Rampant overpricing is wreaking havoc in Florida’s housing market. Potential buyers are at such a disadvantage that they are better off postponing homeownership, according to professors from Florida Atlantic University and Florida International University.
Home prices in the sunshine state were heating up throughout May, selling at a 19.24% premium above their long-term pricing trend, which is higher than the previous month’s 17.17% premium.
In Tampa Bay, the most exposed of Florida’s major metropolitan areas, homes are selling for a 28.53% premium, which is an increase from April’s 26.14% premium. This degree of overpricing also carries over into other metro areas, such as Miami (14.88%), Orlando (19.79%), Jacksonville (20.48%), and Tallahassee (12.95%).
“Accelerating price growth in all these markets is particularly disturbing,” said Ken H. Johnson, Ph.D., a real estate economist and associate dean in FAU’s College of Business. “While I don’t believe a devastating housing crash is imminent, the greater the premium becomes, the more I get worried about price instability going forward.”
Johnson and Eli Beracha, Ph.D. of FIU’s Hollo School of Real Estate, said the shortage of homes for sale coupled with population gains and historically low mortgage rates will keep prices from collapsing. They advise potential homebuyers across the state to be aggressive and avoid bidding wars. Johnson also stated in a recent podcast that consumers choosing to rent will help alleviate the housing demand and stabilize prices.
The FIU professors are also co-authors of the Beracha, Hardin & Johnson Buy vs. Rent Index, which analyzes whether it is better in terms of wealth creation to buy a home or rent. Buying a home allows consumers to build equity, but renting allows consumers to reinvest their money.
“Our index shows you can build significant wealth through renting, often more than buying, as long as you reinvest money that would have gone to ownership,” Beracha said. “Given where Florida prices are now, the best way to try and avoid greater exposure to future price instability is for more potential buyers to seriously consider renting and reinvesting at this point. This will curb the demand for ownership and slow down pricing, helping to stabilize the state’s housing markets.”
To read more from the Beracha, Hardin & Johnson Buy vs. Rent Index, click the link.
