Allied Realty Group Blog

Pops & drops

Real estate data has a tendency to be seasonal and from the looks of this latest batch, we are right on track again in South Florida.  Today we will take a look at the “pop” in transaction volume last month, along with price trends, foreclosure filings and distressed sales.

A seasonal “pop” in deal volume

It’s a good think that transaction volume increased during the month of March, otherwise it would have signaled a warning moving forward through the spring.  If you look at the previous years in the chart below, you will notice the same pattern during March and April of each year.  You will want to see one more month of strength in deal volume before it tapers off for the summer months.  The first chart breaks out the condo and single family home sales and the second chart is combined.

Seasonal pop in South Florida real estate sales

Seasonal pops and drops south florida real estate

A slight drop in single family home prices (not seasonal)

This isn’t much to worry about right now, after several years of an upward trend.  However, if the April numbers are soft it could be the start of a downward trend in single-family home prices across South Florida.  The average sale price of a house in South Florida declined by 5% month over month from $505,236 in February to $477,764 in March.  Meanwhile, the average sale price of a condo climbed 6% from $270,277 in February to $286,474 in March.  Always keep in mind that the average sale price tends to be more volatile than the median, and one month in either direction does not signify the start of a new trend.  We do anticipate softening in the condo market over the summer months and it will be interesting to see if house prices follow condos South.  Mortgage rates have declined once again, so that may provide price support until rates resume their uptrend.  Be careful not to cheer low rates for much longer, because they fortell much larger problems in the economy.

South florida house and condo prices

Foreclosure activity

New foreclosure filings continue to climb throughout South Florida. During the month of march there were 1,495 new foreclosure filings in the condo and single-family home segments in South Florida.  This is a jump of 18% month over month.  So far in 2017, the monthly average of new filings is 1,304.  The monthly average in 2016 was 1,262 and it was only 796 in 2015.  Do you see a pattern here?  Just look at the chart.

Foreclosures in Miami, Fort Lauderdale, Palm Beach

Distressed property sales

Finally, here is a look at the pace of short sale and foreclosure transactions in comparison to the new foreclosure filings.  Obviously the properties that are just now receiving foreclosure notices have awile before ever hitting the market, but this chart and the one above really add some perspective to the “recovery” in the South Florida housing market.

Foreclosure sales and short sales in South Florida real estate

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Hanging around

The Counting Crows had a cool song years ago titled “hanging around”.  It had a great beat and reminds me of a few market conditions lately.  Today we will highlight a couple of our charts that may be worth monitoring and will help you determine if the real estate market recovery is for real.

Rates are hanging around

The fact that the 10-year bond rate failed to rally over the 2.63% mark is disturbing.  A close over that level would have sent the 10-year yield closer to 3.00% and mortgage rates would have been much higher.  Rather than cheer the fact that rates are still low, people should be wondering why.  Our guess is that the market no longer believes in the post-election pro-growth trade.  If you want to know which way the economy is headed, look no further than the bond market.  Right now it does not fortell a booming economy and if rates continue to drop we will have some serious issues across all asset classes.

mortgage rates

Foreclosures keep hanging around

Hey wait, I though we were done with these things!  Why do they keep coming back like a boomerang?  This is what happens when you kick the can down the road and don’t fix a problem.  At the end of 2016 we discussed how the decison in the Bartram case in the Florida Supreme Court would clear the way for lenders to start filing their foreclosure cases again. Until there was a decision in that case the banks were worried that their cases would be challenged and/or dismissed on various technicalities.  Yes, plenty of these properties have bounced in and out of foreclosure since 2008, but the lenders are finally on firm ground to file again.  Case filings in Broward County are escalating quickly and it is our guess that Miami-Dade and Palm Beach will follow.

To add some perspective, here are some monthly filing averages for houses and condos in the tri-county area:

  • 2015 averaged 796 monthly filings
  • 2016 averaged 1,266 monthly filings
  • 2017 so far is averaging 1,300 monthly filings

South Florida #Foreclosures

This next chart shows the trend of total filings.  Look at how there were so few back in 2015!

Miami, Fort lauderdale Palm Beach #foreclosures

This chart of Broward County is no bueno!  We haven’t seen this many filings in years.

#Foreclosures in Fort lauderdale

Transaction volume is hanging around the lows

How about transaction volume?  This chart goes through February, so don’t panic just yet.  If you look at the chart, you will notice a dip in transaction volume each year around January and February.  We have stated previously that the South Florida residential market peaked in the spring of 2016.  Typically prices will lag transaction volume and if there isn’t a significant uptick in sales during the second quarter, you will continue to see downward market pressure followed by another leg down in prices.

South florida real estate deal volume

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What to watch in 2017

There are a few areas to watch as we begin 2017 and we will highlight them with new charts.  After eight years of artificially suppressed interest rates, all asset classes could enter a new era of volatility.  Here are a some data points worth keeping an eye on as we move through the year:

Watch new foreclosure filings

Major lenders took yet another break from filing foreclosures in the last few years until a recent decision in Florida Supreme Court.  In a nutshell, they will now be able to refile cases outside the 5-year statute of limitations.  There are still tens of thousands of cases and several hundred million dollars in assets held in limbo up to this point.  People forget that many of the unresolved cases date back to 2008. Look for new filings to gain momentum as we move through 2017.  As for the average number of residential filings in South Florida over the past few years:

  • The 2015 monthly average was 796
  • In 2016, the monthly average climbed 59% to 1,266

Watch South Florida foreclosure filings

 

Watch bond yelds and mortgage rates

Bond yields rallied after the election, but tapered-off as 2016 came to and end as investment portfolios needed to be re-balanced.  After reaching close to 2.60% in mid-December, this week the 10-year bond yield closed around 2.42%.  It is likely that bond yields will slide in the near-term, but will resume their climb as we progress through the year.  A few key levels to watch on the upside are as follows:

  • A close over 2.62% should send the 10-year bond yield higher to the 3.00% level
  • If the 10-year bond yield rallies and closes over 3.00% (3.03% to be specific), it is highly likely to rally much further, with mortgage rates climbing over 5.00%.  These levels are still very low by historical standards, but could be problematic for real estate markets.

Watch mortgage rates and bond yields

Transaction volume

Deal volume has dropped, but we will have to watch the first few months of 2017 to see if this translates to something more than a seasonal slowdown.   You will notice from the chart below that transaction volume declined toward the end of the past few years, reaching lows in January.  Typically extended periods of lower transaction volume are followed by price declines, so we will have to look toward the second quarter of 2017 to see if this continues into the spring.

  • In 2015, the average monthly transaction volume was 8,034
  • Through November of 2016, monthly deal volume has declined 5% to 7,602

South Florida real estate sales

Inventory levels

The residential inventory reached a low point back in may of 2013 with 35,123 houses and condos listed for sale.  Since that point, inventory has climbed 39% to 48,822 in November.  As you will notice from the next chart, houses are at a reasonable level at 19,355.  Keep an eye on condo inventory, as it reached 29,487 units without the shadow inventory of new construction projects.

South Florida real estate inventory

Sale prices

The average selling price of condos actually rose slightly to 268,753 in November, as house prices dropped $409,216.  Obviously the above charts of inventory, transaction volume and mortgage rates will determine where prices go in 2017.  The foreclosure filings will have a lesser impact, because the timeline of filings to sale date are still ridiculously long in judicial states like Florida.

Watch eal estate prices in South Florida

 

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Let’s make real estate markets fun again!

Let’s face it, real estate markets have been boring since the financial crisis.  Once the government intervened by dropping rates to crisis levels and bailing out banks and distressed borrowers, the markets have been anything but normal.  The goal of the government stimulus was to reflate asset prices and make people think this was a true recovery.  Not only has this not been a real recovery,  but people have forgotten what “normal” rates look like and what would happen if they ever moved higher. For the first time in years, anyone buying or selling property may actually have to do some homework.  Mortgage rates are beginning to normalize on their own and real estate markets may actually be fun again!

Fun with rates

After luring everyone back into the real estate market with these artificially low rates, we have recently seen an unprecedented rise in bond yields.  These increases will put the brakes on the housing market and deflate the existing bubble.  Plenty of speculators rushed into the markets and will once again be stuck with properties they thought would be quick flips.  Does this sound familiar? Look at the far right side of this chart of bond yields and mortgage rates.  We haven’t seen the 10-year bond (where it is today) at 2.45 since October of 2014.  We will see if it closes there today and if it does, it will most likely continue the trek upward.   The real fun begins after the 10-year bond yield climbs over 3% and mortgage rates move closer to 5%.

fun with bond yields and mortgage rates

Sales by transaction type – single family home market

We focus on the closed sales because they are a good leading indicator for where prices are heading.  If sales volume declines for several months in a row, prices will typically follow them down.  here is a snapshot of the Greater Fort Lauderdale residential market for single-family homes.  Traditional (arm’s length) transactions are usually the best indicator and they have dropped 30% since June, when we believe the residential market peaked in South Florida.  Keep in mind that these numbers are just through October, before bond yields and mortgage rates made their dramatic jump.

house sales in fort lauderdale

Sales by transaction type – condo market

Now let’s take a look at condo sales and you will notice a similar pattern.  Traditional condo sales declined 22% since the month of June.

condo property sales fort lauderdale

Average sale prices

Prices of houses and condos haven’t seen the impact of higher borrowing costs yet and therefore have not dropped.  Our prediction is the the November sales numbers out later this month will start to really show some cracks in the market.  Condo prices started to slip a few months ago, but the single-family homes held up through October.  November, December and 2017 should bring an end to their Fed-induced price rally.

sale prices houses and condos fort lauderdale

Bonus chart – New foreclosures & distressed sales

We have included a bonus chart today, because most people think that foreclosures will no longer impact the South Florida market.  Think again.  After years of kicking the can down the road, some of the foreclosures from 2008 will eventually get to the market.  This final chart shows that although distressed sales have been declining, new foreclosure filings have been creeping higher.  This trend is worth watching as we move into 2017.

short sales foreclosures fort lauderdale

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Are property prices poised to head South this winter?

Property prices around the country have had quite the rally since the Fed decided to drop interest rates to stimulate the economy back in 2009.  After seven years of asset price reflation aka “the recovery”, there are a variety of factors that may send property prices downward.  Today we will look at the decline in sales volume, which is usually means that price drops are not far behind.

Prices of houses and condo properties

During the month of October, the average house price in the South Florida market dropped slightly to $430,856.  That represents a 6% decline from June, which is the point where we believe this market peaked in sales price and volume.  As for condos, the average price has already declined to 237,889 in October which represents a drop of 10% since June.  Also worth noting is that the average sale price of condo properties has declined for six months in a row.

Sales prices of South Florida houses and condos

House transactions by type

Our next chart has a breakdown of house sales by transaction type.  There were a total of 3,552 closed sales in October, which is a noticeable drop from the 4,923 deals that closed in June.  What is troubling about this chart is the sharp decline in traditonal (arm’s length) transactions.  These sales are usually what will keep prices up, while distressed sales drag the averages down. Here are the numbers by transaction type:

  • 3,132 traditional sales in October, a decline of 27% since June
  • 295 foreclosure sales in October, a decline of 37% since June
  • 125 short sales in October, a decline of 25% since June

Short sales foreclosures in houses

Condo transactions by type

There were 3,225 condo sales that closed during the month of October, down from 4,180 in June.  That is a 23% drop in deal volume and this is just listed condo properties and does not include the thousands of pre-construction condos that are available and new ones under construction and ready to flood the market.  Once again, notice that large drop in traditional sales. Here is a breakdown of the closed sales by transaction type:

  • 2,882 traditional sales in October, a decline of 22% since June
  • 292 foreclosure sales in October, a decline of 32% since June
  • 51 short sales in October, a decline of 32% since June

condo short sales foreclosures south florida

Total sales volume for the area

Here is a snapshot of the total sales volume for Miami-Dade, Broward and Palm Beach County Florida.  The reason we believe this is a set up for price declines is that this chart does not include November where rates started to climb substantially.   If deal volume was dropping before rates climbed, what will happen if rates normalize?  Existing inventory will have longer days on market and will be followed by price declines.

Houses and condo sales in South Florida

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How will rising rates impact real estate market activity?

Interest rates have been rising since the election and within a few months we should begin to see the impact.  We have discussed this topic at length on our blog because the Federal Reserve has kept rates at crisis levels for the past seven years and now they may have lost control.  Take a look at our first chart and notice the recent spike on the far right.

Rising mortgage rates

Mortgage rates

Transaction volume

The question for the real estate market is how much of an impact the recent rate spike may have on sales volume.  Usually a rate increase will pull some buyers off the sidelines, but having rates too low for too long may have already extracted the last few drops of demand.  You will notice from this next chart that sales volume most likely peaked in June with a total of 9,103 house and condo sales.  In October, that number has declined 26% to 6,777 transactions.  Keep in mind that does not reflect the recent increase in rates that took place in November.

real estate sales

Average sale prices

The average sale price of houses and condos in South Florida has remained stable prior to the jump in rates, so the next few months will be interesting.  Single-family home prices in South Florida have declined 6% since June and condo prices have dropped 17% for the same period.  Price follows volume, so if the number of transactions continues to decline, you will probably see prices drop as well.

South Florida real estate prices

Residential Inventory in South Florida

Finally, let’s look at residential inventory in South Florida.  There were 18,973 houses on the market during the month of October, which has remained rather stable and only shows a slight increase month over month.  As we close out 2016 and move into 2017, we may see some clouds on the horizon for the condo market.  In October there were 28,489 condo units listed for sale and that figure does not include the thousands of pre-construction units that continue to flood the market.  The combination of rising rates, a stronger dollar and a gradual increase in available inventory will impact this market into 2017 and beyond so it will certainly be worth monitoring.

South Florida residential inventory

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What happens when the training wheels come off?

For the past seven years, abnormally low interest rates have served as “training wheels” for the U.S. economy.  They have propelled stocks, bonds and real estate prices higher.  Under normal interest rate policy, the markets would not have reached these levels without better fundamentals.   Higher interest rates may be just one of the many factors that will lead to a widespread market correction.

Training Wheels for the Weak Economy – Low Interest Rates

The only time we have seen rate rise since the financial crisis was the “taper tantrum” back in the middle of 2013.  The 10-year bond touched 3.00% twice after that, but have been on s steady grind lower since then and basically remain at levels that were needed to rescue the economy after the crisis. People need to ask themselves the following question:  If the economy is really in “recovery”, why do we need to keep interest rates at crisis levels?  The 10-year bond rose to 1.67% this week and may be on the rise, even if the Fed doesn’t hike soon.  If bond yields continue to climb, we may slowly begin to see an impact on mortgage rates and downward pressure on real estate prices.

Low rates are training wheels for the economy

Real Estate Transaction Volume

We haven’t even seen a rate increase yet and transaction volume is slipping.  From June to July condo sales dropped 15% and single-family home sales dropped 16%.  One month does not make a trend, but transaction volume is certainly worth watching as we move into the end of the year.  Low rates have a tendency to pull consumption forward.  People calculate their payment and run out to buy cars, houses and other items they normal wouldn’t buy.  Whats happens if that consumption disappears?

transaction-volume

South Florida Real Estate Prices

This chart of sale prices goes all the way back to January of 2011.  The single-family home prices rose steadily over the 5-year period, thanks to all of the economic stimulus thrown at the market.  Condo prices climbed, but not as much.  Lately, condo prices have suffered and this may just be the beginning of a prolonged correction in that segment.  The average sale price of a South Florida condo has declined 14% since April.

Sale Prices - South Florida real estate

Inverse Relationships of Interest Rates and Prices

We may not be artistically inclined, but the following simple drawings are good enough to show the inverse relationship of rates and prices:

The first drawing shows a normal interest rate environment, where prices are held in check with “normal” rates.

Training Wheels- Normal rates

Next, this is a snapshot of our current market , where low rates for seven years have artificially inflated prices.

 

Training wheels - low rates

Our last drawing shows what happens to prices once rates rise.  (The next market)

training wheels removed

 South Florida Foreclosure Activity

We have added a trend line to this next chart of new foreclosure filings.  The chart represents new residential filings in Miami-Dade, Broward and Palm Beach County Florida.  The trend rises from the lower left to the upper right of the chart.  Yes, the pace of new foreclosure filings has been on the rise.  Even though real estate prices have risen due to low borrowing costs, there is clearly a big difference between asset price reflation and a true economic recovery.  We will eventually see what happens to the markets once the training wheels come off.

Foreclosure activity in South Florida

 

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Single family home inventory, prices and transaction volume

Single family home inventory

Our focus today is on the single family home segment in the Greater Fort Lauderdale area.  First, let’s see how the available inventory looks.  During the month of July there were 5,396 houses listed for sale in Broward County.  The beginning of last year is when inventory seems to have reached at least a near-term peak.  In February 2015, the existing inventory of houses reached a high of 6,731 and has declined 20% since that point.  If you look to the left side of the chart you will notice how inventory declined through 2012 from similar levels, but this is most likely attributed to the halt in foreclosures due to the robo-signing litigation.

single-family home inventory

Single family home transactions

Deal volume dropped 17% from June to July.  Here is a breakdown by transaction type:

  • Traditional sales – 1,279 in July, down from 1,548 in June
  • Foreclosure sales – 151 in July, down from 170 in June
  • Short sales – 69 in July, down from 87 in June

single-family deal volume in Fort Lauderdale

Median sale prices by transaction type

All transactions types had a decline in price in the month of July.  Here is a summary:

  • Traditional sales – prices dropped from $337,000 in June to $330,000 in July
  • Foreclosure sales – prices dropped from $252,500 in June to $237,500 in July
  • Short sales – prices dropped from $205,000 in June to $202,300 in July

sales prices in single-family homes

Distressed sales compared to foreclosure sales

We have noticed a divergent pattern in the South Florida real estate market lately.  The news media has been touting the decline in distressed sales as good news, but they haven’t mentioned that the pace of new foreclosure filings has been on the rise.  This chart speaks volumes. During the month of July there were 414 new foreclosure filings in the single family home segment, while there were only 220 distressed sales.  We always tell people that one month does not make a trend, but the chart clearly shows the trend of new foreclosures has been on the rise since the beginning of last year.  This chart is certainly worth watching as we head into the fourth quarter of 2016.

single family distressed sales and foreclosures

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Fort Lauderdale area condo property activity

We haven’t provided a condo property update for the Greater Fort Lauderdale area in a few months, so now is a good time to provide some new charts and data.  Today we will drill down on the existing inventory, transaction volume, average sale prices, foreclosure trends and distressed sales.

Fort Lauderdale area Condo Property Inventory

A few months ago the existing inventory was looking scary.  During the month of February, there were 9,710 condo properties listed for sale throughout Broward County and it sure looked like we would breach the 10,000 unit level within a few months.  Luckily, inventory has declined 15% since then to 8,265 units listed for sale as of July.

Fort Lauderdale #condo property market inventory

Condo Property Market Transaction Volume

The amount of closed transactions dropped a whopping 18% month over month from 1,685 transactions in June to 1,375 in July.

  • Traditional sales dropped from 1,432 in June to 1,196 in July
  • Short sales dropped from 78 in June to 28 in July
  • Foreclosure sales dropped from 175 in June to 151 in July

condo property market transactions in Fort lauderdale

Condo Property Market Average Sale Price

Our chart shows that the average sale price of condos in this market most likely peaked in May when the average price was $197,100.  During the month of July, the average sale price declined to $185,050.

Condo property market sale prices Fort lauderdale area

Foreclosure Activity

This next chart shows an interesting development in the trend of new foreclosure filings.  We have added a trend line to show how although the monthly figures have fluctuated, the overall trend is moving higher.  This is certainly worth watching as we move into the end of 2016.

Condo property market #mortgage #foreclosure filings Fort Lauderdale

Foreclosures and Distressed Sales

The pace of distressed sales has been declining since the beginning of last year while new foreclosure filings continue to climb.  If this continues, you will see these two lines cross in the next month or two and the overhang of distressed properties will continue to grow.

Condo property market distressed sales & foreclosures

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Distressed property market & a few South Florida real estate charts

South Florida Distressed Property Market

It sure seems that we have been talking about the distressed property market in South Florida for a very long time.  It has actually been close to a decade that short sales and foreclosures have been a factor in the residential real estate market.  Cracks in the market started to surface as far back as 2006 and grew for the next 3-4 years.  Most foreclosures were halted in October of 2010 because of the nationwide robo-signing litigation which provided a respite. Recently, the pace of new foreclosure filings has been climbing as distressed property sales have been on the decline.  In the month of July there were 955 residential distressed property sales in Miami-Dade, Broward and Palm Beach County, while there were 1,578 new foreclosure filings.  Take a look at the red line in the chart below.  The overall trend of new foreclosures has been climbing since the beginning of 2015.  Short sales and foreclosure sales have been on the decline for the same period.  If new foreclosure filings continue on this track, we will eventually see the overhang of distressed properties climb.

#Distressed real estate

Transaction Volume in South Florida

Transaction volume declined 15% from June to July.  We always say that one month does not make a trend, but this number is worth watching.  In June there were 9,103 total residential transactions and that figure dropped to 7,728 in July.

#transaction volume

Average Sale Prices in South Florida

The average sale prices of houses and condos in the South Florida market have been holding up so far.  Typically a few months of declining sales volume will begin to impact prices as properties sit on the market longer.  The average sale price of single-family homes slipped only 1% from June to July.  Condo prices declined 7% month over month.

Real estate sales prices

Pace of New Foreclosure Filings

The pace of new foreclosure filings climbed in July, with a total of 1,578 filings in July, representing a 37% increase month over month.  Palm Beach County remained steady, while Miami-Dade and Broward Counties showed noticeable increases.

#foreclosure filings in South Florida

We will continue to monitor the pace of new foreclosure filings and their impact on residential real estate prices.  Keeping interest rates artificially low for so long has reflated prices but will not repair the damage from the financial crisis.

 

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