In a recent housing market report, Goldman Sachs economist Jan
Hatzius referred to Florida as the 'Epicenter of the U.S. Housing
Bust'. Taking a look at the way home sales have slowed, prices have
tumbled and foreclosures have risen in the state, Hatzius' assessment
seems to be right on.
Home Sales
Florida
now has the largest glut of inventory of any housing market in the
country. The backlog is unprecedented, with some areas of the
state-like Miami-flooded with a 30-month supply of unsold inventory.
According
to the University of Florida, the state's housing market has gotten
worse rather than better since the turn of 2007. Existing homes are
selling at the slowest pace seen in years, and new home sales are
faring even worse.
Some of the sales slowdown,
particularly in the new home market, is being attributed to tightening
lending standards, but in actuality, Florida had these problems long
before the subprime meltdown began.
The real trouble
seems to originate from sellers who aren't able or aren't willing to
lower asking prices so that the homes will sell.
'People
are overly optimistic about the prices they can get and have not come
to terms with the fact that we're not having these huge leaps in price
that we had in the past,' said Wayne Archer, director of UF's Bergstrom
Center for Real Estate Studies.
Home Prices
Markets
in Florida had a faster rate of appreciation than other markets across
the country during the boom years. The run-up in prices was so rapid
that it could not be sustained.
Current prices in
Florida are overvalued by 40 percent according to Hatzius' most recent
estimates, and will most likely fall until they are at sustainable
levels once again. The U.S. Market Risk Index released earlier in the
week by PMI Mortgage Insurance Company ranks Florida as one of the
states most at risk for falling prices.
'What the
markets with the greatest risk of decline have in common is a history
of price volatility: rapidly rising rates of price appreciation above
the long-term average followed by a recent sharp slowdown in the rate
of appreciation,' Mark F. Milner, Chief Risk Officer of PMI Mortgage
Insurance Co explained. 'Markets with a history of volatility are more
likely to see price declines in the future.'
If prices
fall to the extent they are estimated to fall, things are bound to get
a lot tougher in Florida for anyone with ties to the construction and
real estate industry. Significant price depreciation could also lead to
financial devastation for some homeowners and investors.
Hatzius
warns in her report that falling prices are 'likely to cause an
outright recession' and that some businesses 'could encounter problems
for an extended period of time.'
Foreclosures
Foreclosure
activity in Florida can only be described as out of control. According
to RealtyTrac, an online marketplace for foreclosure properties,
activity increased 52 percent in May compared to the previous month and
144 percent compared to the previous May. There is now one foreclosure
filing in Florida for every 336 households.
With more
ARMS adjusting, continued turmoil in the subprime lending market, and
falling home prices, it is likely that Florida's foreclosure problems
will only get worse. |
