For a while, the real estate prices have raged out of control, especially in South Florida. With demand high and supply low as the economy recovered from the worst of the pandemic, there seemed no end to climbing housing prices.
However, savvy investors have been looking for signs that prices are on the way down. Some have predicted a housing market crash was the only way to correct the overinflated real estate values. Others, like me, have predicted a slower decline in prices.
Today, I want to explore what that slower option would look like. Let’s talk about a real estate market correction.
What is the status of the housing market right now?
We’re beginning to see signs of the real estate market cooling down, especially on the national level. Indicators of market growth are mixed, after months and months of seemingly every trend ticking upwards.
For example, new single-family sales dropped in April. Sales were 16.6% below the seasonally adjusted rate for March. The rate marked a 26.9% decrease in sales compared to April of last year.
Average home list prices, however, have not taken the same hit – at least not yet. National prices in April climbed to $425,000, according to Realtor.com.
Those prices, coupled with average mortgage rates creeping up to 5.25%, means that new homeowners are paying a lot more for the same house than they were a year ago. Think 50% more on their monthly mortgage payments.
With inflation jacking up everyone’s monthly costs, many would-be home owners will find purchasing a home completely unaffordable. With less demand, prices will begin to drop.
That, of course, was the intention of the Federal Reserve when it began to increase interest rates. As the Fed tries to correct rampant inflation, we will see the real estate market correction begin to happen across the country.
How is the market different in South Florida?
In South Florida, the real estate market correction may lag behind what’s happening nationally.
The housing inventory problem in South Florida is more acute, with less relief on the horizon. The area is still a destination people are moving to rather than away from. Some new housing developments are being added to the tri-county stock, but increases are still modest.
We do see some inventory gains when we look at the rate of new listings compared to the year before. For a while, there was a big percentage gap. In January of this year, new listings were 18% lower than the previous year. The gap came down to 10% in February and then down to 9% in April.
In April, housing transactions fell 20.8% in South Florida, compared to April of last year.
However, new active home listings were still down 16.9% in April compared to the previous year. That’s still a lot of inventory to recover, even as the gaps begin to close.
Additionally, the average single-family South Florida home was $701,900 in May. That is way above the national average and 32.6% higher than the price in May 2021.
In summation, the South Florida housing market has been an investor’s playground for some time. Lower income residents or new families looking for their first home purchase have been priced out in South Florida much longer than they have on the national level. Certainly, increased interest rates and inflation will not help that problem.
What does a real estate market correction mean for investors?
In a previous post, I talked about the real estate cycle and how investors need to recognize where we are in the cycle and how to respond.
The key factor in that calculation is inventory. We have some indications that inventory is increasing. What we do not have is any evidence that the housing supply in South Florida is about to level out. That puts us solidly in the expansion phase of the cycle.
Because the inventory problem is so intense in South Florida, I think hypersupply is many months away, if not years. However, with a real estate market correction happening in other parts of the country, I can see investors looking elsewhere for cheaper buy-ins in cooler markets.
I believe a real estate market correction in South Florida means prices will drop from their super-inflated rates, all while the housing inventory is still growing.
I do not think the correction will happen quickly or all at once. However, slowly and over time, the prices have to decrease.
That means that now is an excellent time to sell. Especially if you are looking for a less labor-investment strategy. Investors can offload South Florida properties while prices are still sky-high and have plenty of capital to invest in passive income strategies, like syndications.
Our Royal Empire Realty team is ready and knowledgeable to discuss selling your property and investing in other revenue streams.
If you are still interested in owning a slice of South Florida real estate, our team can help with that, too. There are still plenty of hidden opportunities in South Florida communities. Royal Empire Realty knows the local neighborhoods and will guide you in your investment.
How should real estate agents prepare for a market correction?
Real estate agents in South Florida are fortunate to be working in a market that will maintain some stability. Even if the national real estate market correction takes a deeper plunge than most of us anticipate, South Florida is not likely to match that intensity.
That being said, I always advise the agents I work with to make their own investments. This gives you personal financial stability should leads in your market forte suddenly become thin. Passive income grants you time to pivot to a new market or a new strategy.
Secondly, I encourage my team to invest in their own education. It might seem counterintuitive to take time out of your day while the market is hot. However, investing in yourself now allows you to stay prepared for a range of market conditions down the road.
If these priorities resonate with you, join us at Royal Empire Realty! You will not regret prioritizing yourself by aligning yourself with a brokerage that cares about its agents.