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Housing crash? Study says it’s not happening

The housing market has been booming since the Great Recession, which can make you wonder how long the good times will go on.

There are some signals that echo what happened during the go-go days of the mid-2000s. One is home equity ads that encourage people to use their home as a piggy bank. Irresponsible lending and consumers who are overloaded on debt were a major reason for the Great Recession. The Federal Reserve Bank of New York reported that consumer debt climbed $193 billion to an all-time high of $13.15 trillion in the last quarter of 2017.

The housing market also faces headwinds from rising mortgage rates, which make monthly payments higher and put downward pressure on home prices. The 30-year fixed mortgage rate jumped 3 basis points to reach 4.43 percent in the March 8 Freddie Mac survey. The 30-year rate has been on a tear in 2018, climbing 48 basis points (0.48 percent) since the start of the year and increasing for eight consecutive weeks.

Florida Atlantic University and Florida International University faculty have developed the Beracha, Hardin & Johnson Buy vs. Rent (BH&J)  index to try and figure out if U.S. housing markets are hitting a peak. The bad news is the index indicates they are. The good news is there isn’t a big price collapse expected.

The index shows home prices, which have been rising steadily since 2012 in most parts of the country, have begun to slow.

“Housing markets are slowing, suggesting that we are nearing a peak in housing markets around the U.S.,” said Ken Johnson, Ph.D., a real estate economist and one of the index’s creators in FAU’s College of Business. “But this is good news, as we are pulling back from the brink, unlike we did in 2007.”

Based on numbers from the end of the fourth quarter of 2017, the latest BH&J Buy vs. Rent Index follows recent S&P CoreLogic Case-Shiller 20-City Home Price Index scores, which showed home prices rose 6.3 percent over the past year, the fastest 12-month pace in more than three years, as potential home buyers jostled over a limited inventory of available properties.

Of the 23 separate metro areas in the BH&J Index, 13 are slightly to moderately in buy territory, while 10 metro areas are slightly to moderately in rent territory. You can see in the following graph that it was better to rent during the boom years before the recession in Miami, but it was better to buy after the recession when prices were depressed. Presumably, some renters might want to wait now in anticipation of falling prices.

It’s a better time to rent than buy, according to the index

Looking beyond the index, Zillow predicts housing prices in Miami will drop 1.2 percent over the next year. Prices in Fort Lauderdale will drop 0.4 percent. Prices in West Palm Beach will drop 0.8 percent.

Not all markets will have drops, though, Zillow says. Prices in the town of Palm Beach are expected to rise 0.3 percent. The small city where I live, Wilton Manors, is expected to see a 1.3 percent increase after an 11.3 percent increase over the past year.

The worst South Florida market I found was Miami Beach where prices have dropped 5.7 percent and are expected to drop another 2.4 percent. That’s notable because Miami Beach fared relatively well during the recession. There may be some good deals to be had. A Real Deal article shows how prices were reduced on sales of condos at Faena House, one of the nicest properties on the beach.

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Drew Limsky

Drew Limsky

Editor-in-Chief

BIOGRAPHY

Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.