A View Of The Florida Real Estate Market

Nationally, December closed out the year with further indications of a budding recovery, illustrating we’ve come far from the pessimistic outlook this time last year. Soft home prices, affordable financing conditions as well as the government’s tax break targeted at the housing market have contributed to providing the much needed boost to the housing market. Solid gains in home sale activity helps to pare down inventory to a healthier level, which in turn will likely bring more stability to home prices.

The most recent Federal Reserve meeting indicated a more positive outlook about our economic condition as they pointed to plans to reel in emergency programs. Mortgage rates, which have hovered around 5 percent for most of 2009, are starting to climb again. Economists expect these unprecedented rates to go back up as Fed’s program to purchase mortgage-backed securities expires in March and private investors are demanding higher returns.

According to Nar 2009 President Charles McMillan, “Even with price declines in recent years, the typical home seller saw their equity increase 27 percent.” NAR’s most recent Home Buyers and Sellers survey reported that 87 percent of survey respondents consider their home a good investment, and more than half see it as a better investment than stocks. This indicates that Americans still see homeownership as a source of steady long-term wealth accumulation.

South Florida has its own set of challenges to face in 2010. As the poster child for all that went wrong during the Real Estate Bubble, the effects are still being felt quite heavily in a manner that seems to defy all the positive National Statistics. According to Realtytrac, almost 1 in 4 mortgages in South Florida (23%) are at some stage of delinquency. The local court system has been overwhelmed and unable to keep up with Foreclosure filings. As a result, there are many families living in homes for 12 to 24 months without having made a single Mortgage payment. With the delinquency rate at 23% , and the Foreclosure rate closer to 6%, there is still a backlog of pain to be dealt with in the coming year. The Obama Administrations encouragement of Loan Modifications has not had anywhere near the expected effect in easing these delinquencies. According to Fortune Magazine, the South Florida market could still see a further drop in prices of up to 33% in some areas. These possible decreases are likely to be at the Luxury end of the market, with the thousands of newly constructed Luxury Condo units sitting vacant, combined with hundreds of Luxury Homes languishing on the market mostly due to the difficulty in obtaining reasonable terms for Jumbo Mortgages in the current banking climate.

The other key challenge facing South Florida is an unemployment rate in excess of 11%. It is believed that the reality is actually closer to 18% , as the Labor Bureaus numbers do not account for the tens of thousands of self employed individuals, independent contractors etc. that are unable to file for any form of unemployment benefits. These statistics also do not reflect those that have given up looking for jobs, or those that are currently “under” employed (working less than 40 hours per week).

Employment will continue to be closely watched and steps on the road to recovery will likely continue to come one-by-one. Although concerns remain, many experts are hopeful of a brighter year in 2010.

Existing Home Sales – Up 44% from last year

• Existing home sales surged a record-breaking 44 percent from a year ago, the highest annual gain since NAR started tracking the data in 1999. The strong gain can be attributed to first-time buyers who accounted for 51 percent of all home sales, the highest on record dating back to 1981, as they rushed to beat the deadline for the first-time buyer tax credit that was due to expire November 30. The previous high was 44 percent in 1991. Sales activity is at the highest level since February 2007 when it reached 6.55 million.

Inventory – Lowest level in almost 3 years

• The supply of homes is now at the lowest level in almost three years. The supply of existing homes for sale at the end of November declined 1.3 percent to 3.52 million, representing a 6.5-month supply at the current sales pace, down from a seven-month supply in October. Generally, a six-month supply is considered balanced. Compared to a year ago, there are now 15 percent fewer homes on the market.

Mortgage Rates – Inching Up

• Mortgage rates have begun to inch back up as government support runs its course and interest rates rise. On December 24, the average 30-year fixed-rate mortgage was 5.05 percent, the first time it has gone above 5 percent since the end of October. According to Amy Crews Cutts, deputy chief economist at Freddie Mac, “Extraordinary resources have been put into keeping the rates down and supporting the mortgage market, and it’s hard to imagine that the rates can go much lower than they are.”

Affordability – Best since 1970s

• Affordability continues to be at a record level thanks to unprecedented interest rates, low home prices, as well as the first-time buyer tax credit. This past year, the home price-to-income ratio has fallen well below the historical average of 25 percent. The ratio now stands at 15 percent.