Experts Offer Five Reasons Why the South Florida Real Estate Market is Simmering Down
Even the most optimistic real estate analysts concede that the South Florida housing frenzy is fading after five years, according to the Sun-Sentinel. The culprit? None other than its own incredible success.
Experts like Lewis Goodkin, a Miami-based industry consultant, say the market is destined to simmer down because annual price appreciations of 20 percent or more just aren’t sustainable.
He estimates that South Florida sales will fall by 20 percent compared to recent years, and that prices may increase but only modestly. The overbuilt condominium markets in West Palm Beach and Miami, meanwhile, will face significant slowdowns by the summer. Goodkin believes the South Florida real estate forecast is typical of what’s happening in many growing cities with high demand, such as Las Vegas and Phoenix.
“We’re really coming back to a more normal market,” he said.
FIVE INDICATORS OF THIS TRANSITION ARE:
1. Sales are down. It’s obvious but true. If you look at December and compared it to the same period in 2004, or the previous six months of 2005, the number of home sales in S. Florida has dropped by about 40 percent, according to the Florida Association of Realtors. The group’s figures track single-family home sales but not condominiums or townhouses.
While Hurricane Wilma is partially to blame, agents and industry experts say the storm isn’t the only reason for the slowdown. Across-the-board insurance hikes, property tax increases and rising Florida home loan rates are all upping monthly payments, making many people reluctant to buy.
2. More listings. It’s not just your imagination — there are more for-sale signs in the area these days. The number of homes and condos on the market in Broward County is more than double what it was in July, according to local multiple listing services. Listings have soared more than 81 percent in Palm Beach County and more than 64 percent in Miami-Dade County.
Investors helped propel the housing boom, which drove up prices to record levels. But as speculators are leaving real estate, the demand can’t match the prices. With fewer buyers, houses don’t sell as quickly and inventory builds up. There’s “virtually no sense of urgency,” and buyers can take their time considering multiple properties, said Richard Barkett, CEO of the Realtor Association of Greater Fort Lauderdale.
3. Prices are flattening. Sellers are losing leverage as demand wanes, and some are cutting their asking prices down considerably in order to get a deal done. The median prices across South Florida rose by more than 20 percent in December compared to the same period a year ago, but increased less than 5 percent from July on. The median home now costs $408,200 in Palm Beach, $377,700 in Miami-Dade, and $369,000 in Broward — all remaining relatively stable in the past 7-8 months.
4. More buyer and real estate agent incentives. Some builders are offering upgrades on appliances, as well as offering to pay points and closing costs worth thousands of dollars — things a new home buyer normally would pay. Developers are trying to lure real estate agents with 4 percent commissions, rather than the standard 2 or 3 percent.
“There hasn’t been the necessity to do that before,” said Deerfield Beach analyst Jack McCabe. “The environment is going to get highly competitive this year.”
5. Rates rising, requirements tightening. Analysts predict that mortgage rates could inch closer to 7 percent in 2006, and while that is nothing out of the ordinary (historically), it’s enough to keep some people from qualifying for Florida home loans. As the rates increase, homeowners with adjustable-rate mortgages will see their monthly payments rise, which will lead to more foreclosures and slumping sales.
With this in mind, federal regulators are forcing lenders to become more selective this year, so that buyers will have higher scores on credit reports and more proof of income. As a result, interest-only Florida home loan options will become less popular among prospective buyers, which will mean sales that come nowhere near previous years’ levels. Still, if you can qualify for a conventional fixed-rate loan, you could be in good shape as prices stabilize.
