Should I buy a house now or wait in Florida
Commentary brief: With home values increasing over 20% a year in Florida and interest rates are on the rise many wonder, is now still a good time to purchase a home in Florida. When you average out inflation over the last 20 years, what you will see is that home values have appreciated at a normal rate. The rapid appreciation over the last 3 years, has merely covered for the loss of appreciation for the 10 years after the market crash in 2007-2008.
Should I buy now or wait? Lets look at housing supply and demand.
Considering demand for housing starts with having a fundamental understanding, that Florida is one of only a hand full of other States, where people desire to move to given the weather, the no state tax, and economic and political well managed growth. In addition, a lot of people are abandoning states that have a considerably high state tax, and have unfortunately grossly mismanaged the tax revenue, and these state are facing major social and economic problems. For this reason we can expect to always see above average home value appreciation and higher than normal demand for homes compared to the rest of the United States.
Given, the constant influx of movers converging on Florida, with over 4000 new residence per month, and a robust new class of homeowners, the millennials entering the world of homeownership, coupled, with investors who find Florida Real Estate red hot, we can expect to watch home values continue to climb year of year. Given my 22 years of lending experience, backed by a engineering and statistical analysis education, I believe the interest rates will have to reach some absolute awful level to slow the demand for housing.
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SUMMARY OF SUPPLY versus Demand in Florida Housing Market: We expect to see year of year consistent demand for housing, even though interest rates will continue to rise. In additional, as interest rates rise, you can expect to see new highly regulated loan programs that offer credit approvals to what may now be borrowers who are just missing the mark for qualifications.
Second, lets look at interest rates and appreciation and reconcile the relationship between the two.
Understanding the relationship between interest and appreciation, will help you to realize that having normalized interest rates, simply means that you are purchasing an asset class that has significant real appreciation and value year over year. Look at this way, when homes do not appreciate, who want to to pay 5% in interest. If you had to choose between buying a home that does not appreciate, and have an interest rate of 0%, or pay 6% interest rate and have a home appreciate at 10-12% a year which would you prefer? Do you see the point here.
When you are paying a higher rate of interest, that most likely means the assets have very healthy appreciation. in the above example you capture 10% Appreciation - 6% Interest charges = 4%. So on a $300,000 home you are recovering the interest you paid and netting 4% year over year. This is an investment vehicle to acquire net worth through equity in your home.
SUMMARY OF INTEREST RATES AND INFLATION: We see rising interest rates, much like heart beat, to low to slow there is a major problem near death. Too fast, there is a problem. Having interest rates in this range, even at 6 % is healthy and only affirms that the asset class is investment quality and will over a return on your investment with a positive reward.
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Will the Florida housing market crash, are we in a housing bubble?
We do not have concerns of a market crash, or a reversal in home values in the Florida housing market. Florida is a high demand area to live. Given that homes, will continue to appreciate, and interest rates are still very low considering the 6% norms of what they should, be our confident answer is, if you want to capture the wealth building opportunity of buying a home now in Florida, yes do not wait.
It is a pleasure to write and share you with some critical questions, and if you ever have any questions your are always welcome to call and talk with us directly.
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