By Linda Rawls
Palm Beach Post Staff Writer
Wednesday, September 06, 2006
Palm Beach County home-price growth slowed in the second quarter compared with last year in the steepest three-month decline
on record, according to a government report released Tuesday that shows the housing slump deepening.
Prices for single-family homes in Palm Beach County rose a record-low 1.27 percent during the second quarter, dramatically
down from 8.1 percent for the same period last year, said Andrew Leventis, an economist with the Office of Federal Housing
Enterprise Oversight, which released the report.
That decline is believed to be the biggest drop since the office began reporting home-price appreciation in 1975, Leventis
said. "That's a dramatic drop in your neck of the woods," he said.
The report, released by the agency that oversees mortgage giants Fannie Mae and Freddie Mac, is based on repeat sales
and refinancings of single-family homes. That means it tracks actual values placed on homes by lenders rather than using surveys
and other techniques also used to evaluate the real estate marketplace.
Palm Beach County's one-year home-price growth - 20.57 percent - ranks 22nd out of 275 metropolitan areas, the federal
report said. The county's five-year home-price growth of 138.39 percent puts it among only a handful of areas with triple-digit
increases for that period.
Although on its face that sounds like good news, it's offset by a dramatic drop in the number of homes sold year over
year and a huge expansion in inventory. The number of homes for sale in Palm Beach County rose to 22,206 in July from 7,701
in July 2005, according to a local real estate firm's review of the Multiple Listing Service.
"Higher interest rates and greater inventory levels are apparently having a significant impact, with the largest
effects being felt in areas that have recently experienced the greatest appreciation," the housing enterprise oversight
office report states.
Indeed, the report singles out Arizona and Florida - states with the greatest appreciation for the past two years - to
illustrate the old saw that the higher they rise, the harder they fall.
"While both states saw tremendous overall appreciation, a steady price deceleration has been under way since the
spring of 2005," the report says.
The OFHEO Housing Price Index analyzes more than 31 million repeat transactions since 1975 in the combined database of
Freddie Mac and Fannie Mae. For 2006, the maximum allowed mortgage for those government-chartered institutions is $417,000,
so the index excludes sales with mortgages for more than that amount.
There is another important aspect of Fannie Mae and Freddie Mac that suggest the results shown in the Palm Beach County
report, in particular, should be evaluated with caution, an analyst said Tuesday. "Fannie and Freddie," as they're
known in the mortgage industry, have low shares of adjustable-rate mortgages, the analyst said, but Palm Beach County's share
of adjustable-rate mortgages is high.
"The last estimate I saw was about 57 percent for purchase loans," said James Lawler of Vienna, Va.-based Lawler
Economic and Consulting. "The OFHEO index for your area would contain very few observations."
Nationwide, home-price growth in the second quarter also slowed from a year earlier by the sharpest decline on record,
the report shows. Single-family-home prices nationwide rose 1.17 percent in the second quarter, down from 3.65 percent in
the second-quarter of last year.
"That's a very high drop, the highest since we started keeping records," said Leventis of the OFHEO.
Annual appreciation rates in the single digits are on the horizon, the report suggests - something Florida and Palm Beach
County haven't seen since at least the start of the five-year housing boom. Analysts say a return to single-digit appreciation
rates is healthy.
For the past 50 years, U.S. home prices have risen an average of 5 percent a year, according to Freddie Mac, the No. 2
U.S. mortgage buyer. This year, home prices are expected to rise 3.2 percent, nearly 75 percent less than last year's 12 percent
rate, according to Fannie Mae, the largest U.S. mortgage buyer.
No matter how healthy single-digit appreciation might be, the OFHEO report adds further weight to recent reports of a
Second-quarter existing home sales plunged 36 percent in Palm Beach County, 27 percent in Florida and 7 percent nationwide,
Realtor associations reported last month. Median prices of existing homes in the second quarter rose only 1 percent in Palm
Beach County, 9 percent in Florida and 4 percent nationwide, the associations also reported.
Meanwhile, contracts to buy existing homes plunged in July more than any month since the terrorist attacks, the National
Association of Realtors reported last week, while new-home sales plummeted 22 percent over the previous year, the U.S. Department
of Housing and Urban Development said last month. New-home prices rose a mere 0.4 percent.
Finally, home-builder confidence fell in August to its lowest level since 1991.
Bloomberg News contributed to this story.
Daily Real Estate News
September 13, 2006
Home Prices to Keep Falling in '06, NAR Says
Home prices are expected to continue on a modest decline for the remainder of the year the seller's market transitions
to a buyer's market, the NATIONAL ASSOCIATION OF REALTORSŪ testified today at a Senate committee hearing.
Yet, contrary to some news reports, there is no housing bubble, and the slowdown is actually a good thing for many local
economies, NAR president Thomas M. Stevens said at the hearing, titled "The Housing Bubble and Its Implications for the
"After five years of outstanding growth, the housing market is undergoing a period of adjustment and becoming more
and more of a balanced market between buyers and sellers," he said.
Many Local Markets Still Going Strong
Even with falling demand and increased supply, home prices are still appreciating although at no where near the double-digit
rates of the past few years. "While recent developments raise concern, it is important to remember that the housing market
varies significantly across the country," Stevens said.
One-third of the country (by population) is still seeing rising home prices, including Alaska, New Mexico, Vermont, and
many states in the South, excluding Florida. States that experienced the greatest increases in home prices in recent years
are experiencing significantly lower sales. These states include Arizona, California, Florida, Nevada, and Virginia.
Also contributing to the cooling housing market is a nearly one-point increase in mortgage rates, speculative investors
pulling back, and first-time buyers being priced out of the market.
"Pressure is being felt in the housing market due to rising mortgage rates," Stevens said. "Home buyers
have become exhausted financially, which explains why sales have tumbled in higher-priced regions of the country."
Sales to Fall 8% This Year
NAR forecasts a drop in home sales of around 8 percent in 2006, followed by another 2 percent decline in 2007. The forecast
takes into account stabilizing mortgage rates and a modest economic expansion. However, a significant shift in interest rates
or a change in the economy would alter the forecast.
Slow home-price growth — of less than 3 percent in 2006 and 2007, also is predicted.
NAR notes that a soft landing is possible under the right circumstances and affordable mortgage financing is an important
component in achieving this.
"Because the housing market strongly supports the economy and drives consumer spending, it is imperative that the
Congress adopt policies that encourage home ownership and make purchasing a home obtainable for the millions of families who
desire to own a home," Stevens said. "NAR stands ready to work with Congress to continue to open the door to the
American dream of home ownership."