Orlando Real Estate Market

Weekly Market Update 11-02-07

Posted by Lionel Anderson at 11/2/2007 8:47 AM

The Real Estate Market Synopsis

Over Corrections in Lending Standards Will Hurt Future Real Estate Market

Orlando's real estate market is suffering and things are not going to getting better any time soon, especially with the lame property tax package offered for approval on January 29th, 2008. For instance, like any industry, we are looking at future bookings to judge the times to come. Travel agents look at booking, businesses look at orders, and hotels look at future reservations to see where things will be going in the near future. Looking at the current pending home inventory (homes under contract) for Lake, Orange, Seminole and Volusia counties and comparing them to last year, we are looking at a 38% drop. This is a serious drop in future sales. Based on these numbers, the area can expect a very tough real estate market for the next four months or more.

I applaud the Fed's decision to reduce rates by 25 basis points, however this is not going to do very much for the home buyer in the future. Increased lending standards and frozen down payment assistance programs are going to hurt the home buyer and the real estate market. I am the first one to agree that the lending standards, or lack thereof in the past, have caused much of the problems we are experiencing. But, an over correction is going to take the real estate market into a deep depression.

Here are the facts. A lot of homebuyers have credit challenges and have little to no down payment funds. Many non-profit organizations used to exist to provide seller-financed down payment assistance to many buyers who did not have any money to buy a home (some of which needed to be shut down because they were organized scams). HUD and the IRS are trying to shut down many or all of the legitimate programs which will prevent many buyers to buy homes. This move will only add to the misery.

For helpful information on down payment assistance programs, click here.

The reason that 100% finance programs were created is because of the lack of home buyer down payment funds. In addition, they are also the result of the government's push to increase home ownership. According to the online realtor magazine, some are fighting, including the case where a judge stymies ban on down payment assistance. But, the way foreclosures are hitting the market, we are going to see a ban on these programs before it's all over.

Three main problems:

1. Huge surplus inventory
2. Stricter lending standards
3. No down payment assistance programs

These three problems equal many more years of trouble for the real estate industry. Where will the buyers come from to buy off the huge inventory of homes if they cannot qualify for funds? What happens when they do not have any down payment assistance that was once available in the past to help them qualify for further funds? Because of the ultra liberal lending standards over the past five years, new measures will cause the lending pendulum to totally swing to the other side. This will cause trouble in the housing industry which will undoubtedly impact the rest of the economy.

Why your home not selling;

• Home Prices are too high
• Property taxes are too high
• Insurance is too expensive
• Lending standards are too tough
• Lack of down payment on behalf of the borrower

The question is – what will give first? Right now, we are seeing home prices tumbling. This will continue for some time to come until first time home buyers can once again afford to move into a home without getting over their head with debt ratios.

General Market Indicators

I have some great news to report in regard to the overall resale inventory. The resale inventory of unsold homes dropped by 400 homes since last week. This is great news! As well, there is a 47% drop in new construction, which will help when scarcity of supply sets in. This will get buyers to jump off the fence. However, do not get too excited, as we still have a long way to go.
Compared to last October, here are the following figures for resale volume and average home price for each of the four main counties.

Seminole County experienced a 58% drop in resale volume and a 9% drop in the average home price.

Orange County experienced a 56% drop in resale volume and a 4% drop in the average home price.

Volusia County shows a 41% drop in resale volume and an 18% drop in the average home price.

Lake County actually fared the best with only a 28% drop in resale volume and a 12% drop in the average home price.

The numbers speak for themselves. The way the industry is headed, we are not going to see a turnaround for quite a long time to come. We're talking several years away at best.