Expect Correction. Astronomical Insurance Rates, Less Insurance Competition May Hinder Sales.
Correction May Not Be As Severe As First Feared.
BY: STAFF REPORT | BocaNewsNow.com
BOCA RATON, FL (BocaNewsNow.com) (Copyright © 2021 MetroDesk Media, LLC) — South Florida’s booming real estate market will almost assuredly lead to a correction, causing property values to drop.
Florida Atlantic University Professors Ken Johnson, Ph.D. And Eli Beracha, Ph.D., issue regular reports on real estate nationwide. Their latest suggests the current real estate frenzy is unsustainable, and that a correction may be expedited due to insurance issues. Homeowners up for renewal are finding that their current provider is no longer offering insurance, or is raising rates up to 50 percent. Some potential home buyers relocating from other parts of the country are finding they can’t afford the home of their dreams — and mandatory insurance.
The good news: the correction may not be as severe as first feared.
From Johnson and Beracha in an advisory issued by FAU:
Southeast Florida homes became even more overvalued in May, further fueling concerns of a market correction, according to researchers at Florida Atlantic University and Florida International University.
Properties in Miami-Dade, Broward and Palm Beach counties are selling on average for 13.18 percent higher than their long-term pricing trend. In April, homes sold for 12.54 percent more than they should have, and that was up from 11.52 percent in March.
The continued escalation of home values is troubling, though the degree of overpricing is nowhere near what it was during the worst of the historic housing meltdown more than a decade ago, explained Ken H. Johnson, Ph.D., a real estate economist and associate dean in FAU’s College of Business. Back then, homes were overvalued by about 65 percent.
“An adjustment in housing prices is coming, but probably not tomorrow and not nearly as severe as what we saw before,” Johnson said. “The greatest current threat to prices is a noticeable rise in long-term mortgage rates. But local housing prices will be supported for some time, due mostly to the extreme shortage of inventory in South Florida.”
The latest analysis shows the market is nearing the peak of its current cycle, said EliBeracha, Ph.D., director of FIU’s Hollo School of Real Estate.
“Trees do not grow to the sky, and neither do housing prices,” Beracha said. “Buyers should take that into consideration when negotiating.”
Another factor for homebuyers to consider is Florida’s worsening property insurance market.
Saying their exposure has soared from fraud, legal fees and other costs, many Florida insurers are canceling policies and sharply increasing rates for remaining customers. In some cases, insurers are demanding homeowners install new roofs to maintain coverage, even though the existing roofs have shown no signs of age.
“If we get to a point where consumers can’t find affordable insurance, it could slow demand for homes, which would have a negative effect on prices,” Johnson said. “What happens with Florida’s insurance market is definitely worth watching.”
In conducting their monthly analysis, Johnson and Beracha review more than 25 years of home prices from Zillow, the online real estate portal. The data includes single-family homes, townhomes, condominiums and co-ops.
Johnson and Beracha also are co-authors of the Beracha, Hardin&JohnsonBuyvs. RentIndex. The quarterly housing analysis of 23 key metropolitan areas nationwide determines whether consumers will create wealth faster in buying a home and building equity or renting the same property and reinvesting the money they would have spent on ownership.
View Johnson and Beracha’s latest index, here.
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May 25, 2021 at 05:41PM
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South Florida Housing Market Overvalued, Say FAU Professors - BocaNewsNow.com
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