Florida Homes Are Severely Overvalued: What This Means For You

Florida AP PHOTO

Since the start of the pandemic, global economies have moved in directions unexpected by even the most experienced experts. This is no more true than in the US housing market. Many predicted that the pandemic would cause housing values to crash. After all, fewer people were moving and job losses meant less income to buy homes. However, the opposite happened.

Over the past two years and change, housing values in the US have skyrocketed. In many places, you may now pay over a hundred thousand dollars more on a home htna you would have at the start of 2020. The fears of a housing bubble bursting have been spoken about in whispers for many months now, but so far nothing of the sort has happened.

This has led us to a place where, in 2022, homes in many states, including Florida, are severely overvalued. If you are trying to buy a home, this impacts how much you need for a down payment, what you will pay on a monthly basis, and the future resale value of your home. It may be cause for you to take a cautious approach and hold off on buying a home. But first it is important to understand what is going on and the factors you should take into account.

Florida Housing is Overvalued

Housing is overvalued throughout the US, but Florida is one of a few states where this overvaluation is severe. In many cities in Florida, houses are overvalued by 30% or more. This includes Miami, Fort Lauderdale, Daytona Beach, Sarasota, Tampa, and others. How did we get here?

The basis for these excessive home values is partly a matter of low supply and partly a matter of low mortgage rates. Construction delays during the pandemic have left a shortage of homes available, and fewer people are selling their homes as well. Furthermore, throughout much of the pandemic, mortgage rates were at record lows, which made it cost-effective to buy homes even at record high prices.

As such, it was the low rates that allowed Florida housing to become overvalued with no major correction. However, those low rates have come to an end. The high inflation caused by the pandemic and Russia’s invasion of Ukraine, among other factors, has led the Federal Reserve to raise interest rates, and a mortgage will cost most people more in interest than it would have before the pandemic.

So, what does this mean for you? Is a correction in sight or should you buy a home before values shoot up even further.

The Dilemma of Investing in Housing

If we were talking about property on an investment level, caution would seem like the wisest course of action. Yes, housing prices may increase, but the likelihood at this point is that they will, at best, plateau. You are unlikely to make gains on an investment at a time when housing is so overvalued.

However, most potential buyers are looking for somewhere to live. Chances are you’ve been renting and want to get a place of your own. You could wait for prices to correct, but that might leave you in a position where housing becomes even more expensive. If prices continue to rise, along with the rise in interest rates, you may soon struggle to afford a mortgage, even if you settle on a home that is smaller or more run down than you would like.

The simple reality is that no one has any confidence about where the housing market will go. This makes homeownership a dilemma throughout the country, but especially in places like Florida where homes are so severely overvalued. It is not a matter of paying a bit extra for the house you want. Rather, it is a matter of paying far more on a house that two years ago you wouldn’t have even considered.

A mitigating factor for buyers of homes is that, because you are not trying to make money from your new home, a crash in the housing market will not have an immediate impact on you. You may feel buyer’s remorse over having paid so much for your home, but ultimately you will continue paying what you’ve agreed for the next decade or longer, at which point the value of your home will probably have increased again.

Should you buy a home now? That depends on your circumstances. You have to make the decision over whether it is wise to keep paying someone else’s mortgage while renting in order to avoid paying for overvalued housing. You have to decide whether you can wait and what that will mean if housing values continue to increase. There is always a dilemma when buying a house, but no more so than when housing is so severely overvalued. No one can predict what is coming, and you will have to make hard choices based on what we know now