The Calm Before The Storm

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We are in a percolating real estate cycle which is clearly symbiotic with the economy. For some, the economy is going quite well. For example, those who have 401(k)s are generally impressed with how they have grown this year, as well as those individuals who are savers and have found that they can earn 5% in traditional money market accounts or in CDs at banks.

Yet, if one is trying to buy a car or is seeking a mortgage, you are facing some of the highest interest rates in 22 years. Further, if you are trying to buy a home, certainly in South Florida, it is quite difficult since prices are well out of reach based on the average income that most people are making. Additionally, if you are a Realtor or somehow involved in the real estate industry, volume and transaction levels are at a new low because so few people are selling  their homes because they either cannot or do not wish to pay more for less or simply do not know where to go. As a result, with low housing inventory and buyers who, therefore, remain on the sidelines, many people are, in fact, complaining.

Picture courtesy Getty images

 Given these factors, the perfect storm in South Florida lies one level beneath what we read on-line or in the papers every day. To begin with, consumers have now, for the first time, taken out $1 trillion in credit card debt.  Many in fact are now refinancing that debt and turning in their low interest mortgages for higher interest mortgages that will then help refinance and reduce their consumer debt. That scenario is not much different than what occurred prior to the run up of the 2008 economic crisis and Great Recession.

Add to that spiraling out of control insurance rates that, in fact, caused a riot last week in Century Village  when some homeowners were told that their monthly homeowner assessments were rising between $100.00 and $200.00 due to new insurance requirements of the condominium. If that is not enough, many condominium owners in older condominiums are being hit with incredible new assessments and special assessments to cover the delayed repair costs that have not been made for 20, 30, or 40 years per a relatively new Florida condo inspection law passed in the wake of the 2022 Surfside tragedy. Some individuals are seeing $40,000.00 and $50,000.00 special assessments that need to be paid within 90 days.

On top of increased assessments and insurance issues, foreigners from China, Russia, or from Venezuela are generally being restricted on their ability to purchase residential real estate in the State of Florida due to  recently enacted Florida legislation which is currently under appeal. In fact, while a number of people have challenged the recent statute, a federal court has decided not to enjoin the enforcement of the law and thus the law remains on the books and fully enforceable for the foreseeable future.

For those of you who have been reading our blog for the past 15 years, you know that we have always tried to prognosticate when the next real estate bubble would burst. While such a prediction  is virtually an impossible task, it seems to be that a number of factors are now lining up that would suggest that things are going to get rather choppy in  South Florida over the next 12 months.

Regardless, the South Florida real estate economy has always been a boom to bust to boom again cycle, and so no one will argue that we are at the tail end of a boom cycle. The only question is when it will bust. We shall see.

From the trenches,

Roy Oppenheim