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Tampa Bay boasts no housing bubble

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Robert Trigaux’s column in today’s St. Petersburg Times (thanks again for featuring us last week) is right on the money when it comes to Tampa Bay area home and condo values. Here’s a snippet from the column:

Are we in a real estate bubble? Not here.

Market experts look for at least another year of double-digit appreciation. Most of the credit must go to mortgage rates that remain stubbornly below 6 percent – lower than the 6.5 to 7 percent range Federal Reserve chairman Alan Greenspan and his merry team of interest-rate hikers would like.

There are some red flags to watch:

* More people are speculating in real estate as an alternative to the stock market. A new National Association of Realtors study shows that nearly one in four of all homes purchased in 2004 was for investment. Another 13 percent were vacation homes.

In addition, a record 2.82-million second homes were sold in 2004, up 16.3 percent from 2003. The investment home component rose 14.4 percent to 1.8-million sales in 2004 from 1.57-million in 2003. Vacation home sales rose 19.8 percent in 2004.

The typical vacation home buyer is 55 years old and earned $71,000 in 2003. Investment property buyers had a median age of 47 and earned $85,700, the study found.

“We’ve seen a shift over the last few years with a growing number of second-home buyers purchasing primarily for investment,” NAR chief economist David Lereah says.

* Increasingly, an investment practice known as “flipping” is used to buy and sell distressed or undervalued property, often without any renovations. The boom in condominiums has accelerated this trend to the point where condos are sometimes bought and sold for profits, multiple times, even before they are built. That’s happening more often in the Tampa Bay area, a trend that has been honed to perfection in the condo-canyon-crazy scene of South Florida.

According to the San Francisco mortgage data company LoanPerformance Inc., about 8.5 percent of mortgages nationwide in the first 11 months of 2004 were taken out by people who did not plan to live in the houses themselves. That’s up from 5.8 percent in 2000.

* Waterfront property remains a high-price obsession. A recent Wall Street Journal real estate analysis of home price changes in 1,200 zip codes found that “waterfront access was the feature many of our fastest-appreciating towns shared.”

One such town mentioned in that analysis is St. Pete Beach, where housing prices (median price: $410,000) soared 22.7 percent last year and doubled in the past five years. The town, described by the Wall Street Journal as “once a sleepy retirement mecca and vacation retreat for the likes of Clarence Darrow and Al Capone,” now is awash in new condo projects with starting prices of $700,000.

* Rising interest rates are coming. Yes, mortgage rates have stubbornly refused to break the 6 percent barrier. But that day is coming. The curve ball is that houses bought by investors often are paid for with adjustable rate mortgages because ARM rates start low and investors assume they will sell their properties before rates adjust upward too much.

That makes for an interesting bet. It assumes interest rates will not rise rapidly, but that housing appreciation will. If that does not happen? According to the Mortgage Bankers Association, one third of all home mortgages are now adjustable, meaning the carrying costs of investment homes that are not selling could get expensive in a hurry.

The latest numbers from the Office of Federal Housing Enterprise Oversight show a steep slowdown in quarterly house price increases in the fourth quarter of last year, slipping to 1.69 percent from 4.79 percent in the third quarter.

The bottom line is: Don’t hold your breath waiting for a local bubble to burst. Too many darn people keep wanting to move to Florida.

The giddy appreciation days, though, are slowly nearing an end. I like the way Morgan Stanley’s chief U.S. economist Richard Berner puts it. Home prices are likely “to rust, not bust.”

There’s still room for appreciation, though, and I would not expect a slowdown this year, but within the next two to three years a slowdown in Tampa Bay area property price appreciation is definite. The question is, though, for how long? Previous price appreciation slowdowns did not last very long, even with events like September 11 causing a cease in sales for five to six months. The best thing for anyone to do who doesn’t want to pay higher prices is to buy now, as there is no bubble, and prices will likely increase in the future, not sink.

-John Mudd
“Mr. Real Estate”

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About Mr. Real Estate

  • I read Mr.Real Estate’s entries .They are fine for selling real estate, buying and for the books he adds to his column and the synopsis. The prices (for those of us who opted out of America’s insane earning/spending excesses –median price $410,000–Condos (small, unpleasant apartments with a lot of rules) $700,000 back home in dear old Tampa are beyond imagining. OK, the US is expensive but his buyers have $85000 incomes; so who cares? My objection is that I was born and bred (until I escaped at 19 to a New York college and never returned much)in Tampa. It has changed since I left in 1966 but it hasn’t gotten any better. It is still provincial, totally uncultured to the point of anti-cultured, reactionary, and incredibly, palpably racist. We visited for a time on the way to Mexico in 1998 to visit my mother (also born in Tampa) and the racism could be felt. When we rented a car we were told not to leave ours in their fenced and locked parking lot or “They will get it!” “Who”, I asked “are they?” “Them” I was told, so now you know. Ybor City, where I was born (a Cuban/Jewish barrio with a lot of charm) could have been another Bourbon Street. Instead the powers that be bulldozed it into rubble and abandoned lots, running the art galleries that tried to gentrify it, out.
    I have to go every six months to Miami (Tampa hospitals being what they are) for cardiac treatment. It, too, is expensive and waterfront property is way over my head ( we live on the shore of Laguna Bacalar, MX) but it is a dynamic, multi-lingual, multi-cultural city that is building a huge new performing arts center rather than Tampa’s 2 baseball, 2 football stadiums and a theme park. Want to invest in the Sunshine State? Check out Miami.

  • I apologize for my rant. Not about Tampa but I do not want to cast aspersions of any kind on Mr. Real Estate who writes well and clearly and presents real estate alternatives and books on this important decision in a clear, concise, understandable fashion. He shows great marketing skills in using his writing to offer a service to buyers. The rant was personal about my years there; but not about this gentleman.

  • I cover RE bubble at my blog, thehousingbubble