will we witness a crash in South Florida's Real estate market?

Question

Looking back to the south Florida's real estate crash in 2007-2010, we wonder, is it happening again? Is this a bubble about to pop? Many homeowners and investors suffered devastating loss during those years. The value of properties dropped by 50% or more in some cases forcing many foreclosures. As we all know, Covid 19 pandemic changed the world forever, it made us reconsider and rearrange our priorities. It was long enough to create a major fundamental shift in our lifestyle and break habits and create new ones. The type of property, neighborhood, city, even the country we wanted to live in became a lot more important than it was before. South Florida became a hot spot for many of us that were tired of the cold and restrictions placed in our cities and areas upstate. Imagine tax break, winter break and restriction break, who doesn't want that when you can have it all thanks to hybrid working. In my opinion south Florida’s real estate has always been under valued, compared to cities like New York, Chicago, Toronto and Vancouver. Paying less for the same square footage, less taxes and always above zero? why not? People who can, are moving and places like New York, Chicago, California and Toronto are forcing and pushing people and money out. Now the questions we all wonder about are, is the market going to crash? Can we sustain the current market or is this a bubble going to pop?

For New York to become the epicenter again is to change backwards and I don't see that happening, the market is not a debt driven market over 60% of the transactions over 1 million are cash transactions. Can we sustain these prices or based on history there will be a crash? Of course there is a correction at the end of each cycle but we are not changing backwards and the market is not debt driven therefore it is very less likely for a crash to happen. Just because we are at a peak doesn't mean we can't go higher or sustain current prices.

Sara Evans

For New York to become the epicenter again is to change backwards and I don't see that happening, the market is not  a debt driven market over 60% of the transactions over 1 million are cash transactions. Can we sustain these prices or based on history there will be a crash? Of course there is a correction at the end of each cycle but we are not changing backwards and the market is not debt driven therefore it is very less likely for a crash to happen. Just because we are at a peak doesn't mean we can't go higher or sustain current prices.

Sara Evans

Joe Splitrock · Answer

Four things helped Florida through COVID:

1. Governor retained the citizens freedoms. Kids could go to school, limited shut downs and mandates. On top of that, low taxes and nice weather, so people said why deal with this crap up north. People from places like California figure, good enough weather and lower housing prices - even at the inflated rate compared to California.

2. Remote work made it possible for people to move and retain their job. This made it possible for people to move there, who otherwise would have been locked to a specific location.

3. Domestic tourism, specifically short term rentals, saw a massive boost. People who normally would have left the country were concerned about reentry or medical emergencies. This severely limited out of country travel. Even Hawaii had crazy quarantine policies, so people looking for a warm destination basically had Florida. On top of that, hotels were less desirable due to fears over being around people. Hotels also shut down amenities like breakfast, weight rooms and even pools. Hotels also have had staffing issues, which limited capacity and has hurt service as they ramp back up.

4. Excess cash with nothing to spend it on. The federal government handed out thousands of dollars to families. Student loans payments and even mortgages were frozen. People had all this extra cash, but local things like concerts, movies and sporting events were all cancelled. What is left? I am going to Disney World! People had money and said, lets go vacation. Kids are out of school or remote school, work is remote, so nothing stopping people from vacationing. Go back to point 3 and where do people go?

The reason FL suffered during the housing crisis was speculation and devastation to tourism during a recession. Tourism is discretionary spending, meaning during tight economic times it is where you cut spending. When we enter into a recession again, it will impact tourism and it will impact short term rentals, which affects housing. The question is how many people that moved to Florida, stay in Florida? How much of this housing demand for STR was COVID spike versus long term sustainable. My family took a vacation to Florida, but it was to replace a trip we had planned to New York. We now have a new trip to New York planned this summer. I think COVID benefits could fade. Change in political leadership, hurricanes, recession could all create short term problems.On the plus side, more businesses have moved to Florida, so that should help during the next down turn. I am personally bullish on Florida long term. Florida's population growth has been outpacing California, New York and Illinois long before COVID and that should continue long term. In other words, if there is a dip, expect Florida to recover from it.