When real estate market sentiment shifts
When real estate market sentiment shifts, you won’t hear a bell ring or sounding of an alarm. Today we will point out a few trends that are developing, as they may be signaling a shift in the South Florida real estate market.
Residential Real Estate Market Transaction Volume
For several months now we have been pointing out that fewer transactions are closing. Today we will focus on the sales of houses and condo properties in Broward County, Florida. There were 2,187 total closings in the month of February, which represents a 34% decline from the 3,301 closings last June when we believe the South Florida residential property market peaked.
Residential Real Estate Market Inventory
The existing inventory of single-family homes in Broward is within reason, but the condo inventory is sounding an alarm as it reached 9,710 units listed for sale as of February. This represents a whopping 65% increase in available condo inventory since the lows reached in April 2013. We have expected this number to climb to over 10,000 units, but didn’t expect supply to grow at this pace and we may reach 10k units on the market much earlier than expected. Keep in mind that reaching this benchmark early is not a good accomplishment!
Foreclosure Activity in the Residential Real Estate Market
Most people thought the foreclosure problems that plagued the South Florida real estate market were long gone. In reality, the pace of new foreclosure filings has been on the rise again. During the month of March, Broward County had 433 new foreclosure filings on houses and 130 new filings on condo properties for a total of 563. That is a 52% increase over the 370 filings during the month of February. The monthly averages of new filings are as follows:
- In 2015 the monthly average was 280
- So far in 2016 the monthly average is 390
- This is a 39% year over year increase in the monthly average
Distressed Sales vs. New Foreclosure Filings
How about the pace of distressed sales compared to new foreclosure filings? We have seen a disturbing trend in the single-family home segment. The pace of new foreclosure filings is now higher than the pace of distressed sales. You need to sell distressed properties faster than new ones appear if you want the distressed inventory to decline.
In the condo segment the chart doesn’t look as bad, but the rising inventory is enough for the condo market to wrestle with at this time.
Overhang of Distressed Real Estate
We monitor the pace of distressed sales compared to new foreclosure filings is because there is still a large overhang of distressed properties throughout Broward County. Feel free to click on the chart to see where the 23,847 properties in some stage of foreclosure are located as of our latest search on April 1st. That number represents 19,262 houses and 4,585 condo properties. What would happen if all of that inventory hit the market? The good news is that the average foreclosure takes over 1,000 days in South Florida, so they will just continue to trickle onto the market. However, if you think South Florida is out of the woods when it comes to this distressed property overhang, think again!
Mortgage Rate Environment
Some of the above market conditions might be excusable in a rising interest rate environment, but not with rates stuck at record lows. By keeping rates artificially low for an extended period, consumption has been pulled forward and asset prices have been reflated, but the underlying problems in the market remain. Although the real estate industry has cheered low rates for years, they should be questioning why the Fed is afraid to hike now that we are in the seventh year of the economic recovery.
A few areas of concern for the South Florida market are as follows:
- A continued decline in transaction volume will gradually lead to lower prices
- Rapidly rising condo inventory will lead to a supply / demand imbalance when combined with lower transaction volume
- There is still a large overhang of distressed properties in South Florida
- The pace of new foreclosure filings is gaining momentum once again
- Low rates have pulled consumption forward, encouraged excess leverage and increased speculation
- The combination of these factors will lead to a phase of true price discovery and it may already be in progress