Tuesday, April 16, 2019

Florida's Real Estate Market--a Forecast

Florida has captivated the imaginations of winter-weary Americans since the Gilded Age.  Its tropical climate and its sandy, palm-lined shores have been drawing visitors since the 1920's.

However, things really began to pick up once people began moving there en masse.  The advent of air conditioning in the post World War II era made this a reality, starting a steady long-term run-up in housing prices.



Things haven't always been perfect--economic disruptions like the 1970's oil crisis have triggered periodic pullbacks.  However, none of these held a candle to the carnage the Great Recession unleashed.  After peaking at an inflation-adjusted high of $475,000 in 2007, Metro Miami prices spent 2008 and 2009 in a free fall before bottoming out at around $200,000 in 2012.

From that point, prices began their recovery.  From 2012 to the present day, statewide median prices have risen from a low of $123,000 to $230,000 at the end of 2018.  In 2012, the average home spent 120 days on the market--during the 2018 peak selling season, that number was as low as 83 days.

Is the Florida housing market set to return to the heady days of the mid-2000's?  That's the question we'll attempt to answer here.

Where are Prices headed in 2019?

Prices have been in a steady upward trajectory since they hit rock bottom in early 2012--but will this trend continue into 2019?  While concerns about the global trade war and increasing interest rates persist, there are no imminent signs of a crash on the horizon.

What factors are expected to fuel an increase in real estate prices for the seventh straight year?  What are the main downside risks?



Trump tax cuts:
In 2017, the Trump Administration advocated aggressively for unprecedented tax cuts.  While these reductions took effect at the start of 2018, many Americans neglected to adjust their withholding.  Therefore, as the 2019 refund season unfolds, millions of Americans will find themselves with an unexpected surplus of cash on their hands.

What does this mean for the Florida housing market?  House hunters will have more money available  for down payments.  Take a married couple with a household income on $100,000, for example: they now pay a 22% rate rather that 25%.  Combine that with a near doubling in the standard deduction to $24,000, and they will have $7,000 more to spend compared to last year.

For many investors, this will provide enough liquidity to make deals that may have not been possible before the Trump tax cuts took effect.

Historically-low interest rates:
After eight long years of being stuck at 0.25%, interest rates have been steadily rising since 2016.  As 2018 drew to a close, interest rates sat at 2.5%.  While this will put affordability pressure on would-be homeowners, it's also a catalyst for price increases in 2019.

Borrowing money may no longer be 'free,' but the cost of doing so is still low by historical standards. As recently as 2007, rates were as high as 5.25%.  Turn the clock back to 1989 and it was 9.75%.  Back in the inflation-wracked days of 1981, it peaked at an eye-popping 20%!

Bearable for those with a fixed rate mortgage--good luck if you're trying to buy though.  With rates near historic lows and no end in sight to interest rate increases, home buyers will be increasingly motivated to lock in a low rate while they still can.

Trade war fallout:
The effects of the Trump trade war remains to be seen, but experts warn it will have a net negative impact on Florida's economy.

While Florida's tourism industry has not been directly impacted by retaliatory tariffs, Trump's singling out China may end up doing significant damage.  According to Roger Dow, president of the U.S. Travel Association, Chinese tourism has surged more than tenfold over the past decade.  If this trade conflict continues to escalate, any restrictions placed on travel to America could have a chilling effect on Florida tourism operators.

Agriculture is Florida's second largest industry--unlike tourism, it has been directly affected by retaliatory tariffs.  A joint study published by the National Retail Federation and the Consumer Technology Association projects that Florida could shed up to 7,000 jobs in 2019 due to reduced exports.

14% of Floridians are employed in agriculture and agribusiness.  If this trade war continues to grind on through 2019, it could apply significant downward pressure on markets outside the Miami, Orlando, and Tampa Areas.

How can I prime my property to sell?

Whether you've been holding since 2012 or are buying Florida real estate in 2019, maximizing your return on investment should be your top priority.  Maintaining curb appeal through landscape improvement, painting interior walls, and updating the kitchen/bathroom are a few ways this can be done.

However, many real-estate investors neglect to take out a home warranty on their properties.  This is a huge mistake--for example, most homeowner insurance policies will not cover faulty wiring, as it is deemed a wear and tear issue.

This is where home warranty policies come into play.  By investing several hundred dollars per year into a plan, thousands of dollars in maintenance and replacement costs can be saved.  A central air system costs $5,500 to replace on average--in comparison, paying $50 per month is a much better deal.

It gets better though: when you decide to sell, your property will be worth more in the eyes of buyers.  According to a study done by the Service Contract Industry Council, houses under a home warranty contract sold for $2,500 more and 16% quicker than those who lacked one.  Floridians can be served by at least 7 companies, among them Sears home warranty.

The 2019 Florida real estate forecast: sunny, but with headwinds

You can expect the Florida real-estate market to increase in value Year-Over-Year.  However, as the impact of the global trade war becomes clearer, increases in land values may be more modest than those in past years. 

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