Why are home prices continuing to be high?
There seems to be a pricing disconnect between would be homebuyers and sellers these days. Why? Homebuyers want to offer lower contract offers and yet sellers still want to obtain higher than normal sale prices as they enjoyed last year. Although mortgage interest rates near 7%, buyers still face elevated sale prices.
What are the reasons for continued, elevated sales prices?
One reason for these elevated sale prices is because of low housing inventory. Since the 2008 housing crash when new home construction plummeted, the housing supply is still at historic lows which, as a result, is causing sustained higher home prices. According to the National Association of Realtors, housing inventory, in general, is at a 2.9-month supply which is down from 3.3 months in November. Miami-Dade, in specific, has four months of inventory of single family homes and condos while Broward has three months of inventory single family homes and 3.1 months of supply of condos. Both counties fall below a “balanced” market of six to nine months of inventory.
As a result of lowered housing inventory, it has been reported that Broward County the median sales price of a single-family home jumped from $500,000 to $540,000 in January while condo prices jumped from $240,000 to $269,900. In Miami-Dade, the median sales price of a single-family home jumped from $520,000 to $545,000 in January while condos jumped from $360,000 to $400,000.
A rendering of a Miami development picture courtesy: Related Group
Another reason for the elevated sale prices is that there are less homeowners who are choosing to sell because of higher mortgage interest rates. Specifically, these sellers may want to wait until interest rates decrease if they themselves need to apply for a mortgage I for another home after they move. Thus, with fewer sellers, prices for the available inventory once again remains high because of the decreased housing supply.
In addition to low housing inventory and higher mortgage interest rates, home prices still remain high because, as we stated in an earlier blog, more and more people from out of state are moving to Florida to enjoy more favorable weather and tax friendly climates. These homebuyers find the South Florida housing market, while high, to be affordable compared to their home states. As a result, there still is a demand to purchase the available inventory in South Florida regardless of the sale price.
Further, the fact that nearly half of the home deals in January were cash purchases in Miami-Dade and Broward (higher than the 29% national average) indicates that higher home purchases will continue regardless of the supply or mortgage rate issues.
How can the prices still be high when January home sales have slowed?
While the Miami Association of Realtors reported that existing home sales in Miami-Dade and Broward have decreased by 47% and 39% respectfully from sales in January 2022, prices still remain high. Why? This still may well be the result of the facts that there is less housing inventory, sellers still are used to obtaining higher prices for their homes, and cash buyers are purchasing homes regardless of the housing market factors.
What does this all mean?
The housing market is in flux. As we all know, housing is a matter of supply and demand. Coupled with this, the Federal Reserve is still trying to control inflation by increasing mortgage rates. Until more sellers are motivated to sell, low inventory will prevent housing prices from flattening any time soon. In Florida that may not happen any time soon.
From The Trenches