[ WEALTH MANAGEMENT CORNER ]
From Your Trusted Advisor: Real Estate Trends to Consider.
By Mey-Ling Perez
The real estate market has been a hot topic of discussion since the financial crisis in 2008. Now, almost ten years later, significant speculation on the future remains.
This article aims to outline general real state trends in Miami-Dade, while also touching upon some macro-economic factors that can affect borrowers. The goal is not to provide an opinion on timing of this complex real estate market, but instead bring awareness to future home buyers.
Despite the many theories on the next cycle, a few facts cannot be denied regarding our market:
- Since 1950, Miami-Dade County’s population has grown from 500,000 residents to over 2.6 million, of which more than 51% were born abroad.
- For many years, influx of foreign wealth has been a key factor driving up property values in Miami.
- Miami’s year-round pleasant weather, combined with its growing entertainment and hospitality industries, continue to place Miami as a very desirable destination. This is not only true for foreigners wishing to obtain a second home, but also for retirees and business owners from other U.S cities where real estate prices have nearly reached prohibitive levels.
During 2017, we have seen neighborhoods such as Miami Beach, Brickell, Coral Gables and Doral continue to report increased sales despite growing inventory levels in some asset classes (primarily condos). An asset class with significant demand has been single-family homes at mid-range prices (between $300,000-$850,000). These properties have experienced price growth on average of approximately of 6%. Conversely, there have been slowdowns in the luxury market for homes/condos over $1 million, wherein sales are reported to be flat, or with single digit declines during certain months of the year.
On the investment side, cities with strong rental markets such as Hialeah have caught the attention of private equity groups and foreign buyers. This high demand, in turn, continues to drive prices upward. Prices for apartment units in Hialeah under 1000 sq ft. have exceeded 2007 levels.
For those currently exploring financing alternatives, it is important to keep in mind that the Federal Reserve may raise interest rates one more time before year end. Its projected forecast also includes three possible additional increases in 2018, followed by two possible subsequent hikes in 2019. In the meantime, the Federal Reserve will continue to reassess inflation, which has remained below 2% for some time now. Low interest rates have provided buyers with increased purchasing power since the last market crash, thus increasing demand for real estate. Rising interest rates will likely negatively impact purchasing power.
The great quandary is that we will continue to see demand for real estate in this market given a growing Millennial population, continued injection of foreign capital, and the geographical appeal of Miami. The growth in supply, however, is not necessarily linear, nor does it coincide with demand. For example, Miami lacks enough affordable housing and currently has an overflow of luxury condo developments. During this same time period, interest rates have increased. This means that once you are ready to explore the purchase of real estate, it is critical to seek proper guidance on the market and to align your needs with a suitable financing structure.