Home prices will likely remain high and even increase, but at a much slower pace. The year will probably see fewer sales and a growing inventory of for-sale homes.
FORT LAUDERDALE, Fla. – After an unexpected slowdown in the South Florida housing market this year, what does 2023 hold for buyers and sellers? The South Florida Sun Sentinel talked to the experts on what people can expect in the coming year with mortgage rates, if buyers will have more choices, if homes might be easier to get and if prices will ever come down.
Here’s what they say.
Home prices remain high, but growth will be slower
Experts believe that for the most part, home prices in South Florida will increase, but at a slower pace as the market continues to stabilize after the record two years it had during its pandemic boom.
“I expect prices will be stable, maybe slightly downward over the first few months of the year. Toward the second part of the year, interest rates should be easing and convincing some buyers to return to the market, so prices will go back up,” said Eli Beracha, director of Florida International University’s Hollo School of Real Estate. “We’re probably looking at a moderate price appreciation overall.”
It’s hard to put an exact number on how much prices will appreciate. The current median sale price for a single-family home in the tri-county area is about $475,000, a 12% increase from the year before, according to data from Redfin.
Realtor.com predicts that home prices in South Florida will grow by about 3.4% next year, while CoreLogic suggests that the average price growth for single-family homes will be about 8%. Zillow predicts that home prices will grow about 1% next year.
Affordability will remain an issue for many buyers as a lack of available land to build on and demand for out-of-state buyers will help keep prices high.
“The prices of single-family homes is going to continue to appreciate in 2023 because of the amount of people moving here and the limited inventory for sale,” said Craig Studnicky, co-founder and CEO of ISG WORLD and RelatedISG Realty. “Prior to COVID, I maybe sold to one California buyer a year, now we are doing about two a week. It’s the same with New York; the northeast is shrinking.”
Where will mortgage rates go?
Mortgage rates remain a key issue for both buyers and sellers, as both groups wait to see how mortgage rates fare in the new year.
Rates have started to drop down from the record highs of upward of 7% in the fall as the Federal Reserve signaled that it might take a less aggressive approach in trying to cool inflation. The average on the 30-year rate recently dipped to 6.27%, according to mortgage buyer Freddie Mac.
Forecasts vary on where mortgage rates might be: A Freddie Mac forecast put mortgage rates at around 6% for most of the year, still almost double than the pandemic lows that drew in a lot of buyers. The higher mortgages are, the less buying power buyers have, especially ones purchasing their first home.
“It’s been challenging with prices going up, and rates have reduced the amount they can look at to buy a home,” said Craig Garcia, Capital Partners Mortgage. “It’s definitely easier because there is less competition and more chances for a buyer to negotiate with sellers for some type of concession.”
It’s hard to predict exactly where rates might be, but there are two key indicators to watch for, Garcia said.
“It’s really two pieces of the puzzle that are the most important – the economic growth situation and the inflation,” he said. “If the economy looks like it’s strong and inflation is still not under control, we will likely have higher rates, and rates will continue to climb.”
More homes, less sales
Inventory levels are also expected to rise in the new year, giving buyers a little bit more flexibility in what they can choose from and building on the slight increase of homes coming to the market over the past few months.
There could be a 10% increase in inventory, noted Patty DaSilva, broker with Green Realty Properties in Cooper City, leading to less competition among buyers.
“Now we are seeing a few multiple-offer situations, or maybe a buyer offering $5,000 over asking,” DaSilva said. “It’s not like what we were seeing before where a buyer might offer $175,000 over asking or a property had 39 offers. It’s much more reasonable and properties have to be priced correctly. “
On the flip side, it’s likely that there will be fewer overall transactions in the beginning of the year, mainly due to high mortgage rates keeping homeowners in their current homes.
“Interest rates are still high and those who don’t have to move won’t because they’ll end up paying off a house at a lower interest rate and buying at a higher one,” Beracha said.
New projects on the market
Despite some homes coming to the market, overall supply will still be constrained, as supply chain issues, uncertainty about interest rates, and the cost of creating will put a damper on new projects from developers.
“I think you are going to see a slow number of starts in construction in the new year,” said Ignacio Diaz, developer with Group P6. “The overall financial costs are very high, so it’s a lot of headwind to start new projects.”
A few factors are making it more difficult to get new projects off the ground: the lack of available land in South Florida, the uncertainty of where interest rates will be and how it affects construction loans, and the cost of insurance.
“Because the interest-rate environment has changed drastically, some of the projects, they just don’t work with the current rate of construction loans as well as the valuation of these projects,” said Harvey Hernandez of Newgard Development Group.
Developers expect that many projects will be shelved and re-evaluated in 2024 and 2025. This will keep upward pressures on prices, and contribute further to the severe lack of housing in the area.
“A lot of projects are going to be shelved in the hopes that interest rates will come down,” said Chad Moss with MFO Worldwide.
© 2022 South Florida Sun-Sentinel. Visit sun-sentinel.com. Distributed by Tribune Content Agency, LLC.
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