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The High Price of Home Sweet Home

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By Joni Williams

 

It’s back.

 

The real estate market, that is. In fact, housing demand and pricing has shot up so much since the official end of the Great Recession, some experts have quietly started using the dreaded “b” word to describe the current market. That’s right. Bubble.

 

But with all of the recent credit tightening, most notably the elimination of “liar loans”—mortgages based on stated income, requiring little to no documentation—could history really be repeating itself so quickly?

 

Well, maybe. As with last decade’s buying frenzy, small time investors are once again driving the market, causing prices to rapidly escalate. Rather than seeking a home sweet home to settle in with the family, these buyers aren’t just in the game to snatch up properties to rent out, they’re also looking for fast flips and fast profits. And that drives prices up just as fast.

 

Nationwide, flipping is now at its highest level since 2007, with Florida leading the way. Miami was tops in number of flips, followed by three other metro markets in the state. Locally, flippers have been spreading their game from prime coastal areas like Destin and Santa Rosa Beach to Crestview, Freeport and Navarre, driving up prices in areas that used to be affordable havens for home seekers on a tight budget.

 

And why does this affect you, especially if you’re a happy renter who isn’t looking to buy? Because everyone needs a home. And the market’s scurried activity is driving prices through the roof—prices that eventually get passed on to tenants as well as homebuyers.

 

According to Trulia, in 2015 the average price of a home in Fort Walton Beach rose by $15 per square foot and rent jumped nearly 10 percent. Translated, in one year, the price of a modest 1000-square-foot home rose $15,000. Likewise, the cost of an average rental unit increased from $1100 to $1200 per month.

 

Meanwhile, wages in the U.S. for 2015 increased an average of 2.4 percent, according to the Department of Labor. Sounds good, until you realize that the national average of home prices in 2016 is said to be increasing at more than double that rate per year, with some areas experiencing that much of a gain in one month.

 

Oddly enough, historically low interest rates haven’t miraculously turned renters into homeowners. In fact, home ownership in the U.S. is at its lowest level since 1965. Turns out, it’s more affluent homebuyers who are financing their homes, while those living paycheck to paycheck tend to rely on credit cards with interest rates that remain high, often in double digits. And those extra monthly payments, along with other debt, can prevent a mortgage approval.

 

Even worse, financial experts say the extended period of “artificially low” interest rates has actually fueled rapid home price increases, since buyers can qualify for greater monthly payments.  But higher prices also require higher down payments that are out of reach for many.

 

“Home prices are rising much faster than incomes, so it’s hard to save for a down payment,” explained Wells Fargo Securities’ Mark Vintner in a recent interview with Forbes. In Florida, where the dichotomy of low-paying service jobs and pricey real estate abounds, a portion of the doc stamps—a type of real estate excise tax—paid at closing is set aside for affordable housing that includes down payment assistance.

 

Unfortunately, despite a robust market fattening the coffers, politicians are fond of raiding the dedicated trust to fund other projects. For example, the Florida Senate recently proposed allocating $317 million for affordable housing, and the House $141 million. Governor Rick Scott stepped in and undercut them both at $131 million.

 

Still, despite wild price increases and talk of a frothy market, plenty of buyers continue to pursue the ultimate American dream. After months sifting through the market’s offerings of dilapidated foreclosures and short sales that would have taken “forever” to close, longtime friend of The Beachcomber Blaine Atkinson finally found his dream home.

 

Or it will be, as soon as he builds it. Right now, it’s raw land, thick with gnarly brush but promising the potential of a water view in the future.

 

After discussing the current market, he makes the case for buying, despite the  risks and high costs. “I’m happy I bought it,” he says of his future home. And for most home seekers, that’s the best return on an investment there is.

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