Factors Fueling Florida's Continual Price DeclineApril 1, 2010 Just when you thought home prices wouldn't go any lower, seems they're about to drop again. According to Moody's Economy.com and Fiserve, by September 2011, the average price of U.S. homes is projected to fall by another six percent. That's on top of a 3-year decline that's already seen home prices fall an average of 27 percent and more. Once again, the effects are expected to hit Florida especially hard. Foreclosures adding to the problem Fueling the decline in Florida is the huge number of foreclosures on or about to hit the market. Experts estimate the number of mortgages already in foreclosure or likely to end up there at four and a half million. All of the extra inventory will give buyers even more options and put pressure on home sellers to lower prices. Bearing the biggest brunt of Florida's anticipated price decline is Miami where prices have already dropped 47.7 percent. A further decline of 34 percent is expected before prices begin to stabilize. Fort Lauderdale and West Palm Beach aren't any better off and likely will witness price declines of 30.2 percent and 26.2 percent respectively before prices stabilize. While experts agree another price decline is impending, some differ on the reason. Another reason says some are foreclosures in the high-end market. Their theory is that buyers with cash will snap up those homes at a lower price and carry smaller mortgages. Assuming foreclosures of subprime loans have reached its peak, this theory is plausible. The volume of available condominiums is another factor fueling the decline. High rates of condo vacancies and foreclosures have made lenders fearful of the condo market. Some have even avoided buyers interested in condos. Those willing to lend are requiring down payments as high as 20- to 30-percent. Condo buyers are being advised to avoid condos that are still owned by the developer as these will have a greater risk of foreclosure if the developer declares bankruptcy. They also advise buyers to make sure there's an available reserve fund that can be tapped into for building maintenance. To reduce bankruptcy risk, lenders require that ten percent of a condo association's revenue be held in a reserve account. On the bright side Surprisingly, there's a bright side to Florida's decline. Homes are more affordable and that's driving up demand among investors and owner occupants alike. Homes remain on the market on average 10 days fewer since this time last year; however, the home buyer tax credit could be the reason for this. Even if home values continue declining, experts believe buying now makes sense since interest rates are expected to rise. Today, a $100,000 loan at 5.25% translates into monthly payments of about $525. But even though a decline in home value means a buyer only needs to borrow $80,000 in the future, at 6.5% interest the buyer who delays will end up paying a higher mortgage because of the higher interest rate. A long journey back One unique problem facing Florida is that more people are leaving the state than are moving into it. Florida will rebound, but most agree it could take a decade. Realizing this, many Floridians are opting to rent rather than purchase. But this isn't always a smart move. Renting doesn't offer tax benefits like home ownership does. And rents are on the rise because of increased demand. For some though, it's still less than paying the mortgage insurance and taxes; both of which are high in Florida. |
|
