The real estate market is in a different place than it was a year ago. The change has been felt around the country. The most salient difference and the factor that has, perhaps, exerted the most marked change is the rise in interest rates.
While this is a universal appreciation of the current market, the way it has affected regional and subregional markets, like Florida and South Florida, has been somewhat unexpected. Rather than crash as phantom fears of the Great Recession loomed in the minds of those who lived through it, the market has been affected but overall proven resilient. Those that are waiting for a crash or a big change to make a move, may want to reconsider this approach as the crash may not be coming.
Higher Interest Rates : Cause for Pause
That rise in interest rates and the recent inflation has given both buyers and sellers cause for pause. It has affected buyer affordability and seller movability but it has not affected home values. There has not been a hard flip in the market from a seller’s market to a buyer’s market. Instead the current inventory has yet to satisfy the demand.
For buyers, the sharp difference in interest rates has impacted how much they can afford. If you couple that with the fact that, in Florida, in the last two years home prices have gone up over 35%, buyer affordability is impacted even further. To put things in simple dollars and cents, a house that cost $350K just two years ago, costs around $500K today. Let’s take this mock scenario a step further and look at how interest rates can influence mortgage payments.
A mortgage payment on a $500K loan at 3% interest, not including taxes and insurance or HOA, is roughly $2108* per month. That same loan at 6.5% interest rate is $3160* per month. The difference is over $1000 per month. The increase is so remarkable that it disqualifies some buyers from buying altogether. The same house, just a couple of years ago, with a loan of $350K at a pre-COVID interest rate of 4.75% would have resulted in a mortgage payment of about $1825* per month. This calculation does not include taxes or insurance, both of which have also gone up significantly in recent years.
When it is all added together: home value increase + interest rate increase + property tax increase + insurance increase, buying a house in Florida, today, is substantially more expensive than before COVID.
As a result buyers are more persnickety than ever. They are not willing to just take any house they can get their hands on. If they are going to pay top dollar then they want a house that is well-maintained and turnkey.
*I am not a mortgage broker and used a simple mortgage calculator for illustrative purposes. If you are interested in purchasing a home, submit your information here to be connected with a mortgage broker or speak to one that you know. The actual interest rate depends on several factors. The mock scenario presented is for illustrative purposes only.
The Home Seller Conundrum
On the other side of the equation are the home owners that would like to sell. Some are stuck because their interest rates are so low that moving doesn’t make sense. Others are stuck because they believe their house is worth more than it is in the current market. They list it, but it doesn’t sell.
Some sellers fail to see this and price for yesteryear. This mistake is fatal when listing a house. It lingers while others that are priced right sell. It is true, home values have held and were rising, but the pace is not as frenetic as in 2020 and 2021. In fact the report that came out today from the Florida REALTORS® noted that for the first time the year-over-year median price of both single family homes and condos has remained the same (Martin, 2023). This may be an indication of stabilization but not a crash.
The properties that are selling are the ones that are priced right, well maintained and turnkey. Homeowners that fit this bill will cash in as it is likely their home will sell fast. According to the MLS over the last 30 days, the median sale price of 7771 properties was 98% of the list price.
Florida is Hot, Hot, Hot !
Florida and especially South Florida continues to be a place where there is a large influx of immigration, both international and domestic. People do leave South Florida, but more people come than go. “… In places like Miami, we’re seeing a lot of real estate demand from non-Floridians or non-American investors … ” according to University of Florida economist Amanda Phalin (Bondarenko, 2023). 2023 Florida Realtors® President G. Mike McGraw commented “Florida’s economy and lifestyle continue to attract people who want to live and work in the Sunshine State – about 1,218 people move here per day, according to Census data” (Martin, 2023).
The trend of foreigners coming to Florida is not a new one. In fact, according to a report released by the Miami Association of REALTORS®, Florida is the #1 destination for foreign buyers for 14 years running. South Florida receives a lion’s share of the foreign buyers, 53%, 43% more than the next most popular Florida destination, Orlando.
Foreigners from 54 different countries bought in South Florida, with a majority of them being from Latin America. From 2021 to 2022 foreign investment increased 9% which translates to a 34% dollar volume increase. Foreign buyer residential purchases increased 25% from 2021 to 2022. Take this data and recent political trends in Latin America which threaten middle class and upper class wealth, and South Florida may see an even larger number of foreign buyers in the next few years.
Furthermore, some that leave South Florida may leave the state but some just move further north where they can get more bang for their buck. In a recent conversation I had with a broker in North Florida, Daniel Crapps, he conveyed “All of South Florida is moving to North Florida”.
This continued demand for Florida real estate is what has kept the real estate prices high and keeps pushing them even higher.
Waiting for the Crash
As far as the eye can see a 2008-like crash does not appear imminent. When making decisions, buyers and sellers should consider the following.
Buyers, If It Makes Sense, Buy Now
If you are a buyer and it makes financial sense to buy now, then buy. Competition is stiff for good properties. Think outside the box in order to get a house. If your affordability has been impacted, consider settling for a smaller house in good condition rather than a bigger one that needs a lot of costly updates. Whatever direction you choose to take, by all means, get your hands on something. Buying will always be better than renting.
Sellers, Be Realistic, Plan Your Next Move Carefully
If you are a homeowner looking to sell, be realistic in your pricing. If you price it right, it should sell quickly if it is in good shape. You also need to plan carefully where you are going to go next and how that may impact you financially. Planning is key to making sure you don’t nullify any financial gains you have made by cashing in.
Make Decisions For Today
The Florida real estate market has proven resilient. Real estate in general is a good investment and Florida real estate, up to now, has withstood the test of higher interest rates. There has not been a shift from a seller’s market to a buyer’s market. Nor has the market come crashing down, making houses affordable again. Far from being a crash, the real estate market, in Florida, continues to be strong. According to Ostrowski, in general, “homeowners’ personal balance sheets are much stronger today than they were 15 years ago. The typical homeowner with a mortgage has stellar credit, a ton of home equity and a fixed-rate mortgage locked in at a rate well below 5% – in fact, according to a new Redfin study, 82.4% of all current homeowners are locked in below the 5% mark” (2023).
Don’t expect a crash any time soon. If we do experience one, it won’t be like the Great Recession according to housing economists (Ostrowski, 2023). Make decisions based on what the market looks like today.
Bondarenko, V. (2023, July 11). Fla. “inflation hotspot” due to new demand. Florida Realtors. https://www.floridarealtors.org/news-media/news-articles/2023/07/fla-inflation-hotspot-due-new-demand
Martin, M. (2023, July 20). Fla.’s June housing: Prices stabilize, inventory up. Florida Realtors. https://www.floridarealtors.org/news-media/news-articles/2023/07/flas-june-housing-prices-stabilize-inventory
Ostrowski, J. (2023, July 18). Disappointed buyers ask, “where’s the housing crash?” Florida Realtors. https://www.floridarealtors.org/news-media/news-articles/2023/07/disappointed-buyers-ask-wheres-housing-crash