rates in 40 years also spurred home buyers, accounting for up to 15 percent of the unsustainable new-home demand.

The high percentage of so-called “subprime” (bad credit) loan originations suggests that’s true: They accounted for 24 percent of all loan origination dollars in 2005, compared with a mere 9 percent in 2003.

Local mortgage rates should remain favorable throughout 2007, according to mortgage specialist Sahnger of Palm Beach Financial Network.

Continue reading this article in the Palm Beach Post by following the link: