NAR: Orlando home prices expected to see healthy gains

In fact, according to the study, the Orlando market is in excellent shape with a potential for significant housing equity gains, particularly for home buyers who plan to remain in their houses for the long run.

"The local market is likely to appreciate at an above-normal rate because of the strong job growth and the steadily rising number of retirees and foreign home buyers expected to purchase homes in Orlando in the coming years," says Lydia Pisano, president of the Orlando Regional Realtor Association and team leader with Keller Williams Homestead Realty, in a prepared statement. "And the good news for buyers is that Orlando's impossibly hot market is actually slowing down a bit to a palatable level, with an increase in inventory and a median price that has remained stable for the last few months."

The reasons for the optimism run the gamut. First, though home prices have risen faster than income in recent years, a more relevant measure is the mortgage servicing cost relative to income, which has been well within historic norms. This implies no widespread financial overstretching to purchase a home in the region.

In addition, the median price of an existing home in the Orlando area has risen 73 percent over the last three years. There have been 102,000 new jobs created in the past five years, and 110,000 new single-family homes have been constructed within the same time frame. These market fundamentals, combined with tight inventories of existing homes available for sale in Orlando, mean that there is solid demand from buyers in comparison with the supply of homes on the market.

In other words, the local housing market is on solid footing, notes Pisano.

Additional findings of the analysis include:

• Mortgage rates declining to 45-year lows have been a major force in boosting home prices in recent years. Lower rates allow home buyers to obtain a larger loan without necessarily increasing monthly mortgage payments.
• Baby boomers in their peak earning years have been active in purchasing second homes, which many consider their future retirement homes. The baby-boomer impact could continue for another decade.
• The Orlando area is a prime retirement destination. The local market will benefit from second-home purchases by U.S. baby boomers as well as by wealthy foreigners.
• Price declines in the local market are unlikely according to a "stress test" applied by the study's researchers. In fact, a price decline of 5 percent will occur only under extremely unlikely scenarios. For example, mortgage rates rising to 10.5 percent in combination with local job losses totaling 64,000 could lead to a price decline of 5 percent.
• Scenarios that could cause a decline are highly unlikely. Most credible forecasts predict the Orlando area will create at least 60,000 jobs over the next 24 months and mortgage rates will hover around 7 percent by the end of 2006, which bodes well for future price gains.
• Even in the unlikely event of prices declining by 5 percent, most homeowners will maintain equity build-up in their homes.
• Housing equity will most likely continue to accumulate to local homeowners. With credible inflation forecasts pegged at 2.5 percent, home prices can expect to rise by 4 percent per year under normal circumstances.