Pumping up prices in South Florida

UPDATED, Feb. 9, 11 a.m.: Not long ago, Hialeah, a working class city with the second-largest population in Miami-Dade County, was a place where first-time and frugal buyers could find plenty of modestly priced homes. 

But the pandemic-powered homebuying frenzy that’s engulfed South Florida has caused prices to spike to record levels in once-affordable markets like Hialeah, as well as in luxury areas of Miami, Miami Beach and other coastal cities, according to experts. 

With supply at all-time lows, prices will continue climbing in the year ahead, they say. 

Ron Shuffield, with Berkshire Hathaway HomeServices EWM Realty, pointed to the dwindling number of residential properties for sale across South Florida, which hit a historic low in 2021. 

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

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

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

The median prices of condos experienced increases of 32, 20 and 18 percent in Miami-Dade, Broward and Palm Beach counties, respectively. 

A November study by Florida Atlantic University concluded that single-family houses, condos and townhomes in South Florida are overvalued by roughly 20 percent, the highest since before the 2008 crash. 

Yet residential pricing will continue growing unabated in the coming year, the study concluded. 

“It is remarkable how fast the pandemic has pushed pricing upward,” Shuffield said. “In every market, the increase in pricing is in the double digits.” 

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

“If we keep gaining population, pricing is going to remain a challenge for the years ahead,” Bozovic said. “The market is so squeezed at the moment.”

Pandemic buying frenzy

Many of the buyers fueling record demand and price jumps are relocating to Florida because of the lack of state income tax and the lockdown-free environment championed by Gov. Ron DeSantis.

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

Buyers have particularly sought waterfront homes, leading to record prices in many coastal communities and a surge in spec home development. In a span of a few weeks between December and January, billionaire LoanDepot founder and CEO Anthony Hsieh dropped nearly $60 million on two waterfront homes and a luxury condo in South Florida.

Residential sales of $10 million and more in Miami-Dade, Broward and Palm Beach counties totaled $6.9 billion from December 2020 to November 2021, far surpassing 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 such cities as Miami Beach are starting to break the $5 million price barrier. Pascal Nicolai, a spec mansion builder who last year sold two non-waterfront homes in Miami Beach for $5 million and $5.5 million, respectively, said that buyers in the market for $1 million-plus homes can expect to pay 20 to 30 percent above today’s prices in the next two years. 

“Even I’m having difficulty finding deals on lots to build on,” Nicolai said. “There are more buyers than product in [South Florida]. “To be honest, the price increases will stop when the prices reach the same level as home prices in New York, Los Angeles and Monaco.” 

Decline in first-time buyers

Escalating 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 account for 40 percent of the market,” Pappas said. “Last year, they dropped to below 30 percent.” 

With houses and condos selling at higher prices, first-time buyers are also finding it difficult to obtain financing, Pappas said. 

“To get financing, you can only have 45 percent, maybe 50 percent, of your gross income going to house payments, which includes principal, interest, taxes and insurance,” Pappas said. “Your income determines your ability to get a home.” 

As average home prices hit the $500,000 range, first-time buyers are taking a pause. “That is a dilemma in this marketplace,” Pappas said. “If you take a house that was $400,000 two, three years ago, and now it is $550,000, that takes a lot of people out of the market.” 

Anna Beltran, president and COO 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 rose 18 percent compared to the same period the previous year, Beltran said. 

“The FHA loan limit increased to $420,680, and the limit for conforming loans went up to $647,000,” Beltran said. “Banks are trying to keep up with the inflation in home prices. A lot of it has to do with markets like Florida that are experiencing higher-than-average prices.” 

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

A potential slowdown

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

If the Fed hikes interest rates by 1 percent by the end of 2022, it would affect mortgage rates and home prices, according to Beltran.

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

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

“For every 1 percent rate increase, a buyer’s borrowing power decreases by a little over 11 percent,” Shuffield said. “If the rate goes up [to] 4 percent, a buyer could lose the ability to borrow $500,000, because they can’t afford a higher payment.”