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We at Kiplinger's Personal Finance magazine believe housing prices nationally will bottom out in 2008, but the recovery for housing markets will be slow. While lenders and loan servicers, the federal government and consumer credit counselors work out a plan to relieve some homeowners facing unaffordable rate adjustments on their subprime ARMs, home values continue to slide.
Just take a look at where we've been; consider Punta Gorda.
Low-key, low-rise and (prior to the housing boom) low-cost, Punta Gorda sits on Florida's west coast, halfway between Sarasota and Fort Myers. Residents love their slice of paradise. In Punta Gorda and neighboring Port Charlotte, owners of homes that back up to the canals built in the 1950s can dock their boat in their backyard and sail out to Charlotte Bay and on to the Gulf of Mexico.
Barb Hiebner describes gathering with friends on their boats to drink "docktails" and watch the sun set over the Gulf.
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But Punta Gorda has the dubious distinction of weathering the steepest drop in median home price for the past year -- a humbling 17%, according to Fiserv Lending Solutions, a home-price research firm in Cambridge, Mass. Until about three years ago, the home-price bubble had largely bypassed the area. You could buy a typical 2,000-square-foot home on a canal, with a swimming pool, lanai and boatlift, for less than $300,000, says Hiebner, a real estate agent.
Then Hurricane Charley struck, in August 2004. In the wake of Charley's destruction, a buying frenzy ensued, as local residents sought to replace their homes and investors and builders flocked to the area in search of opportunity. New construction, especially condos, took off. Investors began to flip homes, and prices soared.
Hiebner says that just before the downturn, that "typical" house was selling for $600,000. Then the housing meltdown swept over the area, in its own way wreaking as much havoc as the hurricane.
How We Got Here
Punta Gorda represents an extreme of boom and bust, but it's hardly unique. The same forces that sank prices there struck elsewhere around the country. In the aftermath of the crash of tech stocks in 2000, investors seeking the next big thing turned to residential real estate.
They flocked to affordable markets and bid up prices. Local home buyers joined the frenzy -- first-time buyers because they feared being priced out of the market, and move-up buyers because they wanted to cash in their rising equity and buy their dream home. Easy credit -- including loans for subprime borrowers with sketchy credit histories -- fueled the fervor. In more than 40 of the 100 biggest markets, the median mortgage payment exceeded the traditional lending guideline of 28% of household income.
During the five years that ended with the second quarter of 2007, annualized price gains in more than three-fourths of those cities exceeded the historical average -- 6.6% annually since 1968, according to the National Association of Realtors (NAR). In more than half the cities, prices grew by double digits. Miami came in first, with 18%; only Warren, Mich., near Detroit, showed negative results (-0.3%), indicative of the state's troubled economy.
In stark contrast, the NAR expects the national median home price to fall by 1.5% in 2007, the first decline nationally since it began keeping records in 1968. Sales decreased throughout the past year, while the number of homes on the market increased. According to the latest numbers, the supply of single-family homes was the largest since 1988.
The downturn accelerated last summer as the subprime credit meltdown morphed into widespread credit tightening. Many no-down-payment and exotic mortgages disappeared altogether, and interest rates on jumbo mortgages (those exceeding $417,000) rose beyond the reach of many buyers. So although buyers now had the advantage, many were prevented from reentering the market or were too spooked to commit.
In the hottest markets -- California, Nevada, Florida, and to a lesser extent Washington, D.C., and parts of the Northeast -- investors and homeowners are watching helplessly as home values fall and mortgage costs rise (ARM resets will peak this spring), and they can neither sell nor refinance. Result: Foreclosures are soaring.
POSTED BY: Michael G (July 10, 2008 02:48 PM)
The housing market has crushed our family, causing us to move from sunny Sarasota, Florida to a more affordable and job providing town such as Asheville, NC or surrounding areas. I am a Sarasota native an have seen the area grow an prosper, and now wonder what will come of this little town that has outgrown it's locals. The retirees overrule the area but do not have the sufficient work force to provide for them. Construction, housing, restaurants and most small business owners have already begun to disappear. Slowly but surely all that will be left are the ALFs and hospitals. One year ago I owned 5 rental properties, now after a recent bancruptcy, I am left searching the internet for any job available and still have not found one. One good hurricane would be the best thing that could happen to the area to bring back the jobs for the average people.(hopefully no one gets hurt)
POSTED BY: steve (December 23, 2008 10:33 AM)
the real estate market will bottom in 2010.
POSTED BY: Jay (January 01, 2009 09:56 AM)
Yuppies and California nuts, you chose where to live in paradise, now your paying for it.
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