Gone are the days of round-the-block lines for open houses, love letters to sellers, and buyers waiving due diligence with their all-cash offers in South Florida.
The nearly two-year housing boom, fueled by out-of-state migration, low interest rates and few pandemic restrictions, is on hiatus. The “urgency” previously felt by potential buyers has dissipated, brokers say, and when — and if — that will return is unclear.
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Residential
New York
U.S. home price growth slows for first time in five months
Residential
South Florida
Miami again ranks as nation’s least affordable housing market, followed by LA, NY
Residential
South Florida
Feverish demand for South Florida homes leads to over-the-top offers
Nationally, some large brokerages announced major layoffs ahead of a potential recession.
“It was always expected that the market could not continue at the speed we were going,” said developer and broker Edgardo Defortuna, CEO of Fortune International Group. “We always thought the speed of the demand needed to cool off a little bit.”
Last year, residential dollar volume totaled nearly $75 billion in the tri-county region, marking a double-digit percentage increase compared to 2020, according to the Miami Association of Realtors.
But interest rate hikes in the spring, historic inflation and volatility in the financial markets pushed buyers to the sideline. By June, dollar volume in South Florida fell to $6.6 billion, down from more than $8 billion recorded in June 2021. Sales of single-family homes, condos and townhouses plunged across the region, realtors’ reports showed.
The average mortgage rate nationwide is now about 5.7 percent, according to Bankrate, roughly double its low of last year.
Despite the slowdown, price records are still being set at a neighborhood and even county level, and agents say they are doubling down on their efforts to get deals done during the summer. Most brokers and developers hope demand will return when buyers are back in the market this fall or winter. They call the region an outlier, and say that historically, rates are still low.
South Florida “doesn’t appear to be cooling off as much as the rest of the country,” said Redfin economist Taylor Marr.
Developer Dan Kodsi, CEO of Royal Palm Companies, said people will continue to migrate to Florida to “reduce their exposure to taxes,” even during a recession. South Florida also recovered more quickly than the rest of the country after the Great Recession, he added.
Signs of a slowdown
Boca Raton agent Aaron Buchbinder hosted a pop-up open house earlier this year where 40 of the 100-plus people who attended made cash offers above asking price — with no contingencies. Though Buchbinder, an agent with Compass, said he is still receiving full cash offers on properties, buyers are now doing their due diligence.
Buchbinder is not the only one taking notice of the market mellowing.
“This same time last year, sellers were non-negotiable. There were bidding wars,” said Chad Carroll, a broker with the Carroll Group at Compass. “Now they’ve realized that party’s over.”
The shift in the market has returned some power back to buyers, making sellers more amenable to financed offers, according to Miami Beach-based Compass agent Ida Schwartz.
“Before, sellers only wanted to work with buyers that were cash. The realtor on the other side, they weren’t even paying attention to you if you had financing,” she said.
Agents said that sellers need to be realistic when it comes to pricing, while also recognizing that some cities and neighborhoods are more in demand than others. Plus, apartment rents are still so high that some renters are still looking to buy.
“It’s very important to strategize with the seller. Have a game plan. Is that the real price, or your ‘make your move’ price?” Buchbinder said. “There’s certain markets that are extremely hot [like areas of Boca Raton] because there is no inventory.”
Some brokers are boosting their marketing strategies and sales pitches, while others are taking a much needed vacation and preparing for demand to return in the fall.
“To be frank, we’re doubling down, we’re spending more money than ever [on marketing],” Schwartz said.
Agents in general are hopeful that international buyers will bolster the market, citing the return of Colombian, Brazilian, Chilean and Argentinian buyers from their pandemic hiatus. Still, they anticipate a difficult few months for inexperienced agents.
“They’re going to be saying ‘I wish I hadn’t bought that fourth Rolex,’” said Jorge Uribe, a broker with One Sotheby’s International Realty.
A tale of two markets
Carroll said the affordable end of the market is more likely to see prices drop, because those buyers are more sensitive to rising interest rates.
“Pricing has to come down so that people can afford that inventory,” Carroll said.
The ultra high-end market is a different story. Those buyers are less affected by mortgage rate hikes, but are still cautious because of global economic events and the effects on their portfolios. Both waterfront and non-waterfront properties have flipped and continue to trade for record prices. Oracle co-founder and billionaire Larry Ellison’s $173 million purchase of a 16-acre residential compound in Manalapan set a record in Florida for home sales. It closed in June.
“I think we’re just back to low season, and we all forgot there was a low season in Miami,” said broker Dora Puig, owner of Luxe Living Realty.
Sales of high-end properties in South Florida totaled nearly $4 billion last year, according to Uribe. In the first half of this year, the high-end market saw $1.7 billion in sales of homes over $5 million, he said. Even with a potential recession looming, luxury brokers aren’t sweating it. Some sellers are reducing their prices this summer.
“Interest rates tend to have less of an effect for that kind of clientele. They’re not happy, but they can still afford it,” Uribe said, “It can’t continue to be a $4 billion market forever.”
“Some markets were more sensitive to the higher end of the market cooling off,” said Marr, the Redfin economist. “Not Miami.”
New development condo pipeline
Developers have launched sales of dozens of new condo projects over the past year and a half, bolstered by strong presale activity. But they face a number of challenges, including growing construction costs, labor shortages, and rising rates.
Those developers with less experience will have a tougher time securing construction loans, which will constrain supply, experts say.
Kodsi’s Royal Palm Companies recently joined Forest Development as a joint venture partner in order to lock in the $269 million construction loan from New York-based Fortress Investment Group for Nautilus 220. The planned condo project will have two 24-story towers in Palm Beach County’s Lake Park neighborhood.
Defortuna of Fortune isn’t seeing “desperation” in the market now, but warned that developers “need to be more cautious about launching new [condo] projects.”
Fortune recently relaunched sales of a planned boutique condo building in Bay Harbor Islands after the previous, new-to-market developer handed the project over to another firm, Miami-based Alta Developers. The previous developer was unable to build the project because of higher than expected construction costs and the inability to get a construction loan.
“A year or two ago almost anything would work, and today you have to be more careful,” Defortuna said. “We are really very, very careful about what we start next.”