Buyers Will Be Back… Just Not Tomorrow

If you own investment properties, or are even just interested in selling your primary residence in one of the nation’s frothiest housing markets, such as here in South Florida, you’ve probably encountered some problems. Years of 10-30 percent growth in home prices have given way to a flat market due to rising Florida home loan rates and a large amount of inventory available.

• Should you hold off on dumping your investments?
• Will the market level off and bounce back in a year or two, so you will be able to make a killing off your investment in, say, 3-4 years?
• We know the market is shifting, but for how long?
• When can you expect it to bounce back?

Don’t mark your calendar. Here’s the thing. The Florida housing market is a great long-term bet, as the state is desirable for retirees (of which there will be millions upon millions of baby boomers hitting that age in the coming decade), as well as for young people, as the job market is healthy. But if you are looking for a 1-3 year turnaround, don’t count on a windfall so soon.

It’s an interesting market to analyze, because it’s typical of many others around the country, particularly in coastal areas and in places like Las Vegas and Nevada. They were hotter than the Phoenix summer just a few short months ago, it seemed, but have gone frigid rather abruptly. You’ll just have to be patient if you want to profit significantly from a sale.

But if you can hold out, you are in good shape. The fundamentals of the Florida housing market are still strong, as the rapid population influx, steady job growth, desirable climate and other amenities will continue to attract the throngs. The rest of the U.S., for the most part, is seeing sustained — albeit slower — job growth, as well.

But in places like Florida, Vegas and Phoenix, builders and homeowners are dropping their prices and making all sorts of generous sales incentives as the markets catch their breath.

Part of the problem is that the construction pipeline lags behind the level of demand by many, many months. Builders are finishing projects that were started a couple years ago, when many speculators — who have now since packed their bags — were clamoring to get a piece of the real estate boom. Combine those factors with high rates of foreclosure and you have far too many for-sale homes.

It is a buyers’ market, for now.

Home building is slowing, however, and a lot of proposed condo projects have been scrapped in Florida and elsewhere. And while other high-end markets such as California, Arizona, New York City and New England have also seen major declines in demand and pricing, average pricing has actually not declined in the rest of middle America. In other words, the boom — and subsequent dropoff — is more localized than often reported.

It’s certainly no time to panic, but…

Patience is a virtue. You won’t be doubling your investment in two years, no matter what books you read or what geniuses are advising you. It will take a while before the Florida market — and many of the others mentioned above — return to a state of equilibrium, much less repeat the astounding gains they did earlier in the decade. Just keep up the payments and/or rent these places out to tread water. The buyers will be back.

When? That is anybody’s guess.