Residential real estate has been performing just fine throughout the “easy money” economic environment of the past decade.  Now that rates are finally climbing, you will begin to see how South Florida house and condo prices perform under pressure.  The most recent spike in rates has probably shaved at least 10% off residential real estate prices, but sellers and their trusted real estate professionals may not have received the memo just yet.

Pressure from higher rates

We have been watching the ten year bond yield for a very long time and it looks like we are finally prepared for takeoff.  It crossed the 2.63% mark and is headed for 3.00%.  If we see a close over 3.03%, you better get your space suit on because it will be going much higher and causing some serious pain to all asset classes.

Pressure on housing prices

Everything has been great for residential real estate prices and here is a chart showing the numbers through January 2018, prior to the latest move upward in rates.  If you look at the Miami-Dade, Broward and Palm Beach market, the average sale price of a house was $513,922 in January and the average sale price of a condo was $288,302.  It’s interesting to see that the average sale price of a South Florida condo has been unable to pierce the $300k level since the last crash, so it’s safe to say that it won’t make it during this cycle.

Most residential agents simply don’t realize that the market has changed.  You may not have noticed yet, but you may start to see the following over the next several months:

• At least a few months of denial from agents that the market has changed
• Longer days on market for residential properties due to refusal to adapt to new pricing
• Reluctant decreases in list prices by agents
• Out of frustration, agents will cancel and relist properties so that they appear “new to market” in the MLS
• Transaction volume will start to decline month over month
• Lower closing prices

Pressure from foreclosures

There is a good chance that nobody else is talking about this, but foreclosures are still an issue in Miami-Dade, Broward and palm Beach County Florida.  During 2018 we should see the pace of new foreclosure filings ramp-up once again.  It has been over a decade of fits and spurts and plenty of residential properties in South Florida still have foreclosure suits pending.  Our next chart clearly shows the latest foreclosure halt by FEMA in the fourth quarter of 2017 due to Hurricane Irma.  Banks are finally bouncing back after that.

Pressure from declining sales volume

Deal volume is down in January, with a total of 5,980 closed sales.  December had 7,310 closed sales.  Some of the slowdown may be seasonal, but market headwinds may prevent a rebound.  Here is a look at the annual totals and averages going back to 2012.  It looks like 2015 was the big winner, followed by two consecutive annual declines.

Pressure from new residential inventory

Supply has been low, but that should change over time.  As existing properties become “stale” on the market, new inventory will be added.  Once sellers realize they may have missed the market already, the fear of missing out (FOMO) will quickly flip from the buying to selling side.  Right now, the inventory doesn’t look too bad.  In January there were 18,729 houses and 30,419 condo properties available for sale in the tri-county area.  This was a total of 49,148 total properties.  We won’t sound any alarms until we cross 50,000 residential properties on the market.  In the interim, get used to seeing your neighbor’s property sitting on the market for awhile as their agent scratches their head while refusing to lower the price.