South Florida’s housing market may be at a peak

The State of the Housing Cycle: Insights from Experts

For prospective homebuyers in South Florida, the current market dynamics present a challenging yet stable landscape. Ken H. Johnson, a noted real estate economist at Florida Atlantic University, observes that while we're possibly at the apex of the housing cycle, with sales moderating and prices leveling, this doesn't necessarily foretell a market crash. According to Johnson, the equilibrium we're seeing is characteristic of a market at its cycle's zenith. The consensus among housing economists is that a significant downturn is unlikely, primarily due to the imbalance between the limited housing inventory and the high demand in Southeast Florida.

This imbalance, where demand continuously outstrips supply, underpins the market's resilience. Johnson forecasts a phase of relatively steady prices, buoyed by the influx of new residents to Florida and a gradual increase in housing supply. Furthermore, a slight dip in interest rates is contributing to this stabilization, with no immediate expectation of dramatic home price appreciations.

Buy Now or Wait For Lower Rates?

The 30-year fixed rate dropped from over 8% to below 7% recently, which we think will cause an uptick in demand starting in the end of December and going into 2024. Even with rates higher than most people would prefer, "you date the rate and marry the house". Waiting for further dramatic rate decreases could ironically result in higher overall costs if home prices rise.

As rates come down and normal seasonality comes back around February & March, buyer demand is likely to push home prices up again and make the market more competitive. Buying a home today priced at $600,000 with a 7% rate would cost $3,192 per month not including taxes and insurance. 

If you wait until the rates come down further to 6% (we think rates will come down starting in the summer), the market will become more competitive again and its not crazy to think that same home would then sell closer to $625,000. That would mean a payment of $2,998 per month excluding taxes and insurance. The savings in your payment is less than $200 per month, but you can never change the purchase price.

The typical rule of thumb is that if rates drop 1% it makes sense to refinance. In this situation it would have made more sense, even with increased closing costs associated with the refinance, to purchase the home at the lower price with the higher temporary rate. This doesn't even take into consideration great seller-paid options that are available less likely to be available in a more competitive market like a temporary interest rate buy down which could save substantial amounts of money every month.

Regional Trends and Future Predictions

Despite a slight decrease in sales volume (about 3% from last year), home prices have continued to ascend. Johnson notes that average single-family home prices in the tri-county area have increased by 5.4% compared to last year. However, these trends vary by county, with population growth driving price increases in specific regions.

Coastal Preference Impacting Inland Sales

Johnson also observes a domino effect across South Florida, predicting a faster population and housing market growth in Palm Beach County compared to Broward and Miami-Dade Counties. This trend impacts inland home sales, as many new residents, irrespective of their origin, prefer living closer to the coast. This preference contributes to the broader slowdown in transactions, further signaling the market's peak in South Florida.