Why are Palm Beach County Home Prices So High?

Why are housing prices soaring in the Palm Beach County Housing Market when there are so many indicators that the economy is struggling? Because of two HUGE market pressures, meager inventory, and extremely low-interest rates. Usually, we don’t know when we have hit the top of the market until prices start to decline.  The current situation allows us to look at leading economic indicators and liquidate assets before sacrificing equity.

Housing Inventory

Florida, across the state, has inventory shortages causing spikes in prices from competitionNationwide we have the lowest amount of inventory ever recorded according to the National Association of Realtors at the end of July, inventory was only 1.5million, only 3 months of inventory. In Florida inventory is down 35.5% as of August reports from the Florida Realtors, which is lower than the national average at 2.4 months. Palm Beach, Broward and Dade are down 34.1% only 3.2 months of supply.

South Florida is experiencing increasing inventory deficiencies driving prices upWhat are inventory rates so low? People are terrified to move. There is so much financial uncertainty for so many homeowners who are trying to figure out what to do next- find a job, liquidate savings, refinance, so they have more cash on hand- anything to keep food on the table for their families. Consumers are taking a serious assessment of their personal financial situations and what the coming year will look like for them; will they have a job? Will they experience wage losses? Will the pandemic grow? They take a defensive position in this time of uncertainty and wait for more signs to come before selling. It seems like a cautious move, however, it is a mistake.

Property value has been appreciating rapidly, and home prices are now at a ten-year high.  There are very few homes on the market in South Florida.  We have been facing a housing shortage for quite some time now.  With COVID-19, the inventory has gotten even tighter.  Interest rates are at historic lows, and it is pent-up buyer demand.  As a result, the homes that we have listed over the past few months have sold within days, at or above the listing price, with multiple offers.

Palm Beach County Housing Market Correction is Coming

However, we expect this to change soon.  Given South Florida’s heavy dependence on the hospitality and tourism industry, we are among the hardest-hit areas. The Florida unemployment rate is 14.5% (1.4 million people out of work), and 10.5% of Floridians are behind on their mortgage.  While nobody has a crystal ball, it is safe to say that a lot more homes will be on the market once banks start foreclosing on past-due mortgages, and homeowners are forced to sell due to economic hardship.

As the market declines, lenders will assume a greater risk of default when issuing loans.  To mitigate this risk, lenders will require higher down payments, higher credit scores, and lower debt to income ratios.  This will make it more difficult for prospective buyers to qualify for a mortgage.  With a higher supply and lower demand, it will be much more difficult to sell.

Refinancing, which so many are doing right now (The MBA reports that the Refinance Index was 50 percent higher than one year ago), takes advantage of these historically low-interest rates and the very high prices at the same time. However, we expect many of these homeowners to be far underwater when the market changes. If the local job market does not improve, that could be added stress on the housing market adding short sales, loan modifications, and distressed property inventory: good for homebuyers since prices will be much lower but bad for sellers who are going to see giant swaths of equity drop out of their home prices. If you are thinking about selling, the time is now.