Orlando Real Estate

Home Affordability in Orlando

September 23rd, 2009 9:01 AM by David W. Welch

Two factors have had a huge impact on the affordability of Orlando real estate. First, prices have dropped 36% since last year. This is a result of several changes in our market. The proliferation of short sales and bank owned properties has driven prices down in many neighborhoods. In fact, no area is immune to the effects of distressed properties. Some areas have fared better than others, but all have seen significant decreases in values. Who is buying has had a big impact on our market as well. First time home buyers and investors make up a large contingent of the market place. Consequently, lower priced properties are selling better than higher priced "move up" homes. The financing policies toward condos crushed values on condos which caused a flood of investors to swoop in and pick up units at ridiculously low prices. The first time home buyer tax credit has helped get some people off the fence about purchasing their first home. Since many of these properties are distressed sales, there is no owner looking to move up, just an empty property getting a new owner.

The other factor having a huge impact on affordability is interest rates. While prices are likely to remain at a lower level and will probably rise more slowly, interest rates can move in bigger swings. The Fed is scheduled to end a very aggressive purchase of mortgage backed securities at the end of this year. If we begin to see inflation creeping back into the picture they may have to revisit their rate policies as well. The ending of the purchase of the securities could have an immediate impact on mortgage rates, and availability of mortgage funds altogether. The Mortgage Bankers Association reported a big increase in mortgage applications this week. In that report they noted that interest rates were not at their low, but had dropped below 5% to 4.97% that is down from 6.08% a year ago. That difference saves the median home purchaser here in Orlando nearly $90 per month on their mortgage payment.

When you combine the drop in values and the lower interest rate, the median home purchaser today is paying $525 less per month on principle and interest than the median home purchaser from a year ago. They are probably paying even less than that because the drop in values has driven property tax values down too. I am estimating the tax savings is in the neighborhood of another $100 per month savings. Today's buyer is paying about half of what someone would have paid a year ago. If that is not an incentive to purchase, I don't know what is.

Orlando Real Estate, David Welch Real Estate Optimist

Posted in:General
Posted by David W. Welch on September 23rd, 2009 9:01 AM

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