Single family homes appear to be the hot commodity for buyers in the past 4 years in Broward and Palm Beach Counties. It is not uncommon for homeowners to see anywhere from 5-10% appreciation year over year, but as all of us know, this torrid uptrend cannot sustain itself. Will history repeat itself? Will we see a crash and burn scenario in the housing market similar to 2008?
Although there are some similarities between the upward trends of today versus well over a decade ago, I think it is safe to say that a doomsday outcome is very unlikely. Probably the biggest reason is the lack of inventory of homes in the area. Florida in January 2017 had 5486 active listings versus 5091 in January 2018, a drop of 7.2%. An even better measure of inventory is to incorporate the rate in which houses are selling and then calculating how many months it will take to bring the inventory down to zero. According to the experts a good equilibrium between buyers and sellers is approximately a 6 months of a housing supply. Less than 6 months means there is less product to sell given the demand (commonly called a Seller's Market), while having more than 6 months of supply means there is more inventory, giving the advantage to the buyers (a Buyer's Market). Currently the Florida Realtor's have revealed there is a 3.9 month supply of home, which historically is a very low supply.
So, price increases today appear to be more reflective of the tenants of supply and demand, which was very different from when the market was in free fall a decade ago. There were many reasons why this happened, from reckless lending from banks to inflated appraisals to the infamous publically traded mortgage backed securities. This is to name just a few. Today's market is not perfect, and some may say stocks are overpriced, but the housing market appears to be rising at a steady pace based on inventory and how quickly homes are selling.
So what should we expect going forward?
Although I do not have a crystal ball, I think it is fair to assume the market will start to slow down as inventory increases. Don't be surprised to see more owners putting their single family homes on the market in the next 1-2 years. Many will want to take their substantial equity and run while an aging baby boomer population will probably like to downsize.
Of course, the market is like the wind. It is fickle and its direction cannot be entirely predicted. Regardless, I hope this sheds some light on what's happening in real estate in Broward and Palm Beach Counties. Should you have any questions about the market or would like additional recommendations on how to make inexpensive improvements with the biggest return on investment when it comes time to sell, feel free to contact the premier real estate team of Nick Casamassimo and Danny Ott.