Real Estate NewsLetters Archive

INFLATION: THE RIPPLE EFFECT ON HIGH-END REAL ESTATE

The chair of the Federal Reserve, Jerome Powell, is focused on controlling inflation (which is great, we need it), but it's a mission that has hit the property market hard, especially at the high end. This of course impacts us, realtors.

Due to rising interest rates, buyers are reluctant to move, preferring to keep lower-rate mortgages they secured in previous years.

For the ultrarich, elevated borrowing costs have softened the luxury market, even with cash buyers in the mix. Wealthier buyers often hold assets impacted by higher rates, leading to heightened caution and reduced property activity. Knight Frank cites data showing a sharp drop in luxury sales, with properties worth $50 million or more down by 41% since 2021.

Beyond the luxury market, everyday homeowners feel trapped by high mortgage rates, with Edelman Financial Engines finding that 49% of homeowners under 50 feel unable to move. Many are even considering relocating to lower-cost states to alleviate financial strain, underscoring the broad impacts of the Fed’s rate hikes.



CAN YOU AFFORD THE HOUSE YOU'RE ABOUT TO BUY?

Did you know that middle-class buyers in the U.S. are increasingly purchasing homes they can barely afford, with nearly 30% of them devoting over 30% of their income to housing costs in 2022. Maybe it's the realtor's fault? just kidding. This "cost-burdened" status restricts families’ budgets for essentials like groceries and emergencies, exacerbating financial strain.

Housing expert highlights that the correlation between median income and affordable housing has significantly weakened. Despite the financial strain, buyers deem it necessary to escape their rental and live the American dream. Who wouldn't?

Overall, over 30% of U.S. counties exhibit similar affordability issues, with many middle-class families sidelined from the housing market. Although median incomes rose by 50% from 2013 to 2023, rising home prices, property taxes, and insurance premiums have outpaced wage growth, pushing many households into financial distress. This situation particularly impacts lower-income and marginalized groups, forcing families to cut back on essentials and maintenance, leading to unsafe living conditions.



SOUTH FLORIDA CONDO MARKET DECLINES AMID RISING INVENTORY

Condo sales in South Florida are declining as inventory rises, reflecting a shift in buyer preferences. Third-quarter reports reveal a 26% drop in condo sales in Miami Beach, totaling 583 transactions—the lowest since 2013. Listings surged by 35%, indicating more sellers in a slowing market. On the mainland, Miami-Dade experienced a 20% decline, marking the slowest third quarter since 2017. For example, in my building in South of Fifth, there were around 5-6 listings for sale at the beginning of 2023 whereas there are now 18 condos for sale in a building which has 365 units in total.

Despite these downturns, prices are still increasing, as buyers favor newer, better-maintained condos. In Palm Beach, for instance, sales rose even with a median price of $1.35 million, highlighting the polarization in the market. Wealthier buyers are gravitating toward high-end options, while lower-income buyers find affordable choices increasingly out of reach.

Older condos often come with high insurance premiums and special assessments, adding financial burdens for potential buyers. That's why it's also very important to have a great realtor who will navigate with you these hidden costs. Segments catering to wealthier buyers, like single-family homes, are thriving, reinforcing the growing divide in the market. This trend could continue, accelerating the polarization of wealth and housing access over the next five years according to experts.