Are South Florida Homes Overvalued?

Photo: Chris Norberg/Unsplash

It’s one of those classic good news/bad news stories.

High home prices in South Florida are good news for local sellers, but are making the house hunt extremely challenging for area buyers, who are facing bidding wars and tough competition from well-heeled out-of-state residents relocating to the Sunshine State.

Are South Florida homes overvalued?

New research from a recently-released Florida Atlantic University and Florida International University study suggests more good news/bad news on the housing front.

Extensive evaluation of long-term pricing trends by the universities suggests that the South Florida housing market is somewhat overvalued, with homes selling above long-term price trend levels, writes South Florida Sun Sentinel reporter Amber Randall.

That’s enough to make local residents and some of our clients worry about how long the good times may last.

Prices not as extreme as before the housing bust

The good news? While local markets are a bit overvalued (about 18% over long-term trends, say the university researchers) that’s nowhere near as high as before the last housing bust.

At the peak of the 2007 housing boom, writes the Sun Sentinel’s Randall, homes in South Florida were almost 80% overpriced compared to their long term pricing trend. That’s significantly more over-priced than they are today.

Local home prices continue to rise

Local home prices continue to climb upward due to a unique combination of factors. Low mortgage rates are allowing buyers to justify higher home prices while still keeping payments low. Out-of-state and foreign buyers eager to snap up Florida real estate are inflating local demand, and they often have plenty of cash to spend. And finally, low inventories fuel bidding wars as too many buyers seek out too few properties. just released its price expectations for 2022, calling for a 6% price rise in South Florida. Experts call that a “healthy” although slowing market. Growth rates above that, like we’ve experienced over the past year, are considered unsustainable.

A housing crash not likely

It’s not possible to predict what the future holds, but despite above-trend prices, experts are not predicting a dramatic real estate downturn in South Florida. Strong housing demand, compared to limited housing supply, makes that unlikely.

“Researchers (say) the housing market will reach its peak eventually, and prices will level off,” writes Randall. And if interest rates do rise, as expected, housing demand – and prices – may cool down on their own.

More good news! South Florida less overvalued than other markets

One big surprise revealed by the new research is that South Florida, home to some of the highest priced real estate in the state, is actually less overvalued than other national and state markets. like Tampa, Florida, Austin, Texas and Phoenix, Arizona.

While South Florida registered a 18% overvaluation, Tampa is reportedly overvalued by almost 38%, Fort Myers by 34%, and Jacksonville by 28%. That may make those markets more vulnerable to a downturn.

What an overvalued market means for homeowners

Even without an actual decline in home prices, homeowners will need to adjust their thinking.

“The danger in buying into an overvalued market is that you may have to own the home longer to realize significant financial returns,” said Eli Beracha, director of the Hollo School of Real Estate at Florida International University, interviewed in the Sun Sentinel.

And while our homes can be a good investments, don’t forget that they also require constant upkeep and have significant ongoing expenses, like taxes, utilities, insurance, mortgage payments, and general maintenance.

That’s why we always remind clients to think of their home as a comfortable place to live and not necessarily as an get-rich-quick investment strategy.  Gone are the days of thinking of your home as “an ATM with a lawn.”

So whatever the direction of future home prices, buy a place that will be a good home for you and your family, but make sure the price you are paying makes sense for your long-term budget.

About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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