I remember visiting some friends in Southern California during the last housing boom. I played golf with different groups over a one-week period and it seemed like everything in the economy was hitting on all cylinders. Almost everyone I met was a mortgage broker or real estate agent. This was probably around 2005-2006 and there were plenty of similarities in Southern California and South Florida real estate market. I knew plenty of people who starting flipping houses and continued to double-down after a few successful flips. What could go wrong?
There was a REO (Real Estate Owned) conference out in Palm Springs on the following weekend, so I registered for the event, rented a car and drove out to the desert to attended the conference. My friends in California didn’t understand why I would attend a foreclosure conference when the real estate market was on fire. What was funny is how easy it was to register and find a hotel room. Attendance at the conference was light to say the least. Everyone was so busy flipping and making money they didn’t see the disaster about to hit the housing market. I just didn’t understand how the market could stay so frothy for so long. People were paying nonsensical prices for real estate and there was no end in sight (for them). Many of them were being led my real estate agents and even more of them were agents themselves. I sat through a few days of speakers and visited with a few default servicing companies. I handed out my business card and eventually headed back to Newport Beach to play a few more rounds of golf before traveling back to Fort Lauderdale.
A few months went by and I started to hear stories of flippers with 3-4 houses seeing longer days on market and listings going stale. Keep in mind, these are the same people who were telling me I was “missing out” and didn’t understand the market. Plenty of them called me an idiot. I just couldn’t comprehend how people were paying so much with hopes of selling for even a crazier amount. In addition, I heard stories of people qualifying for loans with minimal income and poor credit. Then my phone rang. It was a default servicing company from the REO conference I attended earlier that year. What’s funny is that there was a house flipper visiting my office when the call came in. They were telling me that I was too conservative and just didn’t understand the market.
I took the first REO listing just to see how it went. Then I received another call, followed by a flood of calls. On any given day I had 4-5 properties listed, with another dozen or so in the pipeline over the next few years. I worked alone, so this was plenty of work for me. The experience I gained was priceless. I took listings all over Broward County. What I remember most was the insight I had with some of the top banks and how inundated they were with foreclosures all of the sudden. What was scary is that the local agents didn’t get it, and they continued selling overpriced properties to unsuspecting buyers.
Fast-forward to 2008-2009 and everyone wanted to be in the REO business. The conference I had attended years before was sold-out. It seems like the entire real estate industry was caught flat footed. They didn’t know what hit them! This is why I write my blog! I could not believe how so many real estate “professionals” refuse to understand the market cycle. I know a flood of real estate agents and brokers that allowed several properties go into foreclosure during the last downturn. They stuck their lenders with massive losses and many of them are back in the flipping game repeating the same mistakes. What’s crazy is that these people are advising buyers on the largest financial decision of their lifetime and they are a fiscal train wreck themselves. There are also agents who entered the business after the last crisis and haven’t seen a rising rate environment or a recession. One of my favorite indicators of a market top is when I see agents paying top dollar for properties in a neighborhood. This one works like a charm and look out below once that happens!
Our blog is different. It contains helpful charts that not only illustrate where the market has been, but also where it may be going. Basically, my blog will tell you what you may never hear from your real estate agent. Our goal is to provide everyone with necessary tools not only to educate themselves, but to make better decisions when buying or selling real estate. Some may consider our blog as contrarian, but I firmly believe that clients should clearly understand market conditions and trends when considering a transaction. Based on transaction volume and prices, my view is that the South Florida residential market peaked for this latest cycle in the late spring / early summer of 2018. Has your agent discussed this with you? Are they selling you a property and telling you how much it will increase in value? Keep their contact information, because you may want to stay in touch with them during the next downturn. Remind them of their sales pitch on how you could easily sell the property you just bought because you were getting such a great deal. Maybe they should offer to split your losses and have some skin in the game.
The problem is that real estate agents don’t act as a fiduciary. Years ago some agents would be a “single agent” and act in the best interest of their client. Those days are gone and single agents are in the minority. The numbers in Florida is less than 5% of real estate agents are single agents, on the way to zero. Now almost all agents act as transaction brokers and are basically there to facilitate a deal. They don’t represent anyone but themselves and their need to make a commission.
A few months ago I ran into a person who said they were out looking at condos in Fort Lauderdale with a real estate agent. I told them to be patient because the South Florida market has peaked and prices are starting to retreat. Of course their agent didn’t tell them that and proceeded to sell them one of their own overpriced listings at full asking price (roughly 20% higher than recent comparable sales in the same building). The trusted agent was able to double-dip on the commission and the unsuspecting buyer was stuck holding the bag on an overpriced condo in a declining market. Seeing this breaks my heart. I’m certain that the agent has already booked a trip to the Bahamas and the buyer will watch the largest purchase in their lifetime decline in price from the day of closing. The vast majority of real estate agents didn’t see the last market crash coming and they won’t see the next one either. They have blinders on and they firmly believe it’s always a great time to buy or sell a property, as long as they get a commission. Then they wonder why real estate is one of the least respected professions. This is why I write my blog!
A few of the areas we cover in our blog for Miami, Fort Lauderdale and Palm Beach residential real estate markets:
- Average sale price – Our charts show the trends in condo and house prices in the tri-county area.
- Inventory – Our charts show the trends in available supply. Is inventory rising, falling or staying the same?
- Mortgage rates – We chart current rates on a weekly basis, their trends and correlation to the 10-year bond yield.
- Transaction volume – Is deal volume climbing or slowing? We look at monthly data and the averages.
- Deal volume by type – Our charts show traditional sales, short sales and foreclosure sales.
- Median sale price by transaction type – Our charts show traditional sales, short sales and foreclosure sale median prices.
- Foreclosure activity – We chart the monthly foreclosure filings in South Florida and the overall trend.
- Days on market – As much as we would love to chart this useful data, it is inaccurate since agents love to manipulate the numbers!