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Florida’s existing home sales pace slows in January 2007
 

 Fla. – Feb. 27, 2007 – The pace for Florida’s existing home sales remained slow in January, though the inventory of homes began to drop in many markets across the state, according to the Florida Association of Realtors® (FAR). Statewide, sales of single-family existing homes totaled 9,382 last month compared to 12,906 homes sold in January 2006 for a 27 percent decrease.

Existing home sales likely will gradually rise this year and into 2008, according to the latest housing outlook from the National Association of Realtors® (NAR). “Home sales may appear weak in comparison with the record surge in 2005, but they will be sustained at historically high levels that are in line with long-term demand,” says NAR Chief Economist David Lereah. As inventory levels become more balanced over the next few months, analysts also expect to see some modest price gains.

Florida’s median sales price for existing single-family homes in January was $239,300; a year ago, it was $243,200 for a 2 percent decrease. The median is the midpoint; half the homes sold for more, half for less. In January 2002, the statewide median sales price for single-family homes was $128,900, which represents an increase of about 85.6 percent over the five-year-period, according to FAR records.

In December 2006, the national median sales price for existing single-family homes was $221,600, unchanged from the previous year, according to NAR. In California, the statewide median resales price was $567,690 in December; in Massachusetts, it was $335,000; and in Maryland, it was $304,789. 

Sales of existing condominiums in Florida also decreased last month, with a total of 3,007 condos sold statewide compared to 4,279 in January 2006 for a 30 percent decline, according to FAR. The statewide median sales price for condos last month remained stable at $209,000; a year ago, it was $212,000 for a 1 percent dip. NAR reported the national median existing condo price was $227,000 in December 2006.

Last month, interest rates for a 30-year fixed-rate mortgage averaged 6.22 percent, up slightly from the average rate of 6.15 percent in January 2006. FAR’s sales figures reflect closings, which typically occur 30 to 90 days after sales contracts are written.

Among the state’s larger markets, the Jacksonville Metropolitan Statistical Area (MSA) reported slower sales of single-family homes in January, though more existing condos changed hands. A total of 783 existing homes sold last month compared to 938 homes sold a year ago for a 17 percent decrease. The market's median sales price for homes was $185,000; it was $194,100 in January 2006 for a 5 percent decline. A total of 152 existing condos changed hands in Jacksonville last month, a 10 percent increase over the 138 condos sold the previous year. The existing condo median sales price in January was $147,600; a year ago, it was $170,000 for a 13 percent decrease.

“The Jacksonville area continues to offer some of the best values in the state for housing opportunities – what buyers can get for their dollar is a strong draw for our market,” says Hank Oltmanns, president of the Northeast Florida Association of Realtors and broker-owner of A Broker’s Choice Realty. “We’re the largest geographic city in the lower 48 states, the land prices here are better than in many other areas and we still have room to grow; all of these factors give us a depth of market variety. Plus, our strong diversified labor market and business base is a definite asset.”

Among the state’s smaller markets, the Pensacola MSA reported a total of 279 homes sold in January compared to 317 homes a year ago for a decrease of 12 percent. The existing home median sales price rose 1 percent to $159,200; a year ago, it was $158,100. A total of 27 existing condos sold in Pensacola last month compared to 43 condos the previous January for a 37 percent decline. The market’s existing condo median price rose 13 percent to $195,000; a year ago, it was $172,500.

Doug Gooch, president of the Pensacola Association of Realtors and office manager for Palm Realty of Pensacola, says people are drawn to the area's scenic beauty and more relaxed lifestyle. “We have some of the most beautiful and pristine beaches in the state," he says. “Plus, we offer buyers a variety of housing options in different price ranges to suit their budgets. It’s a great place to live, and with mortgage rates continuing to be so favorable, right now is a great time to buy.”

© 2007 FLORIDA ASSOCIATION OF REALTORS

Subprime lenders are already getting crushed, but the impact rising mortgage delinquencies will have on home prices overall is still an open question.

At a minimum, it means financing is drying up for those with less-than-perfect credit and that spells fewer home buyers.

And foreclosed properties will add supply to a housing market that already has too much.

"It's going to be a really big deal," says Dean Baker, co-director of the Center for Economic and Policy Research.

"[National] inventory is 20 percent higher than last year, vacancy rates have soared and prices are down about 3 percent," he says. "Now, with the tightening of credit, I don't see how prices don't fall another 5, 6 or 7 percent."

The tightening of credit could take as many as one million buyers out of the market, says Baker, citing Bear Stearns research. "Even if you cut that in half, say to 400,000 or 500,000, that's huge."

Mark Zandi, chief economist for Moody's Economy.com, is also concerned. "I think the subprime problems will take housing activity to a whole other level," he says.

Zandi is projecting a doubling of subprime defaults this year to 800,000. "Those homes will go on the market at a discount and will weigh on the market," he says. He also believes that 500,000 fewer Americans will be able to obtain financing because of the tighter standards.

All that has led Zandi to alter his projection of a 3 percent decline in housing prices this year to a mid-single digit decline. The hardest hit areas, which he thinks will be Arizona, Nevada, parts of California and Florida, will absorb high single digit or even double-digit punches.

Not everyone paints as bleak a picture. "We don't know how many subprime mortgage holders will actually default," says Christopher Mayer, an economist at Columbia University. "Banks are working with borrowers [so they can keep their homes]. Plus, there's plenty of liquidity around for people looking for mortgage loans."

That's not to say he sees everything as hunkey-dorey. Mayer thinks values in speculative markets had gotten way ahead of fundamentals and that weak local economies in the Midwest will depress values there.

The extent of the subprime delinquency problem is disputed. According to a report from the Center for Responsible Lending (CRL), about 1 in 5 of the subprime loans written in the past two years will go into default, costing 1.1 million their homes and unleashing a flood of foreclosed homes on the market.

But Doug Duncan, chief economist of the Mortgage Bankers Association, thinks CRL is overly pessimistic, noting that defaults for subprime mortgages have never exceeded 10 percent in any given year.

And he argues that most of the loans written before mid-2005 are unlikely to fail because they are already out of the danger zone - they've either reset with their borrowers continuing to pay them off or the increased housing values that accompanied the boom have boosted home equity enough so that owners have comfortable cushions.

More significant than defaults may be the impact of credit tightening.

"Banks have become much more cautious. Lenders are tightening, not just subprimes, but Alt-As (not quite prime) loans and primes as well," says Ellen Bitton, founder of the Park Avenue Mortgage Group.

Lawrence Yun, an economist with the National Association of Realtors, which tends to have an optimistic view of home markets, is projecting the number of potential homebuyers unable to obtain financing because of the subprime crisis will average about 20,000 a quarter.

Defaults, he believes, will come to perhaps one-half of one percent of mortgage holders, perhaps 200,000 homeowners. NAR's position is that the impact on prices will be only slight.

"Unlike the last housing crisis in the early 1990s, the economy is very sound; people are getting jobs, not losing jobs," says Yun.

Baker, perhaps the most pessimistic of the prognosticators (he is someone who sold his Washington, D.C. home a couple of years ago in anticipation of it falling in value), saves most of his concern for the markets that had the most speculation - Las Vegas, Arizona and parts of Florida. Meanwhile New York, Boston, and coastal California, and even D.C. should hold up OK, he

Myth vs. Truth

Myth:

Increasing the state sales tax by 2.5 cents to 8.5 cents will make Florida the highest sales tax state in the nation.

Truth:

Comparing only sales taxes doesn’t provide a full picture of the tax burden.

Under the proposed Constitutional Amendment, Florida would be the first and only state in the nation to have NO income tax and NO property tax on homestead homes.

The chart below compares Florida taxes under the proposed Constitutional Amendment to other states.

Myth:

The proposal hurts the poorest Floridians because the sales tax is regressive.  They will not be able to afford to live with an increase in sales tax.

Truth:

The plan protects poorer Floridians by maintaining current sales tax exemptions. Floridians do not pay sales tax on basic needs such as food, rent, prescription drugs, transit costs and eyeglasses.  The plan doesn’t change that. 

Additionally, eliminating the property taxes provides much needed relief to low-income and fixed-income Florida homeowners.  It may also allow many Floridians who rent to finally afford a home.

Myth:

Increases in the sales tax will hurt small businesses because people will buy less.

Truth:

Under the Constitutional Amendment, small business owners will have a direct benefit to their bottom line from the rollback in tax rates for commercial properties.

By not having to pay property taxes, Floridians will have more money to spend or invest back into our economy. The average Floridian will have $2300 more disposable income under the plan.

Myth:

The sales tax/property tax swap will hurt Florida’s tourism industry. A high sales tax will drive away our visitors.

Truth:

Tourists do not typically plan a vacation based on the taxes of their vacation destination. If they did, places such as New York City (8.38% sales tax), Los Angeles (8.25% sales tax), or Las Vegas (7.75% sales tax) would not top the list of vacation spots.

Florida will continue to be a leading vacation destination because of what we offer: white sand beaches, wonderful weather, incredible family vacation resorts, and dynamic sites and attractions.

Myth:

Floridians get to deduct property taxes on their federal income tax. It’s not worth it to lose this tax benefit.

Truth:

It’s not a wise policy to keep taxes high in order to gain a future, smaller, federal tax benefit.

Congress has allowed citizens in states with no income tax, such as Florida, to claim a sales tax deduction on personal income tax. Florida’s congressional delegation needs to work to maintain this valuable deduction.

Myth:

Renters will be hurt because they don’t pay property taxes.

Truth:

Renters will benefit under the tax relief plan. Property taxes are passed onto the renter in their rent payments. Lower taxes and lower tax rates on apartment buildings and other businesses will reduce rents and keep rental housing affordable.

Home ownership may now also be in reach to many renters who previously could not afford a home. Many families qualify for a mortgage, but they cannot afford the property tax burden on top of it. This plan will expand the American Dream of home ownership to many renters who never thought it would be possible.

Myth:

County governments rely on property taxes. Under this amendment, counties will be forced to cut necessary services, such as law enforcement and water and sewer services.

Truth:

When the average Floridian faces a tight budget, they cut back on luxury items first. Local governments should do the same. Instead, they scare citizens with threats that tax cuts will force cuts in necessities like law enforcement and infrastructure.

Government should not grow beyond people’s ability to pay for it. Yet, that is exactly what has happened during the last few years. County and municipal governments have grown 99 percent in the last six years while personal income grew by an average of 44 percent. While property values were soaring, local government coffers grew exponentially.

Government should work to support Floridians, not Floridians working to support government. Under the plan, local governments would have to tighten their belts. However, if there is a compelling need, they will still have the ability to override the tax cap with a unanimous vote of the local governing board.

This means that local governments will be able to grow – they will just have to be transparent about that growth. They won’t be able to hide huge budget increases through normal growth in property values.

Experience shows that when more money is in the pockets of the people and not the government, Florida’s economy grows stronger – which in turn provides necessary revenue to sustain local government.