Lower Rates May Not Help South Florida Buyers

 By Rebecca San Juan

Demand is so strong that high mortgage rates haven’t lowered home prices. And while “waiting for a lower rate” sounds good, it could make buyer demand even stronger.

MIAMI – Since 2019 prior to the pandemic, the number of houses and condominiums for sale at or below the median sales prices in South Florida has plunged.

New figures quantify the extremely tight supply of homes in Miami-Dade, Broward and Palm Beach counties that middle-class homebuyers can typically afford, and show a prime reason why many house hunters haven’t been able to find houses or condos they can afford to buy.

Consistently through the pandemic that began in March 2020, housing experts have said home prices kept soaring in South Florida for myriad reasons, with short supply being the main one. Now, for the first time the Miami Herald has the data to show just how thin the inventory of homes has been, making it highly competitive for many buyers to land affordable homes.

Each of the three counties in the region has seen a drop between 56% and 87% in the inventory of single-family houses and condos listed for sale from July 2019 to July 2023 at or below median sales prices, according to data from the Multiple Listing Service and Ana Bozovic, a real estate analyst and founder of Analytics Miami and Miami Dealsheet.

“It’s a very difficult situation. You should expect prices to fall when interest rates go up, but not here,” Bozovic said. “That’s because of the surge of economic activity and supply shortage.”

Median sales prices in July were $631,670 for houses in Miami-Dade, $600,000 in Broward and $600,000 in Palm Beach County. Condo median pricing, meanwhile, was $420,000 in Miami-Dade, $280,000 in Broward, and $315,000 in Palm Beach.

Here’s the county-by-county breakdown of the dwindling availability of houses and condos for sale over the past four years:

• In Miami-Dade, there were 1,103 single-family homes on the market at or below the median in July, a drop of 76% from 4,568 listings in July 2019. The condo market experienced a similar free fall of 72%, to 2,456 listings at or below $420,000 from 8,806 listings four years ago.

• In Broward in July, there were 1,363 houses listed in that price range, 72% fewer than the 4,836 on the market in July 2019. Also, 2,521 condos were listed at or below the median, 56% fewer than 5,759 condo listings four years ago.

• The situation looks equally grim in Palm Beach County. It had 966 houses for sale at or below the median price two months ago, down 79% from 4,561 house listing in July 2019. And 171 condos were on the market in that price range in July, an 87% drop from 1,355 condos in July 2019.

These figures make plainly and painfully clear the challenging South Florida housing market for budget-conscious buyers. It’s a situation that’s worsened in the pandemic when wealthy buyers flooded into the region, buying homes with cash, and real estate developers most often opting to build homes well above the median-price point.

Real estate analysts expect it’ll take years for the supply of cheaper homes to increase to a plentiful level. A complicating factor is that more sellers of existing homes in the three counties have stayed put as mortgage rates kept climbing the past couple of years before reaching a 20-year peak this summer.

“On the low end, the loss of inventory is because people cannot afford to move, because of the spike in median pricing since pre-Covid and the surge in interest rates,” Bozovic said.

Still, South Florida continues to see steady demand for its depleted housing market. Miami-Dade, for example, only has a 3.2-month supply of houses and 5.1 months’ worth of condos available. Both are below the six to nine months of inventory needed for a balanced housing market.

New-home construction is underway across the region, which should bring more affordable homes on the market for sale in the coming months. However, it won’t be enough for buyers to expect home prices to fall, said Mark Thibodeau, a real estate professor at Florida International University’s Tibor and Sheila Hollo School of Real Estate.

“To see the supply to meet demand it is going to take years,” Thibodeau said. “At the end of the day, Miami is constrained by geography. We have as much land as we have. As long as people want to live here, as long as there’s economic growth, we will likely see appreciation in property value and that just means the median [home sales price] will continue to go up. Then it becomes about whether incomes are rising at a fast enough pace to keep up with housing costs.”

For now, many real estate experts recommend buyers who have the financial means to settle for what’s on the market and purchase a house or condo, because there will be even more competition to buy in South Florida when interest rates fall later this year or in 2024.

“Don’t wait,” Bozovic said. “Interest rates will go back down, but not to the lows that we had.”

© 2023 Miami Herald. Distributed by Tribune Content Agency, LLC.

Vacation Home Demand Close to Seven-Year Low

 By Kerry Smith

Vacation-home buyers face the same headwinds as other buyers, plus pandemic demand ended, and many have return-to-the-office orders, with loan rate locks down 50%.

SEATTLE – Vacation homes were hot during the pandemic as workers freed from the office look for places where they could spread out. But that pace may have cannibalized current demand as some vacation-home buyers jumped into the market a few years earlier than planned. Plus vacation homebuyers today face the same challenges as homesteaders, notably low inventory, and higher home prices and mortgage rates.

Using mortgage-rate locks as a gauge for homebuyer demand, a study found that they were down 47% from pre-pandemic levels on a seasonally adjusted basis in August compared to a 33% decline for primary homes, according to a Redfin study.

August marks the 14th-straight month that second-home demand as hovered at least 30% below pre-pandemic levels, as high housing costs and limited inventory deter would-be buyers. Rate locks for second homes hit a seven-year low in February, dropping to 52% below pre-pandemic levels.

A mortgage-rate lock is an agreement between a homebuyer and lender that allows the homebuyer to lock in an interest rate on a mortgage for a certain period of time; roughly 80% of rate locks result in purchases.

Demand for second homes is also down (19%) year-to-year. Mortgage-rate locks for second homes, which is also bigger than the 14% decline for primary homes.

The pandemic may have also influenced the current market. Vacation home mortgage locks skyrocketed during the pandemic, hitting a peak of 88.5% above pre-pandemic levels in October 2020. Affluent Americans jumped at the chance to snap up second homes with record-low mortgage rates during a time when many of them could work remotely from vacation towns.

Demand for primary homes jumped during that time, too, but the increase was much more modest, reaching a peak of 16% above pre-pandemic levels in late 2020.

Variety of reasons for vacation home drop

• It’s more expensive to buy a second home. The typical home in a seasonal town – where many second homes are located – sells for $564,000, up 5% from a year earlier, though it’s comparable to non-seasonal towns ($421,000), also up 5%. However, mortgage rates for second homes are also typically higher. In addition, the federal government increased second homes’ loan fees in 2022, which sometimes adds tens of thousands of dollars to the cost.
• Many workers are returning to the office. The allure of second homes has diminished as many companies tighten employees’ ability to work remotely.
• Short-term rentals are less attractive. The “rent it out on Airbnb” options may be less attractive than it once was. Some U.S. cities created new regulations, and the maturing short-term rental industry has faced some internal problems during its growth.
• The long-term rental market is cooling. Buying a vacation home to rent out long term is less attractive, too. Although asking rents are still high, many landlords are offering concessions to attract renters. Plus, there’s a rising number of vacancies for landlords to fill with many new units set to hit the market soon.

© 2023 Florida Realtors®

10% of of listings are "Back to Office" home sellers

 By Kerry Smith

If more workers are called back to the office, would the housing inventory improve? Still, top reasons remain family, more space and/or a lower cost of living.

SEATTLE – Return-to-work policies are starting to have a measurable impact on sellers’ reasons for listing their home, with a recent study finding it a top reason for one in every 10 (10.1%) listings.

While returning to the office wasn’t the most common reason respondents listed for moving, the response rate is notable because back-to-office mandates are an emerging cause of relocation, according to a study conducted by Qualtrics and commissioned by Redfin covering May-June 2023.

In Boise, Idaho, Redfin Premier agent Shauna Pendleton has a pair of clients selling their home after only about a year because their Seattle-based employer is requiring them to return to the office. They will likely have to sell at a loss since they bought when home prices were near their peak.

“My sellers both work at the same company, which told them they have to be in the office three days a week or they’ll lose their jobs,” Pendleton says. “They have six months to make the move. They’ll probably have to take a $100,000 loss on their home; their new house in Seattle won’t be anything close to the size of their property in Boise; and their mortgage rate will be much higher.”

Other reasons homeowners are selling

With mortgage rates near the highest level in over two decades, there aren’t a ton of people selling their homes, meaning many who do decide to sell don’t have the luxury to wait. But the results of Redfin’s survey show that movers today are still considering factors including climate change and social issues:

• 19.3% of survey respondents with plans to sell within the next year want to relocate to live in a place better aligned with their views on social issues
• 19% cited lower taxes
• 17.9% noted concerns about safety/crime
• 10.6% plan to move because they’ve dealt with discrimination in their neighborhood
• 8.4% had concerns about the impact of climate change on their neighborhood

“Real estate is all about priorities and compromise,” says Redfin Chief Economist Daryl Fairweather. “While a lot of homeowners are staying put, refusing to give up their rock-bottom mortgage rates, some are opting to trade their low rate for a safer neighborhood, lower taxes and/or neighbors with the same political views.”

The desire for more space is the most common factor driving people to relocate, which has been historically been in the top three:

• 33.8% cited “more space” as a reason for their move
• 22.6% said it was a desire to be closer to family
• 21.6% wanted a lower cost of living

© 2023 Florida Realtors®

Household Income Fell 8.8% as Home Prices Rose

 By Kerry Smith

U.S. households had 8.8% less to spend in 2022 (after taxes) than they did in 2021 due in part to 2021’s pandemic checks and expiring tax credits, such as some for childcare.

WASHINGTON – Real median household income after taxes fell 8.8% to $64,240 from 2021 to 2022, according to a report from the U.S. Census Bureau. And the poverty rate after taxes as measured by the Supplemental Poverty Measure (SPM) increased 59% to 12.4% over the same period. With “real median income,” inflation’s impact is backed out to make year-to-year numbers comparable.

Before-tax real income didn’t show the same gap, though it also declined. In the Census Bureau’s Income in the United States: 2022 and Poverty in the United States: 2022, before-tax median household income declined 2.3% to $74,580 and the poverty rate (11.5%), as measured by the official poverty measure, was not statistically different from 2021.

The larger-than-usual difference can be attributed to changes in federal tax policy, according to the Census Bureau.

In 2022, several policies enacted by the American Rescue Plan Act (ARPA) expired, including an expansion of the Earned Income Tax Credit (EITC) for filers without children and full refundability of the Child Tax Credit (CTC) and Child and Dependent Care Tax Credit (CDCTC). ARPA also increased the maximum amount of CTC.

In addition, most households also received Economic Impact Payments (EIP) in 2020 and 2021 that were no longer issued in 2022.

The tax-policy rollback had the largest effect on post-tax income for the nation’s lowest-income households, which, in turn, had an impact on the U.S. poverty rate. In 2021, for example, post-tax income for Americans in the bottom tenth percentile was 17.1% higher than the corresponding pretax income estimate, reflecting a substantial boost that year from the EIP and expanded CTC.

In 2022 that changed back, and estimates of pretax and post-tax income at the tenth percentile weren’t significantly different.

Lower post-tax income, particularly at the bottom of the income distribution, also resulted in an increase in income inequality. The Gini index – a common measure of how unequal incomes are for pretax income – was 1.2% lower in 2022 than in 2021, reflecting real income declines for the wealthiest American households.

However, the post-tax Gini index was 3.2% higher among lower-income households due to substantial declines in post-tax income.

Source: U.S. Census Bureau, John Creamer and Matt Unrath

© 2023 Florida Realtors®

The median U.S. asking rent in July was $2,038, just $16 below the record high set in August 2022

 SEATTLE – The median U.S. asking rent in July was $2,038, just $16 below the record high set in August 2022. That’s according to a new report from Redfin.

While rents are just shy of their all-time high, rent growth remains sluggish. The median asking rent was up just 0.3% from a year earlier in July, compared with a 13.6% annual gain in July 2022.

Rent gains cooled over the past year due to an increase in supply, economic uncertainty and slowing household formation, but big bargains are still often hard to come by given rents are near record highs.

“While rents are flattening out, it’s too early to say whether rent growth has bottomed,” said Redfin Deputy Chief Economist Taylor Marr. “A strong job market, cooling inflation and increasing consumer spending – which have decreased the likelihood of a recession – point to resilient renter demand. But there are still a lot of newly built apartments that have yet to hit the market, meaning rents may still have room to fall as landlords grapple with rising vacancies.”

The median asking rent is near its record high when the housing market tends to be “downside sticky,” meaning prices don’t typically fall substantially even when business is slow, Marr added. Instead of lowering rents, many landlords offer perks like a free month’s rent or discounted parking, which tend to be less detrimental to profits.

The number of options renters can choose from has steadily climbed over the past decade. Completed residential projects in buildings with five or more units rose 26.3% year-over-year to 476,000 on a seasonally adjusted basis in June – the most recent month for which data is available – meaning landlords have more vacancies to fill and less leeway to raise prices.

But there are signs that the homebuilding boom is easing. The number of permitted residential projects in buildings with five or more units fell 33.4% year over year to 465,000 on a seasonally adjusted basis in June, the biggest drop since 2016.

Permits, or approvals given by local jurisdictions to start construction projects, are a leading indicator of what’s happening in the housing market. Completions are a lagging indicator.

Rents fall in the West, rise in the Midwest and Northeast

In the West, the median asking rent fell 1.1% year over year to $2,451 in July. And in the South, it rose 0.3% to $1,674 – the smallest increase since 2020. By comparison, asking rents rose 4.6% to a record $2,533 in the Northeast and climbed 4.3% to a record $1,416 in the Midwest.

The rental market has cooled quickly in the West and South in part because those markets saw outsized rent increases during the pandemic. Rents skyrocketed as people flooded into Sun Belt cities including Phoenix, Miami and Dallas. Now, rents in those regions have relatively more room to fall – especially as renters increasingly find themselves priced out of certain cities. The West has also been disproportionately impacted by layoffs in the tech sector, which may be contributing to its soft rental market.

While rents in the West and South have been relatively sluggish, it’s worth noting that these regions’ rental markets have started to stabilize in recent months as the impact of the pandemic price boom moves further into the rearview mirror and layoffs ease.

Source: Redfin

© 2023 Florida Realtors®

Redfin: U.S. Asking Rents Inch Closer to Record High

 The median U.S. asking rent in July was $2,038, just $16 below the record high set in August 2022. But that asking rent was up just 0.3% from a year earlier in July.

SEATTLE – The median U.S. asking rent in July was $2,038, just $16 below the record high set in August 2022. That’s according to a new report from Redfin.

While rents are just shy of their all-time high, rent growth remains sluggish. The median asking rent was up just 0.3% from a year earlier in July, compared with a 13.6% annual gain in July 2022.

Rent gains cooled over the past year due to an increase in supply, economic uncertainty and slowing household formation, but big bargains are still often hard to come by given rents are near record highs.

“While rents are flattening out, it’s too early to say whether rent growth has bottomed,” said Redfin Deputy Chief Economist Taylor Marr. “A strong job market, cooling inflation and increasing consumer spending – which have decreased the likelihood of a recession – point to resilient renter demand. But there are still a lot of newly built apartments that have yet to hit the market, meaning rents may still have room to fall as landlords grapple with rising vacancies.”

The median asking rent is near its record high when the housing market tends to be “downside sticky,” meaning prices don’t typically fall substantially even when business is slow, Marr added. Instead of lowering rents, many landlords offer perks like a free month’s rent or discounted parking, which tend to be less detrimental to profits.

The number of options renters can choose from has steadily climbed over the past decade. Completed residential projects in buildings with five or more units rose 26.3% year-over-year to 476,000 on a seasonally adjusted basis in June – the most recent month for which data is available – meaning landlords have more vacancies to fill and less leeway to raise prices.

But there are signs that the homebuilding boom is easing. The number of permitted residential projects in buildings with five or more units fell 33.4% year over year to 465,000 on a seasonally adjusted basis in June, the biggest drop since 2016.

Permits, or approvals given by local jurisdictions to start construction projects, are a leading indicator of what’s happening in the housing market. Completions are a lagging indicator.

Rents fall in the West, rise in the Midwest and Northeast

In the West, the median asking rent fell 1.1% year over year to $2,451 in July. And in the South, it rose 0.3% to $1,674 – the smallest increase since 2020. By comparison, asking rents rose 4.6% to a record $2,533 in the Northeast and climbed 4.3% to a record $1,416 in the Midwest.

The rental market has cooled quickly in the West and South in part because those markets saw outsized rent increases during the pandemic. Rents skyrocketed as people flooded into Sun Belt cities including Phoenix, Miami, and Dallas. Now, rents in those regions have relatively more room to fall – especially as renters increasingly find themselves priced out of certain cities. The West has also been disproportionately impacted by layoffs in the tech sector, which may be contributing to its soft rental market.

While rents in the West and South have been relatively sluggish, it’s worth noting that these regions’ rental markets have started to stabilize in recent months as the impact of the pandemic price boom moves further into the rearview mirror and layoffs ease.

Source: Redfin

© 2023 Florida Realtors®

More Americans Dropping Their Home Insurance

Survey: 12% of U.S. homeowners don’t have property insurance. About half of them have household incomes of $40,000 or less and say they can’t afford it.

NEW YORK – Policyholders increasingly opt out of homeowners insurance as premiums become unaffordable.

Bankrate found the average premium for $250,000 in dwelling coverage rose to $1,428 per year – a nearly 22% increase from 2022.

Wealthier homeowners say they have enough savings to rebuild if a natural disaster damages or destroys their home – but experts say they may be in for a surprise. They’ll need more than just home rebuilding costs and money to replace contents. They’ll also have to cover the cost of debris removal.

“It is a risky proposition to go without home insurance, and you need to fully understand the financial consequences if you lose your home,” says financial adviser Noah Damsky.

Over the past three years, Executive Director Amy Bach at United Policyholders says she’s seen more people who own their homes outright or inherited a home drop insurance because they can’t afford or can’t accept the current high price of home insurance.

Still, other policyholders are forgoing insurance coverage because their carrier didn’t renew their policy due to increased catastrophe risks.

According to a 2023 survey by the Insurance Information Institute and Munich Re, homeowners with a mortgage face a secondary risk if they choose to go without an insurance policy: lender-placed insurance, which is more expensive than average homeowners insurance and usually covers less.

Source: Wall Street Journal (08/28/23) Dagher, Veronica

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