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Florida’s housing market, characterized by overheating for the past two years, appears to be finally cooling off as the Fed raises interest rates to curb inflation. Some signs of the slowdown are: greater inventory, decrease in the so-called “Bidding War” (competition of buyers and proposals) and greater number of listings sold below the advertised price. Are we moving from a “Seller” market (favorable to sellers) to a “Buyer” market (favorable to buyers)?
Not yet! However, forecasts are optimistic. Read on and understand why now is a good time to buy Real Estate in Florida.
What is a “Seller’s” or “Buyer’s” market?
To know if a market is “Seller” or “Buyer” we need to understand the number of months in stock (inventory) of properties for sale in the region. This indicator is known as the Absorption Rate, that is, it indicates the speed with which the market can absorb the property inventory on the market.
There are several ways to calculate it. The most practical way is to divide the current amount of properties for sale in the region by the average monthly sales for the last 12 months. The result is the average time a property would take to sell, in months.
Suppose the index result is 6 (six). So, one interpretation would be that, when placing a property for sale today in that region, it would take approximately 6 months to be sold.
As a general rule, the Florida real estate market considers that Absorption rates lower than 5 indicate that that market is Seller, that is, it is favorable for those who want to sell. In this scenario, there are few properties offered and a great demand from buyers.
When the absorption rate is close to 5, then the market is balanced. Supply and demand are balanced.
When the absorption rate is above 5, it means the market is BUYER. There is a large supply of properties and few buyers. In this context, the market is favorable for those who want to buy, as it would be easier to negotiate for lower prices.
Before you buy in Florida, know these 4 market indicators
“Bidding Wars” decreasing
A behavior that shows the transition of the market from Seller to Buyer in Florida is the decrease of the so-called “Bidding War”.
The term “Bidding War” has gained prominence in the last two years. It references a real war between buyers. The competition was so great that the same house received 6 different proposals, in a real auction.
Offers up to 20% higher than the listing price have become common, triggering an overvaluation of Florida real estate.
This “Bidding Wars” situation is obviously not healthy for the market, and luckily, it seems to be coming to an end.
The chart below shows the behavior of sellers adjusting to the new reality of higher interest rates (close to 7%) for mortgage rates.
Almost 8% of homes for sale in the US market had their prices reduced (a record).
Rising interest rates are the main factor
The increase in the US basic interest rate is primarily responsible for the current market adjustment. American interest rates are at the highest level in the last 20 years.
According to data from REDFIN, taking the city of Miami as an example, the average price of real estate in the region was US$ 530 thousand for September 2022. In a financing simulation, at today’s interest (6.1% in September ), an American would pay a monthly installment of US$ 2,570.00.
A year ago, with interest at 2.9%, a property at this value would have the installment of US$ 1,764.82, maintaining the same conditions of term and down payment.
In the simulation above, we considered a term of 30 years and a down payment of 20% of the value of the property. It is worth noting that these conditions may be different for foreigners who normally have to pay a down payment of approximately 30% of the value of the property.
This expressive increase in the value of the installment greatly discourages new buyers, who postpone the purchase, in the expectation of better opportunities in the future.
Are we in a transition from Seller’s to “Buyer’s?
We can say that the American market is starting a transition, but it is still far from being characterized as a “Buyer” market.
According to REDFIN data, the absorption rate for the US market as a whole ended September with 2 months of inventory. In the same period in 2021 this index was 1 (one). Despite having doubled in value, the indicator is still far from the 4.5 observed in January 2019.
That doesn’t mean it’s not a good time for investors. It is a period that we are seeing of market adjustment, and it could be an opportunity to buy. Keep reading to understand!
Is it a good time to buy real estate?
The fact that the market is adjusting is directly due to the increase in interest rates, which has cooled the demand for new properties, since it becomes more difficult for a buyer to face more expensive installments.
The adjustment is not, therefore, due to the change in behavior of the buyer in search of a property in Florida. On the contrary, the demand for Florida real estate by investors around the world, and especially by the Americans themselves, remains very high. So much so that the average price of real estate remains on the rise. Property prices in Florida’s major markets have increased by more than 20% from a year ago. Below we show the graph for the city of Miami:
Interest rates in the US are currently high due to a strategy to contain inflation. Once inflation is under control, it is natural for the FED to start a movement to lower the rate, which would stimulate the real estate market again. In this scenario, prices will gain more strength to rise.
So this might be a super opportune time to buy Florida real estate. Take advantage of the market adjustment, which can be temporary, and buy to take advantage of future appreciation.
It is unlikely that prices in Florida, even if they eventually show a temporary drop, will remain on a downward trend for years to come. There are several factors: low inventory, delay in delivering new units, expressive flow of people moving to Florida, etc.
Understand in this article why Florida prices will remain on an uptrend.
About AMG International Realty
AMG International Realty is a global real estate company specialized in Florida. If you are interested in finding out more about investment opportunities in the Miami and Orlando regions, contact me right now and chat with me on WhatsApp: +1 305 318 6968 (Heloisa Arazi).
