Tuesday, May 16, 2006

Market Watch

The second-home market may be solid, but economists point to three subtle signs that the overall housing market is cooling:
• The yearly increase in mortgage interest paid by households rose to 15.8% in the first quarter-a 24-year high-from 2005's annual growth rate of 14%, indicating that borrowers are using variable rate mortgages to afford costlier housing.
• The national homeownership rate slipped from 69.1% last year to 68.5% this year. "This decline in homeownership has occurred in the face of strong rental-to-condo conversions of apartment buildings, which have expanded the supply of owner-occupied units," says Jan Hatzius, chief economist at investment firm Goldman Sachs.
• The owner-occupied vacancy rate is rising sharply. At 2.1%, the current rate is the highest on record. Hatzius believes this over-supply of homes for sale has already pushed existing home prices downward, and that home price inflation will turn negative by the end of the year.

Closer to home, there are other signs of a slowing market. Jacksonville-based St. Joe Co., reported a 76% decline in first-quarter profit, which it attributes to sagging resort residential sales. In a company statement, St. Joe says speculators are "no longer a major demand element" in the Florida real estate market, and that buyers are taking more time to shop.

David Lereah, NAR's chief economist, agrees the market is settling but says job growth and a growing economy should offset some of the effects of rising mortgage rates. His predictions for the balance of 2006: Long-term mortgage rates will climb to 7% this summer and hold steady through December; existing-home sales will drop 6.4% to 6.62 million (after reaching a record 7.08 million in 2005); the median price for all existing home types will rise 5.7% to $232,200; new home sales will decline 11.6% to 1.13 million (after reaching a record level of 1.28 million in '05); and housing starts will fall 3.7% to 1.99 million (after reaching 2.07 million in '05).

In first quarter 2006, Florida's housing sector followed the national trend, demonstrating signs of a market adjusting to rising mortgage rates, higher inventory levels, and a better balance between buyers and sellers. Sales of single-family existing homes totaled 45,864 statewide during the three-month period, a decrease of 20 percent compared to the same quarter a year ago. The statewide existing-home
median sales price rose 20 percent to reach $248,000.

Rising costs and a shortage of construction materials continue to dog the building industry in Florida and other states, leading to price increases for new homes and home remodeling projects, as well as higher rental rates for apartments and offices.

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