A decade ago, South Florida was at the epicenter of the biggest decline in United States housing market history. Today, however, the flood of short-sales and foreclosed properties selling for pennies on the dollar are long gone. And instead of finding themselves deeply underwater on their mortgages, most homeowners are now celebrating the equity they’ve gained through rapid appreciation over the past few years.
Problems for millennials and maybe for baby boomers.
There is one group of people, though, who aren’t quite as happy with continually rising home values: millennials. That’s because the combination of low-paying jobs and the increasing cost of purchasing property is making it more difficult than ever for younger buyers to realize the American Dream of home ownership.
And for baby boomers who are planning to wait just a few more years to downsize and cash in on their home’s equity, this could pose a serious problem.
According to data from the National Association of Realtors, home values in the Miami-Fort Lauderdale-West Palm Beach metropolitan statistical area saw a year-over-year increase of 8.7% in the third quarter of 2016. Just a little further north, the Port St. Lucie metro area saw property prices skyrocket by 12.6% over the same period.
While this is tremendous news for existing property owners, it’s making homes prohibitively expensive for most prospective millennial buyers. With the median home in the Miami MSA valued at $315,000, that 8.7% rise represents a $25,000 increase in cost over the past twelve months.
With home ownership at its lowest numbers in three decades, even modest increases over the coming years will continue to push home ownership further out of reach for these millennial buyers.
Young buyers moving to more affordable cities.
As a result of the current housing market and economic climate in the region, more and more millennials are moving away from South Florida. They’re relocating to other big cities and urban areas with a lower cost of living and a greater number of well-paying jobs – especially in the fields of science, technology, engineering, and mathematics.
In 2000, 21.4% of South Florida residents fit into the millennial demographic. By 2014, that figure had decreased to 19.9%. Many economists attribute the decline to a comparatively low average income, as well as to higher rental costs and home values than are found in many other major cities.
Or, they’re moving back home.
And the millennials that are sticking around? They’re now living with their parents in increasing numbers, either out of choice or out of necessity. Current data puts the number of millennials aged 18-34 living with their parents above 30%. This is the first time since the 1880’s that living at home has been the most popular type of housing arrangement for Americans in this age bracket.
There’s no doubt that the economy is improving and a greater number of college graduates are finding employment opportunities – especially compared to just a few years ago. But employment opportunities by themselves do not necessarily translate to higher income jobs. So this question arises: even if millennials want to buy homes, will they able able to afford them? Well, if home values continue to grow at their present rates, the answer is that most of them won’t be able to.
More supply means more price competition.
What does this mean for the South Florida housing market? There’s a chance that a lack of able buyers will cause home values to stagnate or even decline at some point down the road.
Why is that? Because baby boomers are retiring (or reaching 65 years of age – nobody seems to be retiring anymore) at the rate of 10,000 a day. Many of them want to sell their homes because it is their largest asset. They want to downsize and use the extra money from the home sale for future income.
While many boomers are remaining in place, sufficient numbers will sell. And that means many more homes will hit the market. But if the prices are beyond the financial ability of most buyers, the houses will not sell. Unless the prices come down.
But- higher interest rates mean higher payments for buyers.
With the very recent rise in mortgage rates to 4%, the monthly cost of home ownership has just gone up. Furthermore, the prospect of increased military and infrastructure spending by the new administration will likely encourage the Fed to further increase rates. Homes that are at the top of the market for Millennials now are likely to move into unaffordable territory.
California – which often sets the tone for other real estate markets across the country – has seen growth in areas like San Francisco and Los Angeles fall from double digits to far lower than what we’re currently experiencing in South Florida.
As an existing homeowner, what should you do to safeguard yourself in the current market climate? Well first off, if you’re content with your existing home and have no plans to move, don’t worry about it. As we’ve all witnessed over the past decade, a few bumpy years won’t stop the market from functioning.
For the moment, demand is still ahead of supply.
On the other hand, if you’ve been considering downsizing or relocating in the next two-to-five years, you might want to take a closer look at the advantages of the currently vibrant market. While no one can predict what the market has in store for local real estate, we are still in a strong market for sellers for the time being.
While real estate may still see appreciation over the next couple of years, there’s a good chance that increasing prices will continue to shrink the pool of potential buyers – especially among millennials – until we see the supply of available homes begin to overtake demand.
So for baby boomers who want to sell and cash out all of the equity that they’ve gained over the last few years, there’s no better time than the present to sell your home.
If you’d like to know what your home is worth, please call us today.