Florida homes keep selling for much more than they are worth — and recent buyers who paid top prices might see their real estate investments pay off much later than they initially anticipated to.
According to researchers at Florida Atlantic University and Florida International University, as of June 30, homes throughout the Sunshine State were selling for 21.76 percent above their long-term pricing trend, an increase from 19.24% in May and 17.17% in April.
The study reviewed more than 25 years of home prices from Zillow, the online real estate portal.
Their findings state that Tampa Bay is the most concerning of the state’s major metropolitan areas, with homes in the Tampa area sold in June for a 32% premium, up from 28.53% in May and 26.14% in April.
The overpricing of homes continued to escalate across Florida’s other major metropolitan markets, including Jacksonville (23.07%, up from 20.48% in May and 18.22% in April); Orlando (21.19%, up from 19.79% and 18.45%); Miami (16.89%, compared with 14.88% and 13.18%); and Tallahassee (14.38%, an increase from 12.95% and 10.48%).
However, there is at least some good news here:
“Citing a shortage of homes for sale, a steady influx of out-of-state buyers and mortgage rates near historic lows, the researchers are not predicting a housing crash like the one that occurred more than a decade ago, when Florida homes were overvalued by 60 percent or more,” explains the report written by FAU.
However, recent homebuyers who paid premium prices may wait years before they can realize solid returns on their investments, according to real estate economist and associate dean in FAU’s College of Business Ken H. Johnson.
“The across-the-board increase in the premiums paid for housing throughout the state is very worrisome,” says Johnson. “Trees do not grow to the sky and neither do home prices. We’re nowhere near where we were at the peak of the last housing cycle, but we do need to be careful. Walking away from an obviously overvalued home may be the best thing buyers can do in this kind of market.”
So, what should people who are looking into buying Florida real estate do instead?
“Our research on buy vs. rent indicates that, on average right now, renting and reinvesting is a particularly good wealth creation strategy,” Eli Beracha of FIU’s Hollo School of Real Estate says. “More people who rent and reinvest would help alleviate current pricing pressure, which is a good thing.”
Given the amount of overpricing, both Beracha and Johnson agree — people in Florida are better off renting a home and reinvesting the money they would have spent on ownership.
Although rents also are increasing, it’s at a much slower pace.