Buying a home in South Florida is getting more and more expensive

From left to right: Mike Pappas, Ana Bozovic and Ron Shuffield (Photo-illustration by Kevin Cifuentes/The Real Deal)

Not so long ago, Hialeah, a working-class town with the second-largest population in Miami-Dade County, was a place where first-time and thrifty buyers could find plenty of affordable homes.

But the pandemic-fueled home-buying frenzy that has engulfed South Florida has driven prices to record highs in once-affordable markets like Hialeah, as well as upscale neighborhoods in Miami, Miami Beach and other coastal cities, according to experts.

With supply at historic lows, prices will continue to rise over the coming year, they say.

Ron Shuffield of Berkshire Hathaway HomeServices EWM Realty pointed to declining residential properties for sale in South Florida, which hit an all-time low in 2021.

“We just don’t have enough inventory to meet demand,” Shuffield said.

In Hialeah, the median price of a single-family home reached $430,000 in the fourth quarter of 2021, a 30% jump from the fourth quarter of 2019, according to data compiled by Berkshire. Across all of Miami-Dade, the median price of a single-family home in the fourth quarter of 2021 reached $510,000, a 15% year-over-year increase.

In Broward County, the median price climbed 17% year-over-year to $493,000. And in Palm Beach County, the median price of a single-family home rose 23%, to $540,000, according to Berkshire data.

Median condo prices saw increases of 32%, 20% and 18% in Miami-Dade, Broward and Palm Beach counties, respectively.

A November study from Florida Atlantic University concluded that single-family homes, condos and townhouses in South Florida are overvalued by about 20%, the highest since before the 2008 crash.

Still, home prices will continue to grow unabated over the coming year, the study concludes.

“It’s remarkable how quickly the pandemic has driven prices up,” Shuffield said. “In every market, the price increase is in the double digits.”

Ana Bozovic, founder of real estate data and brokerage firm Analytics Miami, calls South Florida a seller’s market, and she said it will stay that way for at least a few more years.

“If we continue to gain population, prices will remain a challenge for years to come,” Bozovic said. “The market is so tight right now.”

Pandemic shopping spree

Many buyers who are fueling record demand and price increases are moving to Florida due to the state’s no income tax and no-lockdown environment championed by Gov. Ron DeSantis.

“All of these businesses are bringing in people who need to buy homes,” Shuffield said. “Our state has a favorable public relations image and that encourages more people to move here.”

Buyers have been particularly keen on waterfront homes, leading to record prices in many coastal communities and an increase in the development of quality homes. In the span of a few weeks between December and January, billionaire LoanDepot founder and CEO Anthony Hsieh lost nearly $60 million on two waterfront homes and a luxury condo in South Florida.

Residential sales of $10 million and above in Miami-Dade, Broward and Palm Beach counties totaled $6.9 billion from December 2020 to November 2021, far exceeding sales in the previous two years combined and nearly tripling the dollar volume recorded from December 2019 to November 2020, according to research compiled by The real deal using Multiple Listing Service data provided by The Keyes Company.

Non-waterfront homes in cities like Miami Beach are starting to break through the $5 million price barrier. Pascal Nicolai, a mansion builder who last year sold two non-waterfront homes in Miami Beach for $5 million and $5.5 million, respectively, said buyers in the market for homes more $1 million can expect to pay 20-30% above today’s price. prices over the next two years.

“Even I find it difficult to find offers on land to build on,” Nicolai said. “There are more buyers than products in [South Florida]. “To be honest, the price increases will stop when prices reach the same level as house prices in New York, Los Angeles and Monaco.”

Decline in first-time buyers

Rising prices are making it harder for first-time buyers to find homes, said Mike Pappas, president and CEO of The Keyes Company. “Historically, first-time buyers are 40% of the market,” Pappas said. “Last year they fell below 30%.”

With homes and condos selling for higher prices, first-time buyers are also struggling to secure financing, Pappas said.

“To get financing, you can only spend 45% or even 50% of your gross income on house payments, which includes principal, interest, taxes and insurance,” Pappas said. “Your income determines your ability to get a house.”

As average home prices hit $500,000, first-time buyers are taking a breather. “It’s a dilemma in this market,” Pappas said. “If you take a house that was $400,000 two or three years ago, and now it’s $550,000, that takes a lot of people off the market.”

Anna Beltran, senior vice president of Hamilton Home Loans, said lenders have increased loan limits to keep up with rising home prices. In the third quarter of 2021, loan limits increased 18% from the same period a year earlier, Beltran said.

“The FHA loan limit has increased to $420,680 and the limit for conforming loans has increased to $647,000,” Beltran said. “Banks are trying to keep up with house price inflation. It has a lot to do with markets like Florida experiencing higher than average prices. »

Lenders also offer programs that reduce fees and closing costs, she said. “We have a program in Hamilton for veterans that we now offer to teachers, first responders and other middle-class workers that gives them a huge reduction in the cost of a new mortgage,” Beltran said.

A potential slowdown

Bankers expect the Federal Reserve to raise interest rates several times this year, which could slow the housing market. Mortgage rates remain near historic lows, with the 30-year fixed rate mortgage averaging 3.7% and the 15-year fixed rate mortgage averaging around 3%, according to published reports.

If the Fed raises interest rates by 1% by the end of 2022, it would affect mortgage rates and house prices, according to Beltran.

“Obviously when rates go up, that tends to slow that upward pressure on home values,” Beltran said. “With a projected rate of 4%, we will see a slowdown in these average house prices.”

Berkshire Hathaway’s Shuffield agreed that a higher interest rate could play a role in stabilizing prices, as it would affect a buyer’s purchasing power.

“For every 1% rate increase, a buyer’s borrowing power declines by just over 11%,” Shuffield said. “If the rate increases [to] 4%, a buyer could lose the ability to borrow $500,000 because they cannot afford a higher payment.