With approximately 1,000 people moving into The Sunshine State each day, the Florida real estate market is one of the hottest in the country. Homes that are reasonably (& even some unreasonably) priced are selling within days, if not hours. To make things even more hectic, these homes oftentimes end up selling in bidding wars. A tight inventory of homes for sale, historically low mortgage rates, and an increase in out-of-town buyers is continuing to drive the Florida real estate market for the foreseeable future.
Of course, double-digit price appreciation can not last forever. At some point, the market needs to plateau or even correct itself somewhat, right? This has been the topic of discussion among many real estate economists during the past several months. Is the Florida real estate market overvalued?
Meet the professors
Ken H. Johnson, Ph.D. is a real estate economist at the Florida Atlantic University (FAU) College of Business. Eli Beracha is a real estate professor at Florida International University’s Hollo School of Real Estate. Both professors recently shared their thoughts on the current Florida real estate market.
According to the professors, Florida homes are selling for more than 17% above their long-term pricing trend. In other words, sellers in this market should be quite pleased with their returns should they sell their homes right now. As for buyers, it will continue to be a challenge. Given the current market climate, both professors caution buyers when entering into bidding wars. If the price is difficult to justify and the terms just don’t feel right, buyers should walk away right now.
Will there be a bubble bursting in South Florida?
The short answer here is no. However, the professors feel that South Florida is approaching a peak and the expected correction will result in a period of flat property appreciation. A lack of inventory of homes for sale combined with continuing population growth makes it highly unlikely to see a bubble bursting like what was seen in 2007. For those of you that may recall, the period of time between 2007 and 2011 saw many homes lose 50% or more of their values. It is important to note that during that time some parts of the Florida housing market were overvalued by more than 60%.
Perhaps the biggest driver in the real estate market right now will be mortgage rates. Current long-term mortgage rates are directly tied to activity by the Federal Reserve. A tapering of the latest round of quantitative easing by the Fed almost certainly will lead to an increase in mortgage rates. Needless to say, higher mortgage will eventually lead to reduced buyer demand. At that point, it will be a battle between higher mortgage rates vs. an increase in the number of buyers moving into The Sunshine State. Furthermore, the severe shortage of homes for sale will keep prices from plummeting.
Although there are uncertainties in every real estate market, South Florida continues to be one of the areas with highest demand throughout the country. Other underlying economic factors such as the number of companies relocating to Florida will also bode well for the future of real estate values. In addition, as more first-time home buyers become priced out of the market temporarily, we expect to see continued high demand in the rental market. In particular, the demand for single-family homes in good school zones should lead the way in the rental market.
It is still a great time to consider investing in the South Florida real estate market. Whether you are considering buying or selling property in South Florida, downloading the recently launched “Florida Home Search” app in the Apple App Store or Google Play Store is a great initial step. At Live South Florida Realty, Inc., we developed this app to give our clients an up-to-date tool to research homes for sale or rent, recently sold homes, upcoming open houses, and many other tools built within the app. Download our app today for your smartphone or tablet and let’s collaborate together! We look forward to assisting you!