Buying a property is a big decision to make. There are a lot of factors to consider such as location, the community, schools, economy, and a lot more. However, for real estate investors, there are more driving factors to consider. Many have not seen the pandemic coming which greatly affected home sales across the United States. When the pandemic hit, there has been a supply-demand imbalance in the South Florida market and changed the real estate trends in 2022.
According to real estate economist Ken Johnson, he shared at Florida Atlantic University’s College of Business in Boca Raton, there has been a shortage of inventory with the housing supply. This is due to the strong in-migration which resulted in massive population growth. A lot of international buyers had flocked in Florida, especially in the Palm Beach counties.
There has been a big gap in supply and demand in real estate particularly in condominiums and luxury homes. According to Brad O’Connor who is Florida Realtor’s chief economist, there was an influx of wealthy buyers from California and the Northeast in 2020-2021. However, for 2022, there might be a pent-up demand for more affordable housing.
However, as stated by Natalie Arrowsmith, the rising home prices and shortage of inventory may lead to a slower sales rate come 2022. But it can also be a positive factor if we look into the long-term health of the real estate market.
There sure is a lot of predictions for the South Florida real estate industry and if you are planning on purchasing a property or if you’re a real estate investor or a sales associate, learning the trend for the coming years is essential. So, let’s take a peek at what 2022 has in store.
Effects Of The Pandemic On South Florida Real Estate for 2022
The pandemic has impacted so many industries including real estate. However, Florida real estate is still expected to bolster and continue its growth in 2022. Even though there is uncertainty in tourism and economic growth, Florida is still the top pick market of real estate investors.
This pandemic also made people realize that working remotely from home is now the new normal and living in suburban areas is a much better option than living in urban cities. Low-interest rates, social distancing, affordable house prices, and the rise of work from home setups make South Florida very attractive to homebuyers.
People also realize the importance of having a good space and environment during this COVID-19 outbreak. The significance of people’s mental, physical and emotional health has been a major trend in the real estate industry. Many people want to relocate from Northeastern states to South Florida because of its suburban appeal.
Florida’s population continues to grow during this pandemic because more and more people are relocating and there are many businesses that are opening new workspaces in the state. Banking and financial industries are coming to Florida and Miami are now known as one of the hottest tech capitals in Northern America.
While it’s true that the pandemic has caused a massive downturn in most businesses, the real estate industry seems to still thrive, well at least for some states in the United States.
Factors That Drive Real Estate Market Trends For South Florida in 2022
Demographics is one of the driving factors when it comes to the real estate market. Demographics are information that represents income, population growth, migration patterns, race, age, and gender. Most of the time, the data on demographics are overlooked. However, they play an important role when it comes to the price of real estate properties and the kind of properties with high demand. Major changes in a nation’s demographics can greatly impact the trend in real estate for several years.
It is important to understand the changes in demographics so as to prepare how they can affect the residential real estate market. For instance, those born between 1945 to 1964, known as the baby boomers, are a demographic trend that can influence the real estate market. Their transition to retirement has greatly influenced the market.
Those real estate investors should be cognizant of the different changes in the demographics and how they can affect the housing market. Those who are already investing or planning to invest in real estate should always consider how it can affect larger homes and the location and type of real estate investments even before the trend starts. Some factors to consider are the type of buyers with lower incomes or when the children start to move out of their homes.
The health of the economy greatly impacts the value of real estate. It is measured by economic indicators which are prices of goods, employment data, GDP, manufacturing activities, and a lot more. To put it simply, if the economy is flourishing, so is the real estate industry. However, economic health can also have different effects depending on the real estate type.
For instance, if the economy is suffering and the Real Estate Investment Trust or REIT has bigger investments in hotels, it can be greatly affected compared to REIT invested in office buildings. This is because hotels are a type of property that is sensitive to economic activity because of the kind of lease structure built in the business.
Hotel room renting is considered a short-term lease and hotel customers tend to avoid renting in areas that have a poor economy. In contrast to office tenants that have longer-term leases, whether the economy had suddenly suffered from an economic downturn, there won’t be any significant changes. However, investors should also always be aware that real estate property is very sensitive when it comes to the economic cycle.
Interest rates can also have a great impact on the Florida housing market. Potential foreign buyers or local buyers should take time to research the interest rates when buying homes with a mortgage. Calculations for mortgage rates can be done by using a mortgage calculator.
Any changes in the interest rates can affect the ability of the buyer to purchase a residential property. This is because if the interest rates are lower, the mortgage to purchase a home will also be lower. In this case, the demand for real estate will be higher, thus pushing home prices up.
It is essential to understand that when there is an increase in the interest rates, mortgage rates increase as well, resulting in lower demand and prices in real estate. However, when it comes to interest rates on REIT, they can be considered identical to the interest rates on a bond’s relationships. When there is a decline in the interest rates, a bond’s value increases which makes them more desirable while rising interest rates decrease a bond’s value.
In a nutshell, interest rates have an impact on the demand and price of real estate. Low-interest rates can entice more buyers due to lower mortgage rates, which equals sales growth. However, this can also mean lower inventory or limited supply that can lead to an increase in prices.
Government policies and subsidies can also impact the demand and prices of properties. Being always in the know on the current incentives from the government can help you predict any shifts in supply and demand. Subsidies, deductions, and tax credits are just some of the factors that can temporarily increase the demand for real estate.
In 2009, the Government of the United States introduced the first-time homebuyer’s tax credit. This was offered with the goal to increase home sales in a depressed economy. This initiative has greatly improved the demand for housing since around 2.3 million homebuyers had taken advantage of it. Although this was a temporary solution, it did have an impact on home sales.
2022 Real Estate Trends For South Florida
Growth in Population
The population in Florida is expected to grow to at least 26 million people by the year 2030. In South Florida alone, the population is expected to rise by over 12% by each decade. Currently, South Florida’s population is 6.1 million and in 10 years’ time is expected to reach 6.9 million. By 2045, it is expected to reach 7.6 million according to the University of Florida. In the past decade, South Florida’s population had increased to 10.3%.
The increase in population in South Florida is heavily due to foreign-born residents who are immigrating to the United States. Almost 87.2% who are immigrating to South Florida are from Latin America. Aside from that, businesses and individuals coming from high-tax urban areas are also moving to South Florida.
South Florida is considered the 12th largest economy in the United States. In fact, the economic output alone in South Florida is almost the same as Chile, Hong Kong, Colombia, and Israel. Most of the domestic commerce and international trade is flourishing in the counties of Palm Beach, Broward, and Miami-Dade counties.
The Gross Domestic Product (GDP) of South Florida is more than $365 billion and it had increased by 46% in the past ten years. Based on BDB or Business Development Board of Palm Beach County, around 70,000 new jobs every year are added.
According to the Florida Department of Economic Security, the job market in South Florida is expected to increase by 7.5%. In comparison to other major areas in the United States such as San Francisco, Washington, and Chicago, South Florida’s employment rate is rapidly increasing.
When it comes to business sectors, professional business services, health services, and education have the lowest unemployment rates. Financial services, retail trade, leisure and hospitality, construction, and transportation industries are projected to have the highest job growth.
There are over 1,400 multinational corporations in South Florida and numerous trade centers and foreign consulates. It is home to different big companies such as Aldi, Chiquita Brands International, Techtronic Industries, Ecolab, HBO Latin America, NBC Universal Telemundo, and Univision Communications to name a few.
Residents of South Florida also have a high percentage when it comes to educational background. At least 86% have completed high school or higher education. 32% of its residents also have an advanced degree.
The transportation industry is also flourishing in South Florida, from their interstate highways to seaports and airports. At least 90 million passengers both domestic and international are serviced by the Palm Beach International Airport, Fort Lauderdale-Hollywood International Airport, and Miami International Airport each year.
It looks like the real estate market in South Florida will continue to soar in the next coming years, especially in single-family homes sales. There was a surge of 142% in the Miami-Dade County alone. Let’s take a look at the statistics of the top counties in South Florida, namely Palm Beach, Miami-Dade, and Broward.
Palm Beach County
There are 64 cities in Palm Beach County and the most expensive is the City of Palm Beach. Its median listing price is 1.8 million. The most affordable city is the Village of Palm Springs with a $164,900 median listing price. The biggest cities in Palm Beach County are West Palm Beach, Boynton Beach, Palm Beach Garden, and Boca Raton. It has a median selling price of $386,000 and a median listing price of $400,000. The annual home value in Palm Beach County increases to at least 23.3% and it has a Zillow Home Value Index of $390,595.
The most expensive city in Broward County is Parkland with a median listing price of $939,000. Out of its 40 cities, the most affordable city is the City of Sunrise with a $169,900 median listing. Broward County’s biggest cities are Hollywood, Pompano Beach, and Fort Lauderdale. The median selling price in Broward County is $345,00 and the median listing price is $350,000. The Zillow Home Value Index is at $354,176 with a 20.4% increase in annual home value.
There are 76 cities in Miami-Dade County and the biggest ones are Miami, Homestead, and Hialeah. Pinecrest has a median listing price of $1.5 million and is considered the most expensive in the county. The most affordable is North Miami with a $297,000 median listing price. Miami-Dade County has a Zillow Home Value Index of $395,249 and a 17.4% increase in annual home value.
Real Estate Renter’s Market
In the United States, the 3rd fastest-growing region in the rental market is South Florida. Each year, the average rent increases to 27%. Since the local economies have reopened, it had contributed to the increase in the rental market. In connection to the reopening of local economies, rent prices have also increased to make up for the lost time. With the influx of people relocating to Florida, it can be expected that there will be a continuous increase in demand for rental property.
However, there may be an increase of at least $1,000 on rental price but it’s not seen to affect the renter’s market. Some are even offering price discounts and credits particularly for properties that need to be renovated. It can be expected to see a continuous increase in the demand for rental property.
A large percentage of Florida’s population rents, which is a good indicator in the renter’s market. Once international travels are open again, many institutional buyers will keep investing in the single-family home rental market.
Housing Supply And Demand
The inventory of demand and supply in the Florida housing market played a big role in boosting South Florida real estate in 2021. It is expected to stay the same in the coming years. Inventory is still below the demand’s level, which pushes builders to ramp up in producing condos and single-family homes.
However, construction materials and labor shortages greatly affect the region’s ability to increase the housing supply. In addition to that, prices of timber and building costs continue to increase which makes investors worry about their investments.
On a positive note, it seems like potential first-time buyers will still be willing to pay high prices for their homes which is good news for real estate investors. High-inflation rate has both positive and negative impacts on potential investors. With elevated inflation, nominal home prices will mostly stay high which is an advantage for investors. However, it can also affect the interest rates. Higher interest rates may restrict purchase appreciation and demand on homes.
Condominiums will significantly increase in price by 2022 due to high demand but limited inventory. However, for older condominiums, pricing has remained stable. Newly built high-rise buildings along the luxury market can expect an increase in price but will be easier to sell.
There is a possibility of the potential return of foreign buyers. Because of the travel restrictions caused by the pandemic, they have stayed on the sidelines. However, some were still able to purchase single-family homes and other types of residential properties during the pandemic after video tours. But since international travels are slowly coming back, there might be a strong demand for home rentals.
Airbnb plus the steady real estate appreciation can be good signs for investors this 2022. But the biggest source of demand would still be families and individuals who are purchasing investment properties. So, for 2022 it seems like the demand will remain high while supply will remain low.
The Impact Of Upcoming Foreclosures In 2022 Housing Market
While real estate professionals foresee 2022 to remain strong, Florida real estate may perceive cause and effect from the coming spike in foreclosure. However, this will all depend on the lenders, whether or not they would be lenient to their borrowers who fail to pay their mortgage payments.
The lifting of the foreclosure moratorium in July 2021 had positively improved the foreclosure activity. Scheduled actions, bank repossessions, and default notices have increased by 34% in the third quarter of 2021. This shows that this activity will continue until 2022.
However, foreclosures will be more rampant in poorer areas, since most homeowners will be more likely to suffer financial distress with not enough money to settle deals with their lenders. Since Florida has a high rate of foreclosures that are completed during the third quarter of 2021, this can give more opportunities to investors in 2022. With more completed foreclosures, this can only mean an increase in inventory but is still not enough to supply the demand. This could mean that home prices will continue to rise.
Why Invest In Florida Real Estate?
Of all the regions in the U.S., why invest in Florida? There are so many reasons why it is worth considering to invest in Miami real estate.
– Many Different Types Of Properties
One of the best things about Florida is investors can choose from the different types of properties Florida has to offer. Whether you’re looking at investing in tropical mansions, high-rise apartments, or single-family residences, there are so many options to choose from. Whatever your investing goals are, there is surely something for you.
– Tourism Hotspot
There are tons of activities to do in Florida which makes it a hotspot for tourism. Being a popular tourist destination means that there is always going to be travelers and movement, thus more demand for properties. The place is perfect for short-term vacation rentals for tourists. Who knows, they’ll love the place so much that soon they will decide to purchase their own property somewhere in Miami Beach, perhaps?
Even with the ongoing shortage and rising prices, many buyers would still be interested to purchase in Florida since it’s considered a vacation spot. If you have existing homes in Southeast Florida, Downtown Miami, Coconut Grove, or anywhere in Florida, you can use them for vacation rentals. Many property owners list their homes in Airbnb as an extra source of passive income.
– Housing Affordability And Historic Price Changes
When it comes to investing in rental properties, historic price changes and affordability are the two things that real estate investors should consider. This can help them predict the demand for rental property. According to Freddie Mac House Price Index, the monthly change in home prices in South Florida is at 1.5%, one year change is at 21.8% and 5-year change in home prices is at 56.1%.
This means that Greater Miami has one of the most luxury markets in terms of residential property, making them one of the most expensive places to purchase a house in the U.S. This is great news for rental property investors. Constant renters would still prefer to rent than purchase a property due to its slightly higher price.
– Foreign Investment
Florida is one of the top states receiving Foreign Direct Investment (FDI) in the U.S. Almost 1 million jobs in Florida are supported by the FDI. There are many national investors from the Netherlands, Ireland, United Arab Emirates, Spain, China, Germany, Canada, and Luxembourg. Countries in Latin America that suffered greatly from bad economic conditions had also invested in South Florida real estate.
– Population And Business Growth
The population in Florida is continually growing especially during this pandemic. Experts predict that its population will gain 6 million residents more within 20 years. Businesses are also now flocking to this sunny state. Miami has had one of the fastest business growth for the past decade. The rising population and increasing income combination is a good foundation for keeping retail market growth in Florida.
– Competitive Workforce
The workforce in Florida has proven to stand out among other states in the United States. In fact, Florida’s competitive workforce is one of the top not only nationally but globally as well. To prove this point, among other states in the U.S., they have the third-largest workforce, with over 10.5 million workers. In addition to that, 30.3% of its population are foreign-language speakers, which is why many foreign investors prefer to put up their businesses in Florida.
Frequently Asked Questions
Is the Florida housing market going to crash?
There are a lot of predictions for the Florida housing market. While there are varying opinions, the housing market in Florida still has a promising outlook in 2022 for real estate investors.
Is it a good time to buy a house in Florida in 2021?
The demand for real estate in Florida is increasing but the supply is low. This is a good opportunity to take advantage of if you are considering purchasing a house in Florida. You may want to check out South Brevard County which is along the central coast. It is popular with tourist attractions and also for people relocating due to their jobs. You can even rent out your place in AirBnB if you’re not planning on staying in every day. So, the answer is yes, 2021 is a good year to buy a house in Florida.
It looks like the real estate market will continue to show a positive trend in 2022. While a balanced market is still not foreseeable in the coming years, the new construction of residential properties has greatly increased compared to the past year. While price growth and home sales will slow down, Florida will still continue to flourish.