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Underwater mortgages

Underwater mortgages in the news

When do you think we will start seeing underwater mortgages across South Florida?  There’s a good chance that anyone who bought property down here after 2021 could already be underwater on their loan if they didn’t put 20% down.  A loan is considered “underwater” when the loan balance exceeds what your property is worth.  Now, everyone has been so excited bragging about their property going up in value that they may have forgotten that values have and will decline at some point.  Active listings in your neighborhood aren’t a good indicator of value, you have to look at the recent closed sales.  With single-family inventory so low right now and limited closed sales, it becomes a challenge to  value a properties correctly.  As inventory climbs and sales increase, real estate markets will gradually show price corrections in real time.

By looking at our first chart of residential real estate prices across South Florida, you should notice the meteoric rise since COVID.  Keep in mind that mortgage rates were at historic lows for an extended period of time.  What happened?  People got FOMO and grossly overpaid for houses, condos and everything else they could get their hands on.  With mortgage rates normalizing and remaining higher for longer, prices will need to correct.  Everyone thought that South Florida would be immune to a correction, but people (especially real estate agents) have a short memory, especially when they need to sell something.

Mortgage rates will remain elevated

This is just a simple math:  As rates remain high, there is no chance that properties will command the same premium in selling prices that they did over the past few years.  Aside from low rates, don’t forget that South Florida was not only ground zero for the last housing market crash, how about all the PPP Fraud? Plenty of that money made it’s way into the real estate market as well.

Real estate inventory will continue to climb

For now, the inventory of single-family homes available for sale has remained limited, as condo inventory appears to be going parabolic with a wide variety of issues impacting that market.  Going through the summer, that green line is worth watching. If you bought a condo unit in an older building after 2022 with less than 20% down, there’s a real good chance your loan is already underwater.

Underwater mortgages, negative equity and foreclosure filings

The number of monthly foreclosure filings doesn’t look too bad for now.  However, this chart shows a nice base building and and the odds of filings increasing are pretty good.  What’s interesting is that even if a property owner has an underwater loan, they oftentimes continue making payments.

Residential real estate sales in South Florida

There was a nice increase in residential sales across the tri-county area of Miami, Fort Lauderdale and Palm Beach in the first quarter of 2024.  After only 4,420 houses and condos sold in January, that number climbed to 5,284 in February and 6,645 in March.  We will see how the month of April shapes up, then inventory should climb over the summer and continue to soften prices.

This real estate market outlook covers real estate activity in Miami-Dade, Broward and Palm Beach County, Florida.  Here are just a few of the cities in each of these three markets:

  • Miami-Dade – Aventura, Coral Gables, Miami Beach, Hialeah, Sunny Isles Beach, North Miami, Homestead, Doral, Miami Lakes, Downtown Miami, Brickell and Key Biscayne.
  • Broward – Fort Lauderdale, Pompano Beach, Deerfield Beach, Hollywood, Hallandale, Weston, Parkland, Wilton Manors, Oakland Park, Plantation, Cooper City, Davie, Coral Springs, Sea Ranch Lakes, Lauderdale by the Sea and Lighthouse Point.
  • Palm Beach – Delray Beach, Highland Beach, Jupiter, Palm Beach Island, Boynton Beach, Boca Raton, Highland Beach, Palm Beach Gardens, West Palm Beach, Wellington and Lake Worth.