Studies show that about 5.5 percent of local housing wealth is spent. So what happens when Miami real estate prices slow or level off and homeowners feel less wealthy?

Although a slowdown is Miami real estate appreciation really has no effect on a homeowner’s wealth, the impact of slow moving or stagnant Miami real estate prices has a deep psychological impact on homeowners. Even though they haven’t actually lost money, homeowners quickly restrict spending and consumer confidence decreases.

A sign that the latest Miami real estate market slowdown is nothing to worry about is the fact that even though prices are weakening, the economy is still strong. This scenario is highly unusual, but it bodes well for homeowners as the “last time we had outright price declines, we were in recession.”

Last fall, a proposed law “imposing greater oversight on condominium management companies” didn’t survive the Florida legislative session. Seeing that state-wide change may now be impossible, activists are targeting individual cities, especially in South Florida, where the Miami condo market is one of the hottest in the country.

One example of new Miami condo legislation is an ordinance introduced by Miami Beach Commissioner Luis Garcia in September 2005, which requires Miami condo management companies “obtain a license from the city before they can be hired by a condo association.” It also “requires condo managers, condo boards and companies doing business with condos to disclose any personal relations.”

The Miami real estate market thrives on foreign investors, from small time buyers who purchase vacation homes or flip properties to those investing thousands to millions in mortgage-backed securities. For the past five years, mortgage-backed securities have been very popular because they were deemed “safe and attractive.” But now that interest rates are rising, fewer mortgages are being written and the Miami real estate market is threatened with becoming sluggish, a lot of money that was poured into mortgage-backed securities may now go elsewhere.

Higher mortgage rates are dampening Miami real estate demand, which in turn is softening construction activity and mortgage lending. Besides seeing Miami real estate prices weaken, low demand could also produce a cut in jobs within the real estate industry and related industries, such as banking and construction.

A new study released by the National Association of Home Builders predicts that Hurricane Katrina will have “a monumental impact” on the Miami housing industry. The study reviewed local building permits since Hurricane Andrew and found that it took years to begin replacing Miami housing that was blown away in the storm.

The Miami housing reconstruction effort “focused on repairing damaged homes, not building new ones.” This means that a local construction industry that was thriving at the beginning of the summer has not only been crippled by this year’s storm season, but is now getting hammered even harder by rising mortgage rates.

And as though this weren´t enough, material prices have already begun to escalate. Concrete, which was in short supply before the storm, is now in even shorter supply, as the ports of entry for imported concrete were located in New Orleans and Mobile, Alabama.

The beginning of 2001 marked the onslaught of extremely cheap mortgage rates. For four years, Miami real estate has set records in home sales and price appreciation thanks to cheap lending. What appeared to be an unending demand for Miami real estate made local home prices “jump at rates not seen since the 1980’s and generated 10% gains each year in housing wealth.”

But as with all good things, the Miami real estate boom has to come to an end, and the end is near. Mortgage rates are finally beginning to climb to levels that make prospective buyers back off, and many homeowners who used refinancing or home equity loans to get quick cash over the last few years are starting to realize that rapid Miami real estate appreciation can’t continue unchecked forever.

Now, “consumers who made a habit of tapping into their home equity will find that their home is no longer a personal ATM,” and those homeowners who counted on Miami real estate appreciation “to fund their retirement or pay for their children’s education may face a big shortfall when the bills come due.”

Miami has always been a playground for the rich, so it’s not surprising that Miami homes are as popular with the wealthy as they are. It should also come as no surprise that Miami homes consistently make Forbes Magazine’s list of the “Ten Most Expensive Homes in America.”

In order to make the list, Miami homes have to cost around $58.1 million, a sum that has increased by 5 percent since last year’s survey, which listed the average home price at a mere $55.25 million.

The smallest main home to make this year’s list is located on Miami’s Star Island. Of course, small is a very relative word. This Miami home has a total of 6,650 square feet, including “13 bedrooms and a 10,000 bottle wine cellar.”

Miami’s consumer confidence index has remained at 78, marking a continued 12-year low. Thanks to high gas prices and rising interest rates, the Miami real estate and retail industries will likely have a bad spell this winter.

The optimism index numbers are also dropping as “consumer perceptions of personal finances and buying conditions” worsen. With less people willing to spend and interest rates climbing, some air will eventually escape from the Miami real estate bubble.

As a result of decreased confidence, more people are using Miami real estate as part of their investment strategies. However, as interest rates rise, homeowners will probably be “less likely to fund spending with home equity loans.”