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Change is in the Air

Red Hot South Florida Showing Signs of a Return to a More Balanced Market 

By all accounts, the South Florida real estate market is booming along. Prices are high, inventory is low, and the outlook remains largely bullish. Many real estate professionals don’t see that the upending of the equity markets, interest rate increases and runaway inflation are going to have that much of an impact on South Florida, as massive demand still outweighs any other issues.

27 Star Island, Miami Presented by Tal & Oren Alexander of Official

But…. Florida real estate economist, Ken H. Johnson, PhD. posits a different theory – that South Florida homes are quite overvalued. Associate Dean of Graduate Programs in the Finance Department of Florida Atlantic University (FAU) in Boca Raton, Dr. Johnson heads the FAU Real Estate Initiative, which serves as an open-source provider of critical and practical real estate knowledge and current information to enhance real estate decision making by evaluating such topics as affordable housing stock, commercial development, and international investment in properties. “We are definitely in probably one of the worst housing affordability situations that we’ve seen in Miami in the last 40 years,” said Johnson. “The Miami metro area is pricing out at roughly 30 percent above this long-term pricing trip. Rental markets in Miami are roughly 22 percent above their long-term premium. That makes this one of the most overpriced markets in the country.”

Johnson said the high prices don’t seem to be coming down any time soon.

“What looks more likely is that we’re going to go into a prolonged period of unaffordable housing, either to own or rent, in the Miami metro,” he said. “There’s not an easy way out of this other than to build units and build them as quickly as we can. “I don’t think we’ll see a housing crash, but our reckoning from separating so far from prices and rents is that we’re going to have this long period of housing affordability,” Johnson said. “If we don’t get control of this situation as quickly as we can — and as well as we can — then that limits how well our economy can do,” Johnson said. “We might get to a point where it’s so unaffordable to live here, where are we going to find our firemen and our teachers?”

440 Northeast Mizner Boulevard Presented by Warren Heeg, Compass

Warren Heeg, founding agent of the Compass office in Boca Raton, begs to differ. “Realistically, no teachers are buying properties on Palm Beach Island or Jupiter Island. But there are areas with comparably affordable workforce housing,” comments Heeg. “It’s important to note that Florida is nowhere near the price point of Southern California, there are still communities with pricing in the $400,000 to $600,000 range. Of course, those properties were $300,000 three years ago. The appreciation has certainly been dramatic.” 

Douglas Elliman Agent Nick Malinosky in Delray Beach sees affordability as a function of beach proximity. “It used to be doable to get value a mile from the beach. Now it’s difficult to find affordability a few miles from the beach,” states Malinosky.  “If you really delve into South Florida real estate, it’s extremely difficult from an affordability perspective to get near the beach in boutique towns like Palm Beach, Manalapan, Gulf Stream and Delray Beach.”

521 E. Alexander Palm Rd, Boca Raton Presented by Nick Malinosky, Douglas Elliman

The South Florida market remains, for the most part, status quo as lack of inventory still commands high prices and multiple bids. However, Jennifer Kilpatrick, Sales Associate in the Delray Beach/Gulfstream office of Corcoran, comments that the market is beginning to show some sign of change. “We have gone from a white-hot market to a stabilization — meaning price correction,” she relates. “The good news is that a thought process has come back to the market, with more listings and more balanced pricing, which is all very positive. And even with the price corrections, properties are still selling at prices higher than last year.” Kilpatrick also shares that showings are down, which she attributes a return to the cyclical Florida summertime loss of activity and well as a “knee jerk” reaction to the headlines.

Cristina Condon and Kevin Condon of the Palm Beach office of Sotheby’s International Realty agree. “The high intensity we saw post covid is moving towards a more balanced market allowing buyers and sellers to negotiate once again. Well priced properties are still flying off the market, but we are seeing overall an increase in the number of days. Even with uncertain economic conditions in the future, Palm Beach found a new baseline through the pandemic with the ability to work remotely. The privacy, security, and relaxing lifestyle Palm Beach offers will continue to lure buyers to the area.”

1002 Seasage Drive, Delray Beach Presented by Jennifer Kilpatrick, Corcoran

Nick Malinosky of Douglas Elliman also agrees that the market is beginning to show some changes, albeit rather subtle. “The one thing that has changed from the past 2 years is that properties which are overpriced are not selling as quickly,” he remarks. “Summer in Florida and the stock market have given some buyers a breather, more time to think and look at things differently. The upshot: if a property is overpriced, buyers will tend to wait; if priced correctly, that property will fly.” 

Warren Heeg of Compass also predicts some market changes – specifically that the end of summer will bring more inventory to market. “As summer ends in the Hamptons and the Cape, there’s likely to be more inventory as people return to Florida, put properties on the market in order to cash out and take the profit. There’s always going to be turnover, it’s just a matter of degree.”

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