Despite the fact that Boca Raton home prices have risen close to 30% since last year, the median price of homes in the area has declined. Back in April it had climbed to $265,000 but by this month it had fallen to $249,000.
However, this does not signal a decline in demand. Because median price means that half of the Boca home prices are above and half are below a certain number, this simply means that more lower priced homes have come onto the market.
Because prices have risen meteorically over the last year, larger numbers of Boca Raton homeowners who were underwater are suddenly surfacing. The prices of many of those homes have now become high enough to allow them to sell without having to bring extra money the closing table.
The result is that inventory is easing slightly, but still not enough for prices to slide. However, there are indicators that by January we may see a leveling-off or even a very slight decline in Boca Raton home prices, rather than a continuing increase.
Higher mortgage rates may lower housing demand.
According to the Mortgage Bankers Association, applications for home loans have declined for 9 out of the past 10 weeks because of minor rate increases. This makes economic sense. Consider that the low rate of 3.5% on a $200,000 loan costs a Boca homeowner $898 (approx) per month.
Raise that rate by one point to 4.5% and the rates climbs to $1013 (approx), which is about where we are now.
Raise it by another point to 5.5% and new Boca Raton homeowners will face a payment of $1135 coming out of their checking account each month. Most first time homebuyers using an FHA mortgage with 3.5% down are not able to keep up with those cost escalations.
As a result, that new $399,000 home in Boca Raton that looked good at 4.5% may lose its luster with another $112 per month added to the cost. Consequently, home prices may very well react to that change in the market.
New home sales have already reacted to the mortgage news: according to the U.S. Department of Commerce, sales of new homes fell 13.4 percent to 394,000, down from 455,000 in June. This is the lowest number of new homes sales in the last 9 months.
Another market indicator…
However, it is also worth considering another source of market input: it may be that movie star real estate actions are harbingers for the coming market. Recent news reports say that Jessica Simpson has lowered the price of her $7.9 million Beverly Hills, California home by $750,000. Can the rest of the home-selling population’s actions be far behind?
Marc Jablon, The Jablon Team
RE/MAX Complete Solutions