by Staff
A strong labor market, continued low mortgage rates and a growing economy set the stage for a 7 percent increase in existing single-family home sales in Florida in May, with a total of 24,069 homes sold statewide compared to last year’s level of 22,496 homes sold, according to the Florida Association of Realtors.
“Sales of existing single-family homes across Florida are maintaining a healthy pace,” said David Scott, executive director of the Dr. Phillips Institute for the Study of American Business Activity and professor of finance at the University of Central Florida (UCF). “Such sales rates are sustainable in an expanding national economy and Florida posts some of the strongest business conditions indicators in the U.S. Florida’s labor market, for example, is one of the firmest in the country.”
The Jacksonville area remained strong with a 9 percent increase in sales and a 12 percent boost in median price. Ray Rodriguez of the Real Estate Strategy Center of North Florida said the market continues to flourish locally and statewide thanks to low interest rates.
“It will continue as long as the rates stay where they are,” said Rodriguez. “The feds raising the short-term interest rates has no bearing on the real estate rates.”
The statewide median sales price climbed 27 percent to $230,800; a year ago, it was $181,900. In May 2000, the statewide median sales price was $115,100 — a dramatic increase of about 100 percent over the five-year period, according to FAR records. In comparison, in California, the statewide median resales price in April was $509,230; in Maryland, it was $275,846; in New York, it was $242,000.
Keeping in mind the history of interest rates and mortgage rates, Scott took a look at their impact on median sales prices in the state.
“The acceleration in median sales prices (both for the May comparison and for the 2005 year) of approximately 27 percent is not sustainable,” he said. “Such price increases are being driven by a once-in-a-lifetime low interest rate environment and opportunity. Thus, this is more of an ‘interest rate bubble’ than a ‘housing bubble.’ Most investors and consumers do not have a long-term perspective on the behavior of interest rates.
“But for comparison purposes, back in October 1981, conventional mortgage rates hit 18.45 percent compared to the rates of today, which are in the vicinity of 5.63 percent. In addition, at that same time in 1981, inflation at the consumer level was in the vicinity of 10.3 percent compared to the most-recent observation of 2.8 percent. The key point is that observed inflation and expected inflation rates drive long-term interest rates. It is, therefore, interest rate changes in the final analysis that will help determine the robustness of the Florida and national housing markets,” said Scott.
Rodriguez attributes the increase in single and multi-family sales to the trend of converting two, four and even eight-unit apartments into condominiums.
“The same people living in the apartments are buying the condos thanks to the low rates,” said Rodriguez, adding that trend is what inflates the number of new single and multi-family sales. “They are bringing them in at affordable housing rates.”
While this trend is good for the ownership market, the rental market is another story. If this conversion rate continues for a few more years and interest rates begin to inch back toward double digits, Rodriguez believes the rental market will be in dire straits.
“The rental market is hurting big time. The conversions are taking inventory off the market,” he said. “If I was a real estate investor, I’d get my hands on as many multi-family units as possible.”
According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage was 5.72 percent last month, down from 6.27 percent in May 2004. 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 Tampa-St. Petersburg-Clearwater metropolitan statistical area had the largest number of resales last month with 5,482 homes changing hands, a 27 percent increase over the 4,330 homes sold in May 2004. The market’s median sales price rose 25 percent to $196,100; a year ago, it was $156,800.
Other larger Florida MSAs reporting higher home sales in May include Jacksonville, where 1,671 homes sold for a 9 percent increase; and Orlando, where 3,657 homes changed hands for a 5 percent gain. The median sales price in those markets also rose last month: in Orlando, 35 percent to $218,600; and in Jacksonville, 12 percent to $181,700.
Among the smaller markets across the state, Tallahassee had a strong double-digit increase in the percentage of resales last month with 513 homes changing hands for a 34 percent jump over the 384 homes sold a year ago. The market’s median sales price increased 6 percent to $164,700; a year ago it was $155,800.
Other smaller MSAs reporting strong sales in May include Gainesville, where 461 homes sold for a 39 percent increase; and Naples, where 476 homes changed hands for a 14 percent rise. The median sales price also rose in those markets during the same period: in Naples, 34 percent to $488,900; and in Gainesville, 6 percent to $169,600.
Click here for the Florida Sales Report - May 2005