Housing experts concerned about real estate investors selling out

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Housing experts concerned about real estate investors selling out

By Jack Snyder
Orlando Sentinel

January 12, 2006

ORLANDO � The nation's housing markets should remain quite healthy this year, if a bit off last year's record-setting pace -- depending on how investors and speculators behave in coming months, experts in Orlando said Wednesday.

A trio of economists at the International Builders Show warned that, if investors who have flooded the U.S. market in recent years begin selling off their properties as appreciation rates decline or investments such as stocks become more attractive, it could lead to problems in certain parts of the country.

Those markets where investment and speculation have been strongest -- such as West Palm Beach -- could see their for-sale inventory mushroom, the economists said.

"I call it the hidden supply or inventory," said David Seiders, chief economist for the National Association of Home Builders, the sponsor of this week's giant trade show at the Orange County Convention Center. "It remains to be seen how big a deal this [investor inventory] is, but that's the big question for housing this year."

Nationally, about 20 percent of new and existing homes sold last year were snapped up by investors and second-home or resort-home buyers, according to studies of mortgage data.

However, that estimate excludes investor-owned homes that were bought with cash -- and that part of the market is hard to measure, the economists said.

In hot housing markets such as West Palm Beach, 31 percent to 39 percent of the homes sold last year are thought to have been bought by investors or vacationers.

Other hot markets rife with investor/second-home sales last year: Orlando; Las Vegas; San Francisco; Phoenix; Tucson, Ariz.; Honolulu; and Monterey, Calif.

Florida also has three markets in which sales to investors or second-home owners comprised 25 percent to 30 percent of all sales: Miami, Tampa-St. Petersburg and Jacksonville.

David Berson, chief economist for Fannie Mae, a national mortgage buyer, said "unprecedented investor strength" played a big part in boosting home sales in 2005 to a fifth-consecutive record year.

And no one is sure if investors' ardor for housing will cool this year, Berson said.

Builders and real estate agents in South Florida say the market is already cooling. Year-over-year sales were down for much of 2005, and homes were staying on the market longer, giving buyers more leverage.

Nationwide, the foundation for a healthy housing market appears to be in place this year, thanks to low inflation, moderate interest rates and strong job creation, the economists noted. But a double-digit growth rate in prices -- the big draw for investors the past two years -- isn't likely to reoccur in most markets this year, they added.

Seiders, Berson and Frank Nothaft, chief economist for Freddie Mac, another national mortgage buyer, expect 30-year mortgage rates to stay below 7 percent this year, having finally broached the 6 percent level in 2005. Berson and Nothaft project average rates of less than 6.5 percent this year, while Seiders anticipates slightly higher long-term loan rates.

All three economists predicted that the percentage increase in home prices this year would drop to single-digit levels, compared with a nationwide average of 12 percent last year.

Seiders said the market needs to correct itself.

"It's healthy," Seiders said. "We do need to have that happen -- gracefully, though. Affordability problems are glaring in the hottest areas. We've reached the point where something's really got to give."