Originally Posted by Arniev
BTW, how did that "real estate" hunt go? Heard property prices are going up faster than weeds in your area.
Real estate prices have soared beyond the means of most mortals in South Florida, but this is true for many other parts of the country as well. In recent months, some air has begun to escape from the bubble and sellers are coming down, ever-so-slightly, off their ambitious (ridiculous) asking prices.
There are a number of compounding scenarios that should ultimately lead to a further reduction in home prices. I've kept close tabs on this for awhile and I'm fortunate to have access to statistics that aren't readily available to most.
Here's a few... 1. Inventory.
"RMLSFL" is the multiple listing service for Palm Beach, Martin & St. Lucie counties. This is not only a computerized MLS service, it also offers amazing statistics... stats that most Realtors don't want buyers to see.
In September 2004, this area reached the lowest recorded number of homes for sale in years. The number of active listings were approx. 18,000 for this tri-county area (note: this service also includes a few listings in Broward & Dade counties too, but a relatively small number, as these counties have their own MLS service). Sept. '04 was a time when you had to stand in line to see an Open House and sellers had multiple contracts within days.
Over the course of the following 10 months, the number of active listings doubled to approx. 34,000. Beginning in July/August of 2005, the number of listings began rising as home sales began to slow. Over the course of the past 7-8 months, the number of active listings has soared to over 86,000. Essentially, we have quadrupled the inventory... and there are very few buyers to be found. 2. Insurance.
Several leading insurance companies have pulled out of Florida. Yesterday, the news reported another major insurer, who covers 140,000+ homes statewide, is canceling all policies. Most property owners, especially near the coastal areas, have been forced to take insurance through the state-run Citizens Insurance program, which is costly. Over the past few months, Citizens has doubled (and in some cases tripled) premiums because the company is nearly bankrupt. Insurance is not only becoming hard to get, it is very expensive. 3. Rising Interest Rates.
This will have a compounding effect on home values. It is estimated that 50% of Florida is held on spec. A good majority of this number are condos, which are DRASTICALLY over-priced. In many cases, investors (flippers) have used no interest, adjustable, or negative amortizing loans to acquire properties. As rates rise, values will decrease, and consumer purchasing power will be reduced. It is likely we will reach a point where sellers will begin to bail-out at any cost. 4. The Float.
There are a large number of adjustable rate mortgages reaching maturity this year. These mortgages will need to roll-over to fixed, fully amortizing loans. The payments will be much more expensive. For investors who have not been able to sell property, this will be an added strain. For those that occupy properties... the same. 5. 2006 Hurricane Season.
There's no crystal ball, but it's a pretty good bet the National Weather Service knows a little more about cycles and trends than the rest of us. As we all know, they are forecasting more storms, with increased strength over the next 10 years. If Florida gets hit again this year, a few people that thought 2004-2005 was a fluke... might become better convinced and head for the hills. This will add to the selling pressure, which will ultimately lead to a further weakening in home prices. 6. Personal Finance.
Credit card companies began doubling minimum monthly payments in 2006. Also, bankruptcy laws were recently re-vamped and this is no longer an option. With personal debt at record levels, it is probable this will effect home values too. There are many homeowners who have cashed out home equity, many that have purchased with little down and worst of all... loose lending practices by banks over the past few years. There's a ton of home owners with shaky credit.
I'm not trying to paint a gloom & doom scenario. It is time to return to some sense of normalcy (is that a word?). Quite simply, the pendulum has begun to swing in the opposing direction... and hopefully balance will follow.