Melissa Donnahoe, broker / owner

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By Melissa Donnahoe

The South Florida housing bubble: Is it ready to burst?

An apartment complex in downtown Fort Lauderdale stretches into the sky.

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With real estate prices skyrocketing and buyers clamoring for a dwindling inventory of homes, are we experiencing a new South Florida housing bubble?

Florida was hit hard during the 2007 housing crash. Seasoned investors like myself are wary of history repeating itself. However, the circumstances are different today. I think – and other real estate professionals agree with me – that the outcomes will be different too. 

What is a housing bubble?

In a normal real estate market, prices rise at a steady and predictable rate. However, in a bubble, housing prices increase faster than predicted, for reasons that don’t reflect market conditions.

Think of a literal bubble or a balloon. A balloon grows but without any substance holding its size. It’s just air, and with a tiny pinprick, the balloon suddenly shrinks back into your palm.

Overconfidence that prices would continue to grow, no matter what, fueled the 2007 national crisis, not just in South Florida. That housing bubble was filled with subprime mortgages, loans that banks had no business granting. Loans that were paid back with overinflated prices – right until the bubble burst, and house prices were suddenly much cheaper.

How is this time different?

Today, prices are increasing because of an imbalance between supply and demand. The construction industry responded cautiously after the Great Recession. New home construction has not kept up with the growth of demand, especially as the economy has begun to stabilize after the worst of the pandemic.

Recognizing the housing shortage and the long-term income potential, investment companies have been purchasing homes without restraint. This has made it even more difficult for millennials, who are finally financially stable enough to purchase their first home. These factors, combined with interest rates that were held near zero percent during the pandemic, created a perfect storm for fast-growing housing prices.

The difference between now and the housing bubble in 2007 are the circumstances. Real, unavoidable market factors are driving up prices now, not overconfidence and shoddy loans.

How has South Florida been affected?

The last time the housing bubble burst, it felt like Florida was at the epicenter of the crisis. However, South Florida is not where the highest rates of overinflated housing pricing are happening, according to Florida Atlantic University’s Beracha and Johson Housing Market Ranking.

Housing in Miami and Fort Lauderdale area is overpriced, of course. However, the metropolitan area is in the middle of the pack in comparison to overinflated prices in other U.S. cities.

Miami-Fort Lauderdale is ranked 57th in the top 100 (overinflated) housing markets. Prices for housing are overinflated by a rate more than double that of South Florida in cities like Austin, Atlanta, Las Vegas and Phoenix.

How are multi-family prices affected?

The housing demand is affecting all aspects of the market. Much of the focus has been on single-family houses, which require less capital per investment. However, the housing crunch has made multi-families home increasingly profitable as well.

Investors looking for long-term income will recognize the potential of a multi-family property while interest rates are still low. If you’re interested in investing in a multi-family home, get started by browsing our inventory or contacting us.

What will the end results be?

I do think we’re going to see housing prices hit a ceiling soon. However, I do not think the national, or South Florida, housing bubble will burst with the force that it did in 2007.

Prices will stabilize, but slowly. Without a giant influx of new housing options, which aren’t forthcoming, demand won’t outpace supply that quickly.

Next week, we’ll talk about how real estate agents can prepare for the burst of the South Florida housing bubble. Even if I don’t think we’re in a fragile housing bubble, the best of us have been wrong before.

Headshot of Melissa Donnahoe

Melissa Donnahoe is the Broker/Owner of Royal Empire Realty, powered by SELLSTATE. She was born and raised in Florida and is extremely familiar with the area and the ever-changing real estate market. She has worked in both Residential and Commercial Real Estate and has been involved in hundreds of transactions.

She is not just a Realtor, but an investor as well. She works with other investors to show them how to leverage their time and money through her knowledge, experience and amazing team of professionals.

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