To Realtors®, homeowners and others who ask, "Are we in another house price bubble?" – the answer is "No," according to Dr. Len Kiefer, Freddie Mac deputy chief economist, who spoke to a crowd of more than 400 Realtors at the 2019 Florida Real Estate Trends summit last week during Florida Realtors Mid-Winter Business Meetings.

Kiefer said he and other analysts have been researching home price growth trends and other economic factors to answer the "bubble" question.

"Home prices are up, but that by itself is no indication of a bubble; you need an element of speculation or credit financing involved as well," he said. "We looked at credit, capacity and collateral. In the mortgage space, credit has not expanded in anything like we saw a decade ago. As a result, the default potential rate is pretty low. And we clearly don't see the types of financing products that pushed the dynamics then."

While incomes are up, they're not matching the pace of rising home prices, he noted. Still, mortgage debt payments as a percentage of disposable income has declined significantly, largely due to lower mortgage interest rates.

"In the downturn, people were taking on a lot of debt, which in turn pushed up prices," Kiefer said. "Now, looking at total mortgage debt compared to equity, we're not seeing that kind of speculation or problem."

He added, "So, when I'm asked about a bubble, I do say no – but the way I pause before I say no has been extending a bit as home prices continue to rise more than incomes. However, in our view (Freddie Mac economists), house prices will moderate as mortgage rates rise."

So, what's ahead for the U.S. economy and housing market in 2019?

"Employment and a little bit of income growth will be key to supporting home buyer demand," Kiefer said. "Inflation is going to drive the Federal Reserve policy. It's been pretty tame the past few months. We at Freddie Mac expect one to two rate hikes in 2019 as opposed to the four hikes in 2018, though that will be data-dependent."

The general U.S. economy should experience modest growth, he said, while mortgage interest rates should gradually rise throughout the rest of the year and be somewhere around 5 percent by the end of the year – or about a 1/2 percentage point rise from the current rate.

"When interest rates rise, the housing market responds pretty negatively and home sales go down," Kiefer said. "But looking ahead to spring, we should see stabilization of home sales and modest growth in the U.S. economy. Our forecast nationally is for housing prices to moderate substantially over the next few years. However, one of the biggest challenges for the overall economy is a lack of new housing supply."

2019 economic forecast for Florida

Florida Realtors Chief Economist Dr. Brad O'Connor discussed the outlook for Florida's economy and housing market in the coming year. In terms of job growth, Florida has done better than the U.S. for the past few years (since 2013) and ended 2018 with an annual job growth rate of 3.3%, compared to the U.S. figure of 1.9%. The state's population growth has not yet returned to the 2% annual growth rate it had before the downturn, but the latest Census figures show a 1.5% population growth rate from 2017-2018, ranking Florida No. 5 among states.

Looking at Florida's price growth trends for single-family homes, the market is bifurcated, he noted.

"We're finding that different price tiers are definitely appreciating at different rates," O'Connor said. "The range up to $200,000 is up almost 12% (in price growth), while the range of $600,000 and over has less growth. There's a lack of affordable housing supply in the lower price tier, while the upper levels are almost a balanced market."

Lack of new housing supply is constraining the market and more construction is needed, he said. However, construction is hampered by a shortage of skilled construction workers, rising cost of materials, lack of land available and other factors.

In good news for Florida's housing market, active inventory at the end of 2018 was up, compared to the end of 2017.

O'Connor added, "For perspective, it's not a significantly huge increase in active inventory: it's up 13.3% for existing single-family homes and up 8% for condo-townhouse properties. And, it's notable that the $200,000 to $300,000 price tier of housing inventory is up, which is the sweet spot for millennials. Despite the fact that we have slightly higher inventory, closed sales are also still rising (with the exception of December's data). Rising inventory is, so far, a good thing."

With current data showing that Florida is outpacing the nation in terms of home sales and employment growth, he forecasts that 2019 should see about a 1% growth in home sales and maybe 3% to 4% price growth. That's in contrast to the National Association of Realtors' (NAR) forecast for home and condo sales to remain relatively flat in 2019.

Florida's water issues

While the housing market and economy were the focus of the first half of the event, the second half focused on Florida's water quality issues.

"We may not be the solution, but we can be a big part of raising awareness and educating ourselves and others about Florida's water quality issues," said 2019 Florida Realtors President Eric Sain, a Realtor and district sales manager with Illustrated Properties in Palm Beach. "I may not be a scientist, but I know people aren't moving to Florida for the mountains. They're moving to Florida for the water. Right now, our best efforts to help are through education."

Water quality experts speaking at the summit included Dr. Paul Julian, Office of Ecosystems Projects, Florida Department of Environmental Protection (DEP); Dr. Greg DeAngelo, deputy director, Division of Environmental Assessment and Restoration, DEP; and Dr. Kate Hubbard, research scientist, Florida Fish and Wildlife Conservation Commission-Fish and Wildlife Research Institute (FWC-FWRI).

Hubbard, who leads the harmful algal bloom monitoring and research program, provided an overview of red tide and explained how the monitoring and research program works. Red tide is a marine (seawater) harmful algal bloom while blue-green algae is a freshwater bloom.

"The toxins in red tide kill fish, birds, sea turtles, manatees and dolphins," she explained. "Then there are health impacts on humans. Filtering shellfish, like clams, oysters and mussels, accumulate the toxins and can cause neurotoxic shellfish poisoning in human consumers. This toxin also is carried in aerosol form in sea spray and causes respiratory irritation in humans."

Red tide blooms begin 10-40 miles offshore, in deep water, Hubbard said. It is ecologically flexible, with a high tolerance for different temperatures and levels of salinity. It also can use many different sources to fuel its growth, including dead fish.

"A huge network of people helps in monitoring and researching red tide," she said. "Red tide has been occurring for centuries. Strategies to improve resilience and mitigation are continually being evaluated, created and implemented."