How far home prices have rebounded from the bottom SFL's story

posted by Brian Mudd - 

How far home prices have rebounded from the bottom of the crisis & addressing the claim that SFL real-estate is overvalued:

Bottom Line: Remember the bottom of the housing crisis when it looked like you'd never be above water on your mortgage again? Times have dramatically changed with fewer than 1 in 10 mortgage holders still finding themselves under water on their mortgages. What's more is how impressive the overall recovery has truly been. According to the latest from Corelogic...

  • The average home is worth nearly 50% more than the bottom!
  • Inventory is at is lowest level in 30 years (making it a raging sellers market in much of the county & SFL) but...
  • The Miami metro is now considered "overvalued" once again by traditional "affordability" metrics

Nationally Corelogic says that home prices have appreciated by 5.2% year over year. With the average annual real-estate return being about 4%, we're still seeing above average real-estate appreciation which has been the case consistently since the recovery began in January  2012. It's pretty clear that the prices continue to be driven to above average levels because of a shortage of inventory generally. In South Florida we're continuing to see these trends:

  • Single family homes under $500k are generally red hot
  • Luxury homes over $700K are considerably slower to move

And then there's Corelogic's assertion that Miami's housing market is overvalued by just over 10% based on long term sustainability/affordability metrics. While there certainly is a limit to what can reasonably sustained over the long run - that's not at all what I'm generally seeing in SFL right now. South Florida's generic housing numbers are always skewed to a certain extent due to the disproportionate demand for 2nd, vacation and super luxury homes. The true value metric that's always held is this...is it cheaper to buy and make a mortgage payment on that same property or is it cheaper to rent? 

If it's cheaper to rent, that's historically indicated a housing market that's fully or potentially overvalued based on current conditions. If it's cheaper to make the mortgage payment - the market - at least as it pertains to what you're looking at, isn't overvalued. Everyone has to live somewhere, so if rent rates are more expensive than mortgages there's room to grow. In fact every time historically we've had cheaper mortgage rates than rent payments, we've had above average market returns just as we do now. It's also how I was able to ID that the turn in the housing market would be January of 2012 (in late 2011).

Brian Mudd

Brian Mudd

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