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Bailouts and Bubbles

Bailouts and bubbles - average monthly real estate sales

The real estate cycles of late can best be described as bailouts and bubbles.  The last housing crash was met with a flood of relief in the form of record low mortgage rates, bank bailouts, foreclosure relief and stimulus programs.  Rather than allow the real estate sector to heal properly, it was just reflated into the bubble that we have today.  When will this one pop ?  As far as South Florida is concerned, the first chart shows the average monthly sales volume for the tri-county area.  The number of closings  per month is the lowest it has been in years.  here is the monthly average since 2012:

Year Monthly Average
2012         7,167
2013         7,598
2014         7,603
2015         8,034
2016         7,581
2017         7,352
2018         7,573
2019         7,572
2020         6,744

Here is a look at the numbers for houses and condos for the same period.  It looks like the number of monthly sales could have peaked in August with a total of 8.630 closed sales.  May was the slowest month of 2020, with only 4,414 closings.  It’s very possible that the pent-up demand from the months of lockdown has finally been exhausted.

Bailouts and bubbles - real estate sales in South Florida

Bailouts create price bubbles

Check out these prices in the single-family home market across South Florida.  The average sale price of a house in the tri-county area was $638,507 in August.  That’s actually a slight decline from $645,124 in July, but still at record levels. The chart shows that it may finally be taking a break from it’s meteoric rise, but who knows at this point!  Condo prices haven’t gone as crazy during the pandemic, with the average price at $317,360 in August, down from $319,064 in July.

Bailouts and housing bubbles

Housing inventory at record lows

Too many people chasing too few houses.  That’s another reason that prices continue to climb.  The inventory of single-family homes for sale hasn’t been this low during this cycle.  In August there were 11,883 houses and 27,346 condos on the market, for a total of 39,229 available properties.

Housing supply in Miami, Fort Lauderdale and Palm Beach

Mortgage rates

What would happen if mortgage rates ever climbed again?  Everyone is so addicted to cheap debt that they seem to forget that if borrowing costs ever rise significantly, real estate prices will move in the opposite direction.  The problem is that people get so excited about a low mortgage rate that they don’t realize how much they are overpaying for a property.  When the cycle reverses this will cause some serious pain to borrowers who were caught up in the FOMO during the pandemic.

Mortgage Rates and the housing bubble

Real Estate Deal volume for the year

At some point the lack of inventory will impact the number of transactions and it looks like that may already be happening.  We will see if it can be made up in the final quarter of 2020.

Real estate sales volume

Foreclosure filings

There has been a moratorium of foreclosure filings and evictions, coupled with forbearance programs from Fannie Mae and Freddie Mac due to COVID-19.  It looks like some mortgage lenders are starting to file again and this chart will most likely spike once everything is lifted.  There was a tsunami of new filings in 2018 since foreclosures were halted in the fourth quarter of 2017 due to Hurricane Irma.

Mortgage Foreclosure bailouts

As we move into the end of the year, it will be interesting to see if the loss of enhanced unemployment benefits and PPP Loans has any impact on the real estate market.  As for the PPP Loans, if you do a search here using the zip code or company name, you will notice that the mom and pop small businesses didn’t get bailed out.  It looks like the larger companies with strong banking relationships were able to take advantage of this program.  Some of the companies receiving PPP funds never shut down and therefore didn’t miss a beat during the pandemic. You may also notice that the number of jobs that these applicants claimed to be “saving” is greatly exaggerated.  Where did the money go?  Let’s hope that it went to retaining employees and not to a new boat, house or any other personal splurge.  These programs tend to be abused and South Florida always to be at the center of the grift.