Air Coming out of Ballon in Florida.

An unprecedented five-year housing boom -- during which Palm Beach County home prices nearly tripled -- is coming to an end, a leading real estate economist said. Instead of a pop, though, listen for a whoosh. "Housing bubbles pop," said David Lereah, chief economist for the National Association of Realtors. "There's no risk of that happening here. It's more like a balloon, letting out some air." Lereah, in town for a Young Presidents' Organization luncheon at Morton's steakhouse later in the day, spoke at the Marriott West Palm Beach to about 100 Realtors from Palm Beach Gardens-based Illustrated Properties. The housing market nationwide has undergone what Lereah called an "expansion" since November 1991, when double-digit mortgage rates fell to single digits. "For the last five years, that expansion turned into a boom in some markets, and I'm certainly standing in one," he said. The median price of an existing home in Palm Beach County soared to $400,000 in September from $137,900 in September 2000, Florida Association of Realtors data show. The Treasure Coast saw an even more dramatic price explosion: to a median of $269,400 in September from $78,400 in September 2000. That's a whopping 244 percent price increase. Statewide, home prices doubled in the same period, association records show. A housing bubble refers to rapid home-price appreciation that isn't sustainable over a long period of time. The theory is that a bubble could pop, causing homeowners to lose equity in their houses. Throughout the real estate boom, some media -- Lereah cited The Wall Street Journal in particular -- repeatedly warned that a big pop was imminent. "If Main Street had listened to Wall Street, they'd be out $4 trillion in additional wealth built up in real estate, especially in Florida," Lereah said. Instead of heeding the bearish housing analysts, even inexperienced investors began a flurry of buying and selling real estate in Palm Beach County and the Treasure Coast. Sellers enjoyed multiple offers, bidding wars and full-price cash offers. Everyone from cab drivers to waiters to Realtors themselves became "flippers," buying and selling homes, and profiting from seemingly daily double-digit price hikes. Those heady double-digit profit days are numbered, Lereah said. The seller's market is giving way to a buyer's market once again. "You want single-digit appreciation," he said. "You need job creation. You can't have median prices going to California levels, where the median price of a 1,500-square-foot home is $721,000. Single-digit is good." As a result, local sellers will have to lower their price expectations, he said. "In every hot market, I'm getting calls that sellers are still trying to get 20 percent (appreciation)," Lereah said. "Don't get greedy. Five percent wealth gain is better than keeping your house on the market for another 180 days." Houses that once sold in five days will be on the market much longer, Lereah said. That's a sure sign that buyers are regaining control. "Instead of five days, it will take 60 days to sell a home," said Bradley Hunter of Metrostudy, a West Palm Beach housing consulting firm. "That's normal." Interest rates will continue to increase steadily, Lereah said, rising to 6.9 percent by the end of next year. He cautioned against "creative financing" such as interest-only loans and against adjustable-rate mortgages, or ARMs. "You still have historically low fixed-rate mortgages," he said. "It makes no economical sense to take out an ARM. It's a serious risk."
Although some real estate markets nationwide will suffer setbacks as the boom winds down, Palm Beach County and the Treasure Coast can thank Baby Boomers for a strong market for the next 30 years, Lereah said. Not even hurricanes will stop them. "A small percentage of households will never come to Florida again," Lereah said. "That won't materially affect values -- maybe a 1 percent drop at best -- because you have so many people coming."