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Housing market remains hot

In Florida and across the nation, prices keep soaring. Will they soon be out of reach?

Published July 26, 2005

o what happens when you take an already scorching-hot product and put it on sale?

Look no further than the latest figures on existing-home sales nationwide and, especially, in the gotta-be-there Sunshine State and the Tampa Bay area.

Courtesy of lower mortgage rates that still defy Federal Reserve efforts to raise them, fast-appreciating U.S. existing-home sales reached another record in June. Nationwide, the median single-family home price was $218,600, up 14.5 percent from June 2004.

Throw condos, co-ops and townhomes into the housing mix, and median sales prices rose 14.7 percent in the past year. That's the strongest annual increase in nearly a quarter century.

In Florida, the median sales price of a single-family home soared even more, up 31 percent to $248,700 from $189,200 just a year ago. And in the Tampa-St. Petersburg-Clearwater market, the median single-family home rose 23 percent in June to $208,700 from $169,400 a year earlier.

Consider this: In June 2000, Florida's median sales price was $119,600. That means the state's median sales price has more than doubled in five short years.

Now consider this: If Florida housing prices are rising faster than the national average, the state may want to start reassessing its old reliable pitch as a cheap place in the sun to work and retire.

The latest housing sales numbers were reported Monday by the National Association of Realtors and the Florida Association of Realtors.

Among Florida's larger metro areas, Panama City recorded a stunning 50 percent annual increase in the median sales price of homes. It was the highest percentage gain in the state, with home prices reaching $243,600 in June. Tallahassee recorded the smallest percentage gain - a still impressive 11 percent - with a median sales price of $169,800.

In the elite Naples market, the median sales price narrowly missed the half-million-dollar mark in June at $491,400, up 25 percent over last year. The West Palm Beach-Boca Raton area was the only other Florida market to top $400,000 in median sales price at $406,800, up 30 percent.

Experts say housing prices are still leaping because of high demand, modest supply, the decreasing availability and therefore rising cost of land on which to build, higher construction costs and, last but not least, cheaper-than-ever mortgage rates.

In June, fixed-rate, 30-year mortgages averaged 5.58 percent, down from 6.29 percent in June 2004. That drop made such mortgages more than 10 percent cheaper this year. What a bargain.

Sprinkle in Florida's growing population, a distinctly speculative fever to real estate investing, a desire to leverage low mortgage rates before they go up and a clear lack of investor enthusiasm for the stock market.

Voila. There's a recipe for frenzied housing appreciation.

"Real estate is the topic of conversation for everyone. It's what everybody wants to do," Steve Athanassie, financial planner with Trademark Capital Management in New Port Richey, recently told St. Petersburg Times staff writer Helen Huntley. "People who have had no experience are doing it."

Sooner or later, something's got to give. Unless folks have found gold mines in Florida, the price of too many houses will push beyond too many people's ability to afford them.

Then what?

There are some fresh warning signs to ponder.

First, a recent analysis by Wall Street analysts at Bear Stearns says monthly mortgage payments that have been in decline for three years are starting to get bigger. That suggests the appreciation of housing prices is now outstripping the ability of ultra-low interest rates and creative mortgages to keep monthly payments from rising.

Second, in 41 of 325 metro areas nationwide, someone earning the median income was unable to afford the median (priced) home using a traditional 30-year fixed mortgage with a 20 percent down payment. That first-quarter analysis was done by the consulting firm for the Wall Street Journal .

Although most of those 41 high-priced metro areas were in California, five were in Florida. They are Sarasota, Naples, West Palm Beach, Fort Lauderdale and Miami. The median sales price in June in those five areas ranged from a low of $336,800 to $491,400.

Third, Fed chairman Alan Greenspan told Congress last week that there were signs of froth in some local housing markets where home prices seem to have risen to unsustainable levels.

Fourth, a few housing experts, such as Stuart Gabriel of the University of Southern California's Lusk Center for Real Estate, suggest the use of adjustable-rate mortgages has become so widespread that the prices of housing markets have simply inflated to reflect the added purchasing power ARMs have given home buyers.

At the University of Central Florida, finance professor David Scott predicts Florida's housing market will slowly cool rather than suffer any ugly bubble bursting.

"Eventually, rising interest rates will curtail this situation, but long-term rates are still advancing at a slow pace," he said.

Translation? Even as more home buyers stretch to buy ever more expensive homes, rising mortgage rates eventually will make more houses unaffordable. That may cool the overheated housing market.

But it may leave some new homeowners feeling strapped by an oversized mortgage and diminished prospects for something once taken for granted: ongoing housing appreciation.

--Robert Trigaux can be reached at or 727 893-8405.

[Last modified July 26, 2005, 01:18:12]

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