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Will The Florida Real Estate Bubble Pop?
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Added: 07/06/2005
Type: Summary
Viewed: 664 time(s)
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Will The Florida Real Estate Bubble Pop?
July 2, 2005 -- For some reason when I hear about this Florida real estate bubble, I think of a balloon that is being over-inflated and then explodes with a loud POP. I can’t imagine anything in real estate that goes POP, unless someone is cooking popcorn in the microwave oven of a single family home.
Let’s use common sense to assess this Florida real estate bubble that seems to have dominated real estate news reports for sometime. Investing in real estate can be easily compared to the basic stock market principle, buy low and sell high—in other words, knowing when to get in and knowing when to get out. Another principle is the higher the risks (speculation), the higher the returns, so invest an amount of money you can stand to lose. Also, you should know your state and federal tax responsibilities with each real estate investment transaction.
There are two basic markets we have identified from our experience. One is the local residential market. These are individuals that live and work here in Florida in such areas as Pembroke Pines, Miramar, Weston, Fort Lauderdale, and Davie full-time. The second is the out-of-state market. These individuals may live in Florida part-time or full-time, be retired or will be retiring soon, or be a foreign investor, usually a part-time resident. These two markets are the long-term, true driving forces in Florida’s real estate market. Individuals who are buying pre-construction homes, land and other properties to flip within 12 months temporarily create an environment that drives up prices very quickly, but when the market peaks, slows down and changes to a buyer’s market, they will soon disappear and what will remain are the local residential and the out-of-state markets.
The local residential market will reach its price peak soon, somewhat delayed due to the low interest rates and creative mortgage programs that make buying a home more like leasing a luxury car, wherein you can only afford to pay the monthly payment without any real hopes of paying it off. This market, Pembroke Pines, Miramar, Weston, Fort Lauderdale, and Davie, is more volatile and prices will most likely drop in many areas. Prices have nearly doubled in some areas, while the income for the local market may have risen only 2 to 6 %. Therefore, when the local housing prices exceed the local working force’s income, prices are certain to drop stabilizing to the local economy. Many luxury homes and ocean front properties that appeal to a much higher income status are excluded from this scenario.
The Out-of-state Market
The out-of-state market in Florida, Pembroke Pines, Miramar, Weston, Fort Lauderdale, and Davie, will take longer to slow down due to the high income level of the individuals in this bracket, and a small rise in interest rates will not deter most of them from buying. There are several low interest programs for foreign investors that are only about 1% higher than what a local established resident would attain for a mortgage. With the low overseas US dollar and low interest rate, how can a foreign national refuse? Also, Florida’s luxury housing prices have not reached levels as high as states like California and New York. Therefore, Florida remains a bargain.
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