Red Flags In The South Florida Housing Market

I wanna talk about some of the red flags and the issues that I see in the South Florida housing market. If you've heard anything about real estate in 2020, you've probably heard that home prices are going up. And that's very true, especially here in South Florida. It probably differs depending on where you are, but in South Florida for sure, home prices have been going up. Since about April when they lifted that original lockdown, it's just been a straight shot up like this.

In November of 2020, compared to February of 2020, before the pandemic really took hold everywhere, home prices are up about 11% here in South Florida, at least in the areas that we sell. So if you own a $400,000 home before the pandemic, it's probably worth a little more than $440,000 now, so congratulations to you, you just made a ton of equity in your property. But that's where I see part of the problem being, is that I don't see this stopping anytime soon.

When the pandemic started, the federal reserve lowered the interest rates significantly to help stimulate the economy. So interest rates on mortgages dropped to 3%, or a lot of times below 3%, which is historically speaking, incredibly low. When I got engaged in the beginning of 2019, Michelle and I bought a house, it was May we bought the house, and we got a 4.25% interest rate, which at the time was a pretty good rate.

Now at the beginning of 2020, we refinanced once rates dropped to 2.75%, so we saved about $500 a month on our mortgage by doing absolutely nothing other than refinancing. Side note, if you own a house already and you haven't already refinanced, please give me a call, shoot me a text, let me know if you need a recommendation for a great lender who can get you absolutely fantastic rates on refinances.By not refinancing, you're literally throwing money out the window. Please call me if you need a recommendation for a good lender.

Once the pandemic started, and we all realized that we were spending way more time at home, people wanted to take advantage of these low interest rates to get that extra bedroom that they need for the home office, the bigger backyard, the pool, the whatever it is that you thought your home was lacking before. Now that you're spending a ton of time at home if you have kids running around at home, people realized all the things that they wished their home had. So if they weren't living in their dream home, or their dream location because now everyone can work, a lot more people at least can work remotely.

People from all over the country are really starting to either upgrade to the home they want, they're relocating to areas that they feel are better for tax purposes, weather, whatever it may be. But everyone wants to take advantage of these really low rates to get what they've always wanted. The problem is, sellers decided that when there's a lot of uncertainty and they didn't know what was gonna happen, a lot of them took their home off the market. So we saw a drastic drop in the amount of homes coming for sale this year. 

A lot of people who are looking to move and upgrade, and a lot less sellers looking to put their home on the market, it led to a supply and demand imbalance, so home prices have gone up. Now we have homes selling in one to two days, and buyers are competing against a lot of other buyers. All these homes have three, four, or five offers in 24, 48 hours.

We're seeing buyers in the medium price point range, the 500 and below range, they're writing offers 10,000, $15,000, $20,000 over the list price. So when these properties sell, these are becoming the new comps. When future sellers go to put their home on the market, they're gonna be looking at these comps at the much higher prices, and those are gonna be the prices that they are expecting because that's the new fair market value. That's what buyers are willing to pay for a home in their neighborhood.

There's been a ban on foreclosures since the pandemic started. Now, a lot of people lost their job, they're underemployed, and they're working less hours than they were, or they want to. They're making less money than they were. And normally that would cause someone who is in that position who owns a house to have to sell it, and rethink their living situation. But because the government put a ban on foreclosures that foreclosure process hasn't started for a lot of those people. And they were able to go into a forbearance.

Anyone who went into forbearance, you don't have to pay your mortgage for six months, with the option to extend another six months. So potentially up to a year of being able to guilt free with no recourse to you, miss your mortgage payment. And the banks are doing a much better job now of doing loan modifications, when people are getting out of forbearance and putting that amount that they're behind to the end of their mortgage.

People aren't really missing payments and they're not getting into that process that would normally start a foreclosure. All of this is contributing to the lack of inventory that we're seeing, and it's making it really, really competitive for buyers in this market to try to buy a house. Many buyers, not a lot for sale.

Now, Congress actually just extended this moratorium on foreclosures until the end of January of 2021. And I predict they're going to continue to extend it at least for probably if I had to guess, another six months. No politician in the middle of a crisis wants to be seen as voting for people to get foreclosed on, that's a really bad look for politicians. So I don't see Congress voting to end that moratorium anytime soon.

Even when foreclosure proceedings can begin again, it normally takes about six to 12 months from when that starts, to get the home fully through foreclosure, back on the market, and ready for sale for a new buyer.And because home prices have gone up, if those foreclosures end up hitting the market, the banks are gonna be expecting that new fair market value, which is a much higher price. So I don't think we're gonna be seeing a wave of foreclosures that hit the market at these crazy low rates, crazy low prices excuse me, that are gonna crash the market.

They're gonna be looking for fair market value, and because the market's so competitive, they're going to get it. Because it takes six to 12 months for a home to go through the whole foreclosure proceedings and close, and be ready to sell again anyway, I don't see any wave of foreclosure properties hitting the market until the end of summer, or the end of fall, 2021.

It's gonna be a while before we see any of those homes hit the market anyway. But I don't think we're even gonna see this big wave of foreclosures. Because home prices have increased so much, sellers instead of letting the bank just take their home and take all their equity, because they do have a lot of equity. They're just gonna put their home on the market and they're gonna sell it instead of letting the bank take the property away.

I don't see a big wave of foreclosures. I do see more homes hitting the market once the foreclosure moratorium ends, and once the forbearance programs all end. But again, I don't think that's gonna happen until summer or fall of 2021. So that means we're gonna be in this low inventory market for at least in my opinion, another six months minimum.

Even if, and when a big wave of properties does come and hit the market, whether it's foreclosures, or whether it's sellers who are out of their forbearance program and now they need to sell, because we're in such a low inventory market right now, down here in South Florida, we're at less than two months supply of inventory. So if no more homes hit the market right now in less than two months, all of the homes for sale would sell. They'd go under contract and they'd be sold.

That's a really strong sellers market. Even if a big wave of properties hit the market, and the amount of homes for sale doubled, we'd still be at four months of inventory, which is still a sellers market. So I don't see anything significant changing anytime soon that's gonna make this a crazy buyer's market. So what does this mean for everyone?

The red flags that I'm really seeing are an affordability crisis, and an eviction crisis, because evictions for tenants have been stopped for a while. Once that ends and people can start evicting people again, I really do think that there's gonna be a lot of people who have issues with finding a new place, they're getting kicked out of where they are, it's gonna be a problem for people. But I don't necessarily think or see that it's gonna be a foreclosure or a housing crash type situation. It's just gonna be an issue for a lot of people.

What we're starting to see, and what we've seen for this whole year really, is this kind of K shaped recovery. So the people who already own homes, and the people who are already relatively well off are gonna continue to do better, and the working class and people who are renting, or struggling living paycheck to paycheck, it's gonna remain very, very difficult for them, and it's a very bad situation.

These are some of the good things that we got going on right now to help ease this issue. Starting at the beginning of 2021, FHA and conventional loan limits have increased. So it makes it easier to buy a slightly more expensive house. You can finance more money, so you don't have to come out of pocket with more down payment. So that kinda makes up for the increase in price. You're able to finance more, and roll that amount into your mortgage at these continuing low interest rates at 2.75 or below.

If interest rates continue to go down, it's only gonna be even more affordable. So even though prices of homes have gone up, the amount you can afford to buy for the same monthly payment continues to go up. So you can afford more home for the same payment because of the low interest rates. So really I see a affordability issue, but the government's trying to do some things to help that, but it could be a big problem for affordability, and first time home buyers going forward. Which really sucks 'cause I work with a ton of first time home buyers. We love helping people achieve the American dream. But it's gonna be difficult going forward.

Moral of the story, and I know it sounds I guess cheesy for lack of a better term coming from a realtor. But if you're thinking about getting into the housing market with really low interest rates and home prices continuing to go up, my advice is sooner rather than later is probably better.