Are we just now scratching the surface of the real estate bubble in the Southwest Florida housing market and the nation as a whole?

There’s no way to know for sure, but an editorial in the Naples Sun-Times certainly voices that view. According to the Census Bureau, in the final three months of 2006 there were about 2.1 million vacant homes for sale in the United States. The vacancy rate now stands at 2.7 percent nationally, the highest level since the Bureau began tracking it four decades ago.

Before 2006, the number had never risen above 2.0 percent. The rate by region: Northeast, 2.0 percent; the West, 2.4 percent; the Midwest, 2.9 percent, and the South, 3.0 percent.

The vacancy rate does have some flaws: it may include seasonal homes, newly constructed homes awaiting occupants and homes abandoned during the 2005 hurricane seasons.

But some experts primarily blame speculators for pushing the rate up (which undoubtedly accounts for the highest figure being in the South, the site of a condo-building and “flipping” frenzy in the past three years, especially in South Florida).

Speculators who are stuck with vacant properties they can’t unload (or get rents that will cover their Florida home loans, taxes, insurance and maintenance costs) may have to cut prices drastically, and even sell at a loss. Unlike people who live in houses, speculators who sell in a down market rarely buy another one.

Some people argue that the market in Southwest Florida is only catching its breath. Soon, millions of retiring baby boomers will be moving down here, buying condos and houses and firming up the market.

There’s a major flaw with that theory. Many of those boomers have already bought down here, using a low-interest Florida home equity loan. They, and the first-time buyers of retirement homes in Florida, will have to sell their houses before they move, and that might not be that easy in a weak market.

Moreover, the recent housing boom, which saw prices double in some urban areas since 2000, was fueled by historically low mortgage rates. What happens if those Florida mortgage rates start heading up? Many people with adjustable mortgages will be in trouble, and new buyers may be priced out.

Finally, Southwest Florida is beginning to give people reasons not to move here, something we don’t need in a slow housing market. Environmental and traffic problems are metastasizing. Why would anyone want to make an offer in an area where it takes an hour to drive 10 miles to get to a polluted beach?

They can get that at home, after all.

Which brings up an interesting possibility. There is nothing officials can do about speculators or the glut of inventory or the national economy. But they can fight to keep Southwest Florida desirable. At least something good can come out of the bursting of the housing bubble in that respect.

The residential real estate market last month saw a significant drop in sales, while median prices, Florida mortgage rates and the inventory of homes for sale all went up, the Orlando Regional Realtor Association reported Friday.

In January, 31.5 percent fewer homes sold than in the same month last year. That figure is probably related to this one: the median price rose by 3.6 percent (to $249,700), while interest rates edged up to 5.9 percent.

The supply of Orlando homes, meanwhile, rose by 1,729 homes in January to total 21,266 - a 16.1-month supply. Single-family homes represented the largest portion of homes on the market through the local multiple listing service, with 15,770, a 7.6-percent increase since December.

Next was condominiums, which increased 12.7 percent since December to 3,648. Duplexes, town homes and villas accounted for 1,848 of the inventory, a 12.1-percent jump.

Condo sales dropped 47 percent to 219 in January, and many unsold units in condo conversions are expected to go back on the rental market. About 17.8 percent of condos sold last month ranged $140,000 to $160,000. Sales of duplexes, townhomes and villas, meanwhile, dropped 32 percent last month to 101 and 28.7 percent of those sold ranged in price from $200,000 to $250,000.

In the Orlando metropolitan statistical area, consisting of Lake, Orange, Osceola and Seminole counties, 1,586 homes sold last month, down 34.5 percent when compared with January 2006. Florida mortgage demand was lacking in the face of increased prices.

Although the numbers are down, consumers should look at this as an opportunity to take advantage of a buyer’s market, which historically hasn’t lasted long in the Central Florida housing market, Randy Martin, ORRA president, says in a statement. Economists expect inventory levels to begin receding to normal levels as early as May, Martin says.

Trying to get a read on how much the Florida housing market is slumping? You may be looking at the wrong indicator.

As the National Association of Realtors (NAR) tracks sales of both single-family homes and condos, the prices of Florida condos may be more relevant to market direction than the prices of houses.

In the third quarter of 2005, NAR stats for single-family homes show that prices fell 1.2 percent from a year earlier, with 30 percent of markets showing declines.

Latest home prices

Condo prices not only dropped more steeply, 2.1 percent, but 46 percent of markets showed declines.

Which gives a truer picture? Adam Koval, a former investment banker who now runs SocketSite.com, which covers San Francisco’s real estate market, insists condos are the way to go.

“Look at the same building six or eight months after the first sales were made,” he says. “The prices then will be a pretty good indicator of what’s going on.”

The reason: It’s an apples-to-apples comparison. With condos, there’s, “no adding floor space or big improvements,” says Koval. If you see a price change, it’s usually pure appreciation - or depreciation.

Contrast that with single-family house stats.

NAR prices, for example, do not account for the differences - especially the improvements - in homes. New houses, for example, have grown much larger, to an average of about 2,400 square feet from 1,500 in 1970.

To be more accurate, you’d have to see what the same houses sell for at different times, in order to determine South Florida housing prices accurately. An index constructed by the Office of Federal Housing Enterprise Oversight (OFHEO) index does compare same-home sales, but it doesn’t account for investment in that home, such as a big remodeling project.

Other shortcomings: The OFHEO data doesn’t do a good job capturing luxury home sales, because they track only transactions with conforming Florida home loans, which are limited to $417,000 for most of the nation. And it does capture values listed in refinancings, which are based only on appraisals.

Why condo prices are so useful

Chief economist for the Mortgage Bankers Association, Doug Duncan, says there are several reasons why condo prices are more accurate.

“A smaller percentage of people who own condos occupy them; many are bought as second homes and for investment purposes,” he says. “There’s less friction in that market; it’s more liquid.”

More condo sellers react to market changes and act quicker than owners of single family homes, who tend to hang onto property in the face of lower prices.

Single-family house owners act like buy-and-hold value stock investors, riding out market peaks and valleys. They sell when they go through a life change - raising a family, retiring or moving for a new job, for example. Otherwise, they remain in place for the duration of their Florida mortgage.

Condo owners act more like growth stock investors, who bet on the hottest companies and trade in and out of stocks much more often, reacting to what they perceive is happening in the market.

In looking back over the historical data of when the national housing market peaked, Duncan pinpointed July 2005 as the top. He also found it was the first month in four years that condo price appreciation was less than that of existing single-family houses.

Sellers, take note. The beleaguered Broward County housing market showed slight improvement at the end of 2006, giving some hope that the worst of the area’s yearlong real estate slump might be over.

The median price of an existing home last month was $367,600, only a slight drop from the $369,000 in December 2005, the Florida Association of Realtors reports.

There were 618 sales, a 7 percent drop from 666 in December 2005.

While certainly not stellar, those figures are better than what many people had expected after sales remained slow throughout 2006 and South Florida housing prices started dropping in the summer and kept at it through the fall.

West Palm Beach housing analyst Brad Hunter sees a glimmer of hope for frustrated sellers.

“We’re not out of the woods yet. But we’re starting to see some signs of a return to equilibrium very slowly,” he said.

Mike Larson, an analyst with Weiss Research in Jupiter, isn’t as optimistic.

“Sellers shouldn’t expect sunshine and roses in 2007,” Larson said. “If you’re a buyer, I expect you’ll be in the driver’s seat, and you should negotiate like it.”

Florida mortgage loan rates are creeping up, and he expects the inventory of homes to rise as frustrated sellers who took their properties off the market late last year try again this spring.

Analysts agree that it will take months to sell all the properties on the market. Broward now has 35,362 homes and condominiums for sale, more than double the number from this time last year.

For 2006, the median price for an existing home in Broward was $367,800, up 2 percent or $6,700 from 2005’s $361,100. The median means half the homes sold for more, half for less.

Sales fell 26 percent last year, putting the county in the middle of the pack with other metro areas statewide. The Florida condo market remained uncertain as sales for the year declined sharply but prices rose.

After a five-year boom, Broward’s housing market faded last year, as short-term investors left the market. Sellers accustomed to fast deals learned they had to wait weeks or months just for someone to look at their homes and make an offer.

Sellers resorted to providing incentives such as cars, cruises, bonuses and more to buyers and their real estate agents, often to no avail. Some desperate sellers held auctions, while others inquired about swapping homes.

Sherrie Nemetz has been trying to sell her four-bedroom home for nearly a year. She finally fielded her first offer, and it was for more than $100,000 less than the $449,900 listing price.

She has reduced the asking price and switched agents.

Her next goal: trying to improve how the house shows on the Internet.

“There are just so many houses on the market. If your house isn’t marketed correctly, there’s no incentive for people to look at it,” Nemetz said.

Mike Pappas, president of Keyes, said he expects sales to pick up as buyers try to beat looming Florida home loan rate hikes.

What’s more, Florida legislators decided to pass a measure that’s expected to lower Floridians’ property insurance costs - Gov. Charlie Crist signed the bill Thursday.

“That definitely brings some stability and a calmness to the market,” Pappas said.

As the market sagged in 2006, foreclosures became a major concern.

Local residents stretched to buy homes and struggled to keep up with rising property taxes and insurance premiums, leading to a dramatic rise in home mortgage defaults.

Broward had one foreclosure for every 35 households in 2006, which ranks ninth out of the nation’s top 100 metropolitan areas, RealtyTrac reports. The county had more than 21,000 foreclosures last year, up more than 55 percent from 2005.

These figures include properties in pre-foreclosure, at which point most Florida mortgage lenders file their notice of intention to take back the property. Many homeowners resolve their debts before losing their homes.

What housing bubble?

Despite all the cries about the real estate bust, year-end median prices for both existing single-family homes did manage to rise in every part of the South Florida housing market, with the exception of a 1 percent drop in median single-family home prices in West Palm Beach-Boca Raton.

In numbers released Thursday, the Florida Association of Realtors put the single-family home median price increase at 2 percent in Fort Lauderdale, even though the number of homes sold declined 26 percent, to 8,373 homes in 2006 from 11,331 homes the year before.

In Miami, the median price rise was 7 percent, to $375,800 from $351,200, as the number of single-family homes sold fell 21 percent, to 8,692 homes from 11,016 homes.

Even with its 1 percent decline, the median home price in West Palm Beach-Boca Raton remained the highest in the region. The number of homes sold dropped 37 percent, however, largely due to Florida mortgage loan applicants hesitating to pay such prices.

“The housing market transitioned to a more sustainable balance during 2006, coming off the record-setting sales pace and price gains of the previous five years,” FAR President Nancy Riley said.

Statewide, median prices rose 6 percent, to $248,300 from $235,200. The number of homes sold dropped 28 percent, though, to 180,037 homes from 248,575 homes.
Near South Florida, the number of homes sold fell:

- 25 percent in Fort Myers-Cape Coral, as median prices fell 3 percent, to $272,300 from $281,900

- 28 percent in Fort Pierce-Port St. Lucie, as median prices were basically flat at $253,200, up from $254,000

- 41 percent in the Naples housing market, as median prices were flat at $486,500. The Naples numbers are incomplete, though. FAR said it did not have information available from the Marco Island Association of Realtors for April and November 2006, or from the Naples Area Board of Realtors and Association of Real Estate Professionals for December 2006.

- 24 percent in Punta Gorda, as median prices fell 1 percent, to $218,000 from $219,700.

Another day.

Another home price report.

Another acronym.

Or so it seems, the Palm Beach Post reports. Four major price reports have been released recently: the Office of Federal Housing Enterprise Oversight (OFHEO) House Price Index; existing-home sales reports from the Florida Association of Realtors (FAR) and the National Association of Realtors (NAR); and the S&P/Case-Shiller Composite Index.

Confusing, to say the least. The latter, which tracks 10 major cities, showed that home prices across the country grew at the slowest annual pace in more than nine years. The other three reports showed that single-family home prices are actually falling in many areas, including ours.

The NAR report rattled even diehard market bulls by recording the biggest year-over-year price decline on record. FAR’s report showed single-family home prices in Palm Beach County slipped 3 percent year over year, while Treasure Coast prices tumbled 8 percent.

Case-Shiller documented monthly price declines in seven of the 10 markets it covers - which don’t include PBC, by the way, so we generally don’t write about it. The Post tends to use reports that monitor local prices, such as those from FAR and OFHEO, to get a gauge of where Florida mortgage activity stands and estimate the future direction of home prices.

A growing number of analysts - including Thomas Lawler, principal of Lawler Economic & Housing Consulting in Vienna, Va. - are becoming disenchanted with the OFHEO index, however. The low estimation in which OFHEO is held can be attributed to what the index excludes as well as what it includes.

The OFHEO index excludes some important home sales for South Florida - luxury homes, for instance, as well as Florida home loans not securitized by Fannie Mae or Freddie Mac, which have limits of $417,000.

The index also underrepresents adjustable-rate mortgages, since Fannie’s and Freddie’s share of the ARM market is much lower than the national average. Once again, in South Florida, that’s lopping a lot of data off the top.

Despite the sluggish South Florida housing market, most Americans are confident about the future of their real estate prospects.

More than four out of five homeowners expect the value of their home to appreciate over the next five years; while nearly seven out of 10 calling it their most valuable investment, according to results from a new nationwide survey.

This is already the case in the Orlando, Jacksonville and Tampa housing market.

“The poll clearly debunks the more sensational media reports speculating on the demise of the housing market,” said David Pressly, president of the National Association of Home Builders (NAHB) and a home builder from Statesville, N.C. “It is interesting to note that other polls conducted by major news organizations have come up with similar results, indicating that despite the current housing market downturn Americans resoundingly believe that buying a home is the best investment they can ever make.”

The survey of 2,000 households, including more than 1,750 registered voters, was conducted by RT Strategies between Oct. 26-29.

The polling found that 81 percent of homeowners believe that the value of their homes will rise over the next five years. Only 13 percent felt their home would fall in value, while 4 percent expected no change and 3 percent were unsure. This should mean more and more people apply for a Florida mortgage because they feel good about the eventual return.

In addition, 69 percent of the respondents listed their home as their most valuable investment. By contrast, this was followed by 401(k) and other retirement accounts, with just 11 percent of those polled citing this as their top investment.

Looking ahead, NAHB said the housing market is poised for solid and sustained growth in the future.

“We are in the midst of an inevitable adjustment following the housing boom of 2004-2005 when housing market activity soared to unsustainable levels,” said NAHB Chief Economist David Seiders. “Housing demand should stabilize in short order, and the downward adjustment to housing production should run its course by mid-2007.

The market that emerges from this correction will display good balance between supply and demand, and move to a healthy and sustainable trend based on solid underlying fundamentals.”

As you think about a Florida mortgage loan and a new house, it’s natural to do a market comparison. What do other properties in the area in which you have interest go for? What were they recent sales prices?

Unfortunately, demands for cash back at settlement are growing more frequent and may be masking this true figure. If a seller or broker provides the incentive of cash to a buyer, it’s hard to say what the final, agreed upon price was.

Of course, giving cash back without telling the lender creates legal liabilities for the Florida mortgage broker. It behooves real estate professionals to avoid being in the middle of that situation.

”Because the market is changing right now, I think people are trying to be a little bit more creative,’’ says Jose Palma of Prudential California Realty. ‘We tell our [associates], ‘There’s a black area and a gray area.’ I tell them to stay away from the gray area.”

In some cases, properties are reappraised at higher values and the difference between the reappraised value and the asking price is given to buyers without the lender knowing about the deal.

Economists say these practices could be inflating reports of average selling prices, potentially causing harm to banks, which could take a hit if the Florida mortgage holder defaults and the home turns out to be worth less than the appraised value. The practices also could affect buyers of neighboring homes, who may be making decisions based on faulty market value.

When these practices occur, ”then the reported prices are an overstatement of the true net selling price,” says Lawrence White, deputy chairman of the economics department at the Stern School of Business at New York University. “So that very likely means that the real drop in home prices is greater than what the standard sources … have been reporting.”

The lesson for buyers? Be careful. Ask questions. Complete our FREE form atop this page and gain a greater understanding of market details.

More and more, it appears as though the confidence many Florida mortgage brokers have recently displayed is worthwhile. Those that have forecasted a quick recovery from the market slowdown are being proven correct.

David Lereah, NAR’s chief economist, said the housing market is showing signs of life and that sales may be leveling out.

“Many potential [home buyers/Florida home mortgage applicants] who have been taking a wait-and-see attitude or taking their time and being methodical in the search process are being enticed by lower home prices,” Lereah said. “Given a positive economic backdrop of lower interest rates and job creation, we expect sales activity to pick up early next year.”

Existing home sales are predicted to be fairly stable in the fourth quarter, while sales for all of 2006 are expected to drop 8.9% to 6.45 million – still the third strongest year after consecutive records in 2004 and 2005. New home sales might fall 17.3% this year to 1.06 million, the fourth highest year on record.

Housing starts in Florida and around the nation should be down 10.9% to 1.84 million in 2006.

With a recent correction in the market, the national median existing home price is likely to rise 1.6% to $223,000 for all of 2006; it’s anticipated prices will remain slightly below year-ago levels before gaining positive traction in the first quarter of 2007. The median new home price is projected to decline 0.2% to $240,500 – largely the result of builder price cuts to move unsold inventory.

NAR President Thomas M. Stevens from Vienna, Virginia, said this presents a unique opportunity for buyers and those thinking about a Florida mortgage loan.

“The supply of homes on the market is the highest we’ve seen in over 13 years, and mortgage interest rates are experiencing an unexpected decline,” said Stevens, senior vice president of NRT Inc.

“The 30-year fixed rate is hovering around 6.3 percent, and sellers in most of the country are now showing a willingness to negotiate,” said Stevens. “While this changing market is a great time to buy, it’s become increasingly important for parties on both sides of the real estate transaction process to have professional representation.”

Worried about making payments on the Florida mortgage you have now? Wondering how you’ll ever qualify for that first one? You’re not the only ones.

The go-go days for home prices are over, but Mike Pietrafesa of Nassau County, N.Y., thinks it is still tough for people to buy a new home and gain a piece of the American dream.

“There are lots and lots of houses for sale that seem as though they are priced ridiculously and they aren’t selling,” he said. “I certainly think that the old standard of having 20 percent of your house value as a down payment is really out of the window these days. I definitely think it is harder, in that respect, for first-time buyers.”

• In fact, 80 percent of Americans believe it is difficult for most first-time buyers to afford a home, according to an AP-AOL Real Estate poll.
• Many people (59 percent) believe that the situation is worse now than it was five years ago, prior to the 2001-2005 run-up in prices.

Pietrafesa, 35, recalls that he had trouble finding a home he could afford. That was eight years ago. The split-level house on the Long Island is a little small, he says, but he is staying put.

Younger adults and minorities view affordable housing more of a problem now for first-time buyers compared with five years ago than do older people and whites, the poll found.

By region, 68 percent of those in the West and 63 percent of those in the Northeast say it is more difficult for first-time buyers to afford a home than it was five years ago. Fifty-four percent took this view in the South, and 51 percent felt this way in the Midwest.

The U.S. Census Bureau reported recently that a third of U.S. homeowners with mortgage loans spent 30 percent or more of their household income last year on housing costs. Such costs, which include the mortgage payments themselves, insurance, utility bills and property taxes, are usually considered excessive if they top 30 percent of household income.

Galloping housing prices during the five-year housing boom is a big factor in this, particularly here in the Sunshine State. Rising Florida mortgage rates and incomes failing to keep up with inflation are other factors.

Nationally, median home values jumped 32 percent from 2000-2005, currently standing at $167,500. Even though home prices have cooled this year, some people think they are still too high.

“A lot of home prices are out of this world,” says Patricia Cheatham, 59, who lives between Southern Pines and Lakeview, N.C. If something happened to her mobile home, she says she would not be able to afford to buy again. “I’d probably have to find a low-income rental place,” she said.

The poll found that 46 percent of those surveyed thought the housing market in their area is overpriced. Nearly the same amount — 45 percent — believed their market was priced more or less right. Only 5 percent though their market was underpriced, with the remaining few having no opinion. We can’t say for sure, but it seems unlikely these figures would be so balanced if the poll were conducted strictly within the South Florida housing market.

People in the suburbs are more likely to view the housing market as price-inflated than those who live in cities and rural areas.

Mark Zandi, chief economist at Moody’s Economy.com, says that the future of home prices probably will depend on where you live.

A study by his company predicted that slumping prices will be concentrated in the states of California and Florida and the Northeast corridor from southern Maine to just south of Washington, D.C., as well as some parts of Nevada and Arizona. In some markets, prices may not bottom out until 2009.

“But households sitting in Dallas or Charlotte, N.C., may wonder what all this panic talk is in the housing market,” says Zandi. Those are among the markets that he believes will see price gains over the next two years.

People who are interested in buying a home in the future worry most about Florida home mortgage rates going up, with 84 percent voicing a concern to that effect. Slightly fewer — 78 percent — say they worry about paying more than the fair market value for their abode.

A staggering 65 percent of residents worry about being able to afford their Florida mortgage loan, while 62 percent fear that the home might drop in value.

A significant portion of respondents, 58 percent, worry they won’t be able too gather enough money for a down payment. House hunters can benefit by showing patience, however.

Suresh Sreerameneni, 35, says he sees some some homes for sale in his Lake St. Louis, Mo., neighborhood sitting on the market longer than they have in the past and suggested that will shift more bargaining power to would-be buyers and away from sellers.

“If I was in the market now to buy, I would be happy. But if I were trying to sell, I would be worried,” he said.