After hitting a seven-year high of $305,000 in June, the median single-family home price in Palm Beach County slumped 7 percent to $285,000 in September, and experts have mixed views about what this indicates for the future.
Jack McCabe, CEO of McCabe Research & Consulting in Deerfield Beach, says it signals trouble. While summer is generally the weakest quarter for the South Florida home market, “I think this is just the tip of the iceberg for a slowing market,” he told The Real Deal. “It’s an early indication of a reversal of the boom trend of the last three years.”
But David Cobb, regional director for Metrostudy South Florida, sees things differently. “I don’t think the market has peaked, certainly not from a demand standpoint,” he told TRD.
The median single-family home price stood 5.9 percent above its year-earlier level in September. “The average increase over the last 60 years is 3 percent, and we just ran at 10 to 20 percent for three years in a row,” Cobb said. “Now we’re at a more normal level. Gains should be relatively small next year.” And that’s something to be grateful for, he said. “We should appreciate that the rate is slowing, because prior rates were unsustainable.”
So why have prices slumped in recent months, aside from the usual seasonal weakness? Part of it is affordability. “Personal income has lagged behind home prices,” McCabe said. While the unemployment rate is going down, much of the new jobs are in low-paid service industries, particularly tourism-related ones, he said.
Median annual household income totals $53,000 in Palm Beach County, and a rule of thumb is that you shouldn’t buy a home that costs more than 3 1/2 times your income. That would put the maximum affordable home price at $185,500 for a median household, well below the September median price for a single-family home.
Meanwhile, the University of Florida’s statewide Consumer Sentiment Index fell nearly three points in September to 87.9. “People are feeling less comfortable about the security of their jobs and income,” McCabe said. The national economy isn’t doing the local housing market any favors either, he said. The Atlanta Federal Reserve Bank’s forecasting model puts third-quarter GDP growth at just 0.8 percent annualized.
As for foreign buyers, “how many multi-millionaires in Europe and Latin America haven’t already bought here?” McCabe asked rhetorically. “I think we’re tapped out on that.”
But when it comes to domestic demand, Cobb doesn’t think it’s tapped out. Population is rising, and 60,000 to 70,000 jobs per year are being created in South Florida, he said. “The household formation rate is increasing, and that’s one of the keys to a strong housing market.” And demand for rentals is so high that it’s becoming cheaper to buy a home than rent one, Cobb said. So that should translate into more home buyers.