Sunday, September 17, 2006

Housing Prices

This article talks of the growing housing market slowdown at a national level, especially in the market for new homes. Supply exceeds demand (at current prices) and inventories of unsold homes are growing in what was up to last year a sellers market. Some say that the slowdown will affect Key West less than elsewhere, that the demand for luxury properties in popular resorts comes from people whose incomes and personal wealth enable them to pay luxury prices for second homes, and for whom the properties they buy aren't principally for investment, at least not short-term investments that they expect to pay big returns in just one to two years -- the "flippers", as they are known.

Both kinds of buyers fueled the hot real estate market here over the past few years, increasing prices for homes by multi-digit percentages. Now, with adjustable rate mortgages moving into rising mortgage rates, with a tax increase of 27% proposed in the City of Key West, and increases in County, School District, Mosquito Control District, and other taxes, and with higher insurance costs, the economics of those investments have changed. Someone not prepared to carry the burden of costs in excess of realizable income from rentals, or a morgage that can't be handled by family income, might find themselves feeding another unit into a market with plummeting prices. Scary.

Renters don't get off easy either. Rising costs are putting the pressure on landlords. Many are forced to raise rates just to be able to pay their costs of ownership, but fewer renters are able to pay the higher rents (increasing supply and reducing demand again).

Prices aren't falling any where near as fast as they grew, but any supply increase has to pressure prices to fall (it's the law). It's a different market now than it was. The result? I wish I knew. It would render our own decision-making much easier.

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