“Miami home prices could increase 20-30 percent in five years” 

In his recent commentary titled “Miami Confidential”, National Association of Realtors® Chief Economist Dr. Lawrence Yun indicates those who buy real estate in Miami now are likely to see strong appreciation and high returns on purchase prices in just a few years despite the current oversupply of condos. 

“In five years, do not be surprised if home prices in Miami are 20 to 30 percent higher than the current levels,” said Yun.

This means that in five years homes currently priced at $200,000 could sell for $250,000.  Since the current buyers’ market is conducive for price reductions as a result of negotiations, the return on investment could very well be even higher.  Miami Sales Prices In Miami, the median sales price increased over 340 percent in just 10 years.  During the current market adjustment, prices have dropped some, but the drop has been negligible.   “The median home price in Miami was $80,500 in 1985 and $105,800 in 1995 and $363,900 in 2005 at the peak of the market.  Prices fell by 5.7 percent for single-family homes and 6.0 percent for condos over a one-year period to the 4^th quarter of 2007 according to NAR data,” said Yun.   “Prices grew 0.3 percent for single-family homes over the same period according to the government agency OFHEO,” he added.  

Yun believes the main reason sales activity has decreased so much in Miami is due to fear of a market crash resulting from homes prices having grown much faster than income.

 Lower Interest Rates Positive Impact But there are key factors not being considered in the simple analysis using home price in relation to income or rent according to Yun.  

“First, low interest rates, as any person with a mortgage calculator will be able to show, permit a lower monthly payment.  In early 1980s, mortgage rates averaged in excess of 15%.  In 2000, the average rate was 8%.  Today, a 30-year fixed rate can be locked at 5.5%.”

 What is more important in a home price analysis is not the home price to income measurement according to Yun, but rather the mortgage obligation to income measurement, because the latter accounts for the positive impact of lower interest rates.  

“In Miami, mortgage obligation to income is currently at about 30% . . . much lower than the 40% of San Diego and San Francisco, or that of New York.”

Yun has been named among the top 10 economic forecasters by USA Today. Look for Sunday’s column for more of Yun’s positive commentary on Miami.

  Kimberly A. Kirschner, CIPS

Kirschner Realty International, Inc.

(954) 924-4107

kim@krionline.com