Home prices are surging in South Florida — and there’s no end in sight

David Lyons, South Florida Sun Sentinel
·4 min read

Homebuyers saw home prices exceeding 10% or more across South Florida during the first year of the COVID-19 pandemic, as interest rates hit new lows and the numbers of houses for sale sharply dropped off.

The monthslong, rock-bottom interest rates coupled with the heavy demand for homes all fueled the push, experts say. And there doesn’t seem to be an end in sight, even though South Florida home prices are well above their historical highs.

“You see this every time you have a dramatic drop in [interest] rates,” said Ken Johnson, a real estate economist at Florida Atlantic University. “You see a quick run-up in price. It’s like a sugar high. It’s like an injection to stimulate the marketplace where you have this really low interest rate. ‘I’d better buy now because I’ll never see these low rates again.’”

In a survey released Tuesday, the Federal Housing Finance Agency ranked the metro area of West Palm Beach, Boca Raton and Boynton Beach No. 36 out of 100 U.S. markets. The area saw prices rise 12.1% in the fourth quarter of 2020.

The metro area covering Fort Lauderdale, Pompano Beach and Sunrise came in at No. 44 with an increase of 11.7% during last year’s final quarter, while the area covering Miami, Miami Beach and Kendall came in at No. 72 with a 10% increase.

Nationally, U.S. home prices rose 10.8%. The survey focused on homes with loans backed by the government-sponsored Federal Home Loan Mortgage Corp. (Freddie Mac) and Fannie Mae (Federal National Mortgage Association).

Longevity for lofty prices

“The reality is the demand is far greater than the supply,” said Mike Pappas, president and CEO of the South Florida-based The Keyes Company. “Fewer people are putting their homes on the market than a year ago.”

He said that compared with January 2020, which was two months prior to COVID-19 slamming the economy, new South Florida listings this past January were down 17%. That reluctance comes from the lingering uncertainties generated by the pandemic.

Other factors fueling the prices:

Owners are staying in their homes longer. The average length of time before the Great Recession of more than a decade ago was six or seven years. “Now it’s over 10 years,” Pappas said.

Builders over the past decade “under-built the market,” although “they’re trying to catch up now. You can’t build this inventory overnight,” Pappas said.

The demand “is overpowering,” driven mainly by millennials. “The millennials are in their prime buying season,” Pappas said. The group, whose average age is 33, is “bigger than the Baby Boomers” who were buying en masse in the 1970s.

Buyers with strong finances who are under 50 and less susceptible to COVID-19 will pay a premium for a home. “If they pay a few dollars more, it’s not really going to be bothering them,” Johnson said.

What’s a buyer to do?

Johnson believes they should take their time, “do their due diligence” and don’t worry about taking two or three months or more to try to snag a deal. In all three South Florida counties, he said, prices are 19% to 20% above their historical highs.

“I would encourage people at this point in time to realize you’re at the top of the current housing cycle,” he said. “I would encourage them to be bold and aggressive, and don’t be afraid to walk away. There’s always going to be another house.”

As for the chances of a big pop of a bubble, which led to the recession of more than a decade ago, Johnson rates them as low. Back then, prices had risen to around 65% above their historical highs, according to Johnson and the FHFA index.

“I don’t expect prices to take a major tumble,” Johnson said. “I expect them to go flat in the coming future because South Florida is more popular than ever before. We’re going to see an extra 1 million people move into the tri-county area in the next 10 years.”

As for those record-low interest rates, which are now below 3% for 30-year fixed mortgages, they’ll likely stay flat or rise slowly. Johnson believes, despite a louder national conversation about inflation. If rates rise, they’ll do so slowly.

“And as long as that happens, I don’t see a real threat to housing prices in Southeast Florida,” he said.