Getting your Trinity Audio player ready...
|
In more than 20 years guiding foreign and US investors on how to invest in Florida Real Estate, I have witnessed the economic growth of different neighborhoods and communities and the resilience of these regions in times of crisis. In the same way that it is important for the global investor to choose regions with strong potential for appreciation, it is also essential to understand the economic strength of a given area. Prices may show an upward trend, however, in the event of unexpected and unprecedented crises, such as the ones we face now, how will a given region behave?
![Before buying Real Estate in Florida, be aware of these 4 market indicators](https://amgrealtymiami.wpengine.com/wp-content/uploads/2020/10/florida-real-estate-economic-indicators.jpg)
In this article we will cover four main indicators that we monitor at AMG Realty, to determine the economic strength of a neighborhood or community. We monitor real estate market statistics in Florida on a daily basis and develop internal reports. These that we will present in this article are just a few, but important ones, that we consider interesting for the client to have the knowledge, before buying Real Estate in Miami or homes in Orlando and surrounding areas.
It is also important to highlight that the indicators, in isolation, do not provide complete information on the economic health of a region. The day-to-day life of real estate brokers, who talk at all times with buyers and sellers, is the thermometer that allows the correct interpretation of the economic context of a region.
Here are the main factors we follow to determine the economic strength of a particular neighborhood or community:
Months of Inventory (Absorption Rate)
The number of months of inventory is one of the main indicators of the real estate market in Florida. It allows us to interpret the relation between supply and demand in a given region. This indicator is also known as the Absorption Rate, as it indicates the speed with which the market can absorb the inventory of properties in the region.
There are several ways to calculate it. The most practical way is to divide the current amount of active listings for sale in the region by the average monthly sales for the last 12 months. The result is the average time it would take for a property to be sold, in months.
Suppose the result of the index is 6 (six). So, an interpretation would be that, when placing a property for sale in that region today, it would take approximately 6 months to sell.
![Months of inventory is an important indicator](https://amgrealtymiami.wpengine.com/wp-content/uploads/2020/10/months-of-inventory.jpg)
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 large 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 that the market is BUYER (BUYER). There is a large supply of real estate and few buyers. In this context, the market is favorable for those who want to buy, since it would be easier to negotiate for lower prices.
CURIOSITY TODAY IN FLORIDA: With the pandemic, many homeowners (single-family homes) in central Florida and suburban Miami, decided to wait for the crisis to sell the property. With that, Florida began to experience a situation of low inventory of residential houses, of the single-family type. These owners are afraid of the risk of being infected by the virus and prefer not to receive visits from strangers visiting the property where they live. At the same time, they would not know where to go in the event of a sale. During this same period, mainly at the beginning of the pandemic, New Yorkers and residents of urban centers in the North of the USA (where the rates of contagion are high), started a true urban exodus towards the suburban areas of Florida, in search, precisely of single-family houses. The demand for this type of property has increased a lot. Low supply and high demand took the absorption rate in some regions of Florida, for single family homes, to rates below 1 (less than a month to sell).
Months of stock for rent
In the same way as the indicator on months of inventory (absorption rate) for real estate to sell explained in the topic above, the “Months of inventory for rent” is similar, but for rentals. This indicator is also important, as it measures the rate of absorption of rentals.
It is calculated by dividing the number of active properties on the market for rent by the average number of rental contracts in the region in the last 12 months. The result is the average time that a given property would take to be rented, in months.
Proportion between owners and tenants
The greater the number of owners residing in the same property, the better the economic health of that region, especially to face moments of crisis. Families who own the property in which they reside are less likely to sell the property. Rented properties do not generate the same attachment and are geared towards investment. A person who owns two properties, the first of which is his home and the second of which earns rent, will tend to sell second in times of crisis. Therefore, regions where most of the properties are rented can be shaken in times of crisis, with many units being offered for sale at the same time, generating an increase in supply and consequent depreciation in prices.
This indicator is calculated by dividing the number of properties for sale in a given region by the number of properties for rent.
![Proportion between owners and tenants](https://amgrealtymiami.wpengine.com/wp-content/uploads/2020/10/owners-renters.jpg)
Price behavior per square meter
There are several indicators related to price per square meter that can be followed.
The most obvious and popular indicator followed by the market is the appreciation of the square meter in a given region in comparison to the same period of the previous year and also in comparison to the immediately previous month. These metrics are best viewed in graphs with the evolution of prices per square meter, month by month or year by year.
The upward trend can be seen on the chart, but it cannot be interpreted in isolation. In the example we gave in the first topic, today the prices of single-family houses are seeing considerable appreciation. The reason, however, may be something specific where people are waiting for the crisis to offer their properties and, at the same time, there is an urban exodus from northern regions of the country to Florida.
In this situation, interpreting the chart in isolation may give the impression that there is a consistent upward trend. It may be true, but will this trend continue when the crisis passes? There is a chance that a large number of landowners will offer their properties in a concentrated way, in a short period, inverting the supply vs. demand balance that we have today.
Other indicators and characteristics of the region
As mentioned at the beginning of the article, the listed here cannot be interpreted in isolation. In addition to having several other indexes and metrics to be analyzed, there are also characteristics of the neighborhood and the experience of the broker who operates in the region. Factors such as demographic growth, new investments announced for the region, main access routes, among others, must be analyzed together.
About AMG International Realty
AMG International Realty is a global real estate company specializing in Florida. If you are interested in learning more about the Florida real estate market, statistics and trends, get in touch and chat with me now via WhatsApp: +1 305 318 6968 (Heloisa Arazi).