Q&A – Is Florida In Another Real-Estate Bubble?


Today’s entry: Brian, everyone I talk to in the industry defends the high prices that keep going higher for real-estate. It reminds me of the excuses made by the realtor’s association in the 90’s before the crash. Yeah, mortgage rates are low but look how many people are out of work, something doesn’t feel right. Do you think the current market is sustainable?

Bottom Line: The current circumstances are considerably different than what we experienced in the 90’s during the housing boom. Some of it’s worse, most of it is better. For the purpose of this breakdown, I’m going to specifically focus on Florida’s real-estate market. South Florida’s real-estate market officially peaked in May of 2006 even though the bottom didn’t fall out until two years later.

What’s worse in Florida today compared to the first half of 2006, well it's the unemployment rate. The first quarter in 2006 was 3.3%, right now it's at 6.1%. For this reason, I’ve had concerns regarding moratoriums being lifted on properties and what might happen if we have a flood of foreclosures. This is my biggest concern currently and we have seen an increase in foreclosure activity since November.

However, overall foreclosure rates have declined year over year. This could change if/when lenders become more aggressive. For now, the current foreclosure rate in Florida stands at 1 home out of every 6,240 according to RealtyTrac. How does that compare to the housing bubble? By July of 2006 one in every 244 homes in Florida was in some state of the foreclosure process. Simply put, there’s no comparison as of now. So, to answer that part of your conversation it’s on my radar but it’s far from problematic.

That takes me to all the aspects which are better today. The percentage of buyers paying with all cash is approx. 35% compared to 10% in 2006. The Mortgage rates are 2.75% compared to 6.3% and Florida household income adjusted for inflation is $1,399 above 2006 levels.

Those are all powerful positive catalysts for a sustainable real-estate market. The average annual rate of appreciation for real-estate in the US is 3.9%. That largely tracks with gains in income and population over time.

Each day I feature a listener question sent by one of these methods.

Email: brianmudd@iheartmedia.com

Parler & Twitter: @brianmuddradio

Photo by: Getty Images North America


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