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Interest Hikes Affecting Local Real Estate Market
Industry mostly sustained by sale of new homes, as existing home sales take a dive
by JOSE L. CARMONA
July 27, 2000
Interest rates in Puerto Rico plummeted to their lowest level in years during early 1998, allowing real estate property acquisition to be more accessible than ever.
Many realtors reported one of their best years ever in 1999, when new records on gross volume sales and number of cases closed were set.
Low interest rates, combined with increased property values, made 1998 and the early part of 1999 a sellers market. In some cases, properties almost doubled in value after only two years on the market.
Taking advantage of favorable market conditions, many families traded their existing homes for bigger ones, as demand for new construction grew, particularly walkups and middle-to-high income single-family homes.
According to Puerto Rico Planning Board statistics, total investment in 1999 for new private home construction projects on the island reached $1.5 billion.
But since June 1999, the market has experienced six interest rates increasesmaking real estate transactions more of a task for buyers, sellers, and realtors. Instead of 6.5% interest rates, homebuyers are now paying between 8% and 8.5% for a $100,000 30-year home mortgage.
The rise in interest rates has caused a slowdown in the real estate market, negatively affecting low-income buyers due to the prospect of higher monthly payments. It has also discouraged buyers who already owned a home but were considering a bigger or better property. Many have put buying a property on hold, hoping a drop in interest rates will come.
Although higher than 2 years ago, current interest rates are still considered attractive when compared to those in the early eighties, when average rates ranged between 18% and 19%.
Local demand for new construction remains high, a phenomenon that started five years ago. Basically, new-home sales are sustaining the real estate market here, as existing-home ales have reduced 12% to 15% over the past year due to interest rate increases.
And the downward trend continued during the first half of 2000, despite the Federal Reserve not having raised interest rates since May.
The National Association of Home Builders (NAHB) forecasts sales of approximately 868,000 new homes in the U.S. during 2000, down 4.3% from 1999s exceptionally strong 907,000 sales. NAHB also expects to see a continued, gradual slowdown in of home sales for the second half of 2000.
Despite the rise in interest rates, people in Puerto Rico are still eager to buy homes. Local demand for new housing as well as for commercial space is high.
In 1999, Puerto Ricos largest real estate companies sold more than 5,000 properties with a total market value of nearly $600 milliona 12% decrease from 1998s $681.7 million.
Local realtor Tiri/Better Homes & Gardens sold 2,020 units with a total value of $182 million during 1999a 22% increase over the previous year. Approximately 90% of the units they sold are residential, while the remaining 10% is split equally between commercial and industrial units.
Meanwhile, Coldwell Banker/Isla del Coqui reported in 1999 the sale of 686 units with a total value of nearly $103 million, a modest 1.25% increase over the previous year.
The consensus among local realtors is that this being an election year, many familiesespecially government employeesare holding back on buying or trading their home now over concerns to what will happen in November. Nearly one third of Puerto Ricos labor work force is in the public sector.
Acana Corp. reported the sale of 678 units last year, with a total value of $71 milliona 2.5% decrease compared to 1998. Meanwhile, Ramos Izquierdo and Associates remained unchanged for 1999 with a total value of $50 million and 325 units sold.
Caribbean Properties & Investment reported the sale of 400 units in 1999 with a total value of $40 million20% less thaqn 1998. Cecy Alfonso Real Estate instead had a slight decrease in sales, reporting 180 units sold with a total value of $32,136,000. That is 1.076% less than the previous year.
The recent interest hikes have also affected Ponce and the southern region. RE/MAX Ponce Realty reported the sale of 92 units in 1999 for a total value of $10,560,00037.5% less than 1998 sales of $16,884,310.
Nonetheless, real estate company H.A. Lavergnewhich specializes in metro-area homes ranging from $125,000 to $2 millionreported in 1999 the sale of 56 units with a total value of nearly $18 million. This represents an increase of 10.44% over 1998 totals. More than 70% of the units sold were residential, while 8% were commercial and 21% industrial.
Alberto Hernandez Real Estateone of the islands oldestreported 50 units sold in 1999, with a total value of $7.5 milliona dramatic decrease of 65% from 1998s $21,622,970 sales.
On the other hand, Yordan Realty Psc and Lord Realty reported total value of units sold in 1999 of $10.4 million and $10.3 million respectively. This represents a 67% increase for Yordan, while Lord achieved a 59% increase over the previous year.
Many real estate companies in Puerto Rico are now marketing properties on the Web, as the number of Internet users on the island has increased.
This Caribbean Business article appears courtesy of Casiano Communications.