My Palm Beach Post - Jeff Ostrowski - 13 January 2017
By one measure, at least, Palm Beach County’s housing market is on fire.
From late 2015 to late 2016, the county’s home prices jumped 12 percent, the highest appreciation of any metro area in the country, according to a recent study by Ten-X, an online real estate marketplace based in California.
However, the strongest price growth is concentrated in lower price ranges and more desirable neighborhoods. Meanwhile, rising values create their own challenges, and many real estate experts say prices already have begun to cool as home values have risen out of reach of many workers.
Palm Beach County’s property prices have shot up in part because of the slow pace of construction of new homes. Burned by the crash, homebuilders are putting up relatively few houses in Palm Beach County.
“We’ve got limited inventory, so that scarcity has helped push prices higher,” said Greg McBride, financial analyst at Bankrate.com in Palm Beach Gardens. “And unlike the rest of the country, we’ve got a lot of sunshine, a lot of golf courses and no state income taxes. Those are persistent draws.”
Indeed, Florida’s home prices have come back strong after a wrenching crash during the Great Recession. Orlando’s 11 percent appreciation and Tampa’s 10 percent rise ranked second and third on Ten-X’s list of the nation’s fastest-appreciating markets.
While this run-up is nothing like the disastrous bubble that inflated a decade ago, it brings back fears about the affordability of homes.
“I still think South Florida is behind in wages, and I’m feeling vibrations from 10 or 11 years ago, when South Florida was unaffordable,” said David Dweck, head of the Boca Real Estate Investors Club.
Housing affordability returns as a challenge because of the combination of double-digit price increases and stagnant incomes.
Even as home prices bounce back, Palm Beach County incomes have been essentially flat over the past decade. The median family income in Palm Beach County was $65,400 in 2016, according to the U.S. Department of Housing and Urban Development. In 2008, median family income was $66,000.
Meanwhile, Palm Beach County’s job growth has lagged other areas of Florida. Amid the harsh reality of flat incomes and tepid job growth, many Palm Beach County residents are relegated to renting rather than buying.
“It’s a great landlord’s market,” Dweck said — but not so great for workers who want to build their wealth through homeownership.
The 12 percent price appreciation over the past year hasn’t rewarded all property owners evenly. For instance, from November 2015 to November 2016, the median price of a single-family house sold in Palm Beach County rose just 4 percent, while the median price for condos and townhouses soared 15 percent, according to the Realtors Association of the Palm Beaches.
The gap between houses and condos is one symptom of the housing squeeze. The typical condo costs about half as much as the typical house in Palm Beach County.
In another example of uneven appreciation, there’s strong demand for entry-level homes but not for more expensive properties.
“We are seeing strong appreciation, but it’s not across the board,” said Randy Bianchi of Paradise Properties of Florida, a real estate brokerage in West Palm Beach. “Anything under $200,000 to $250,000 flies on the shelf. But when you get above that $300,000 to $350,000 level, things are sitting longer.”
And in the higher price ranges, demand seems even softer, Dweck said.
“When you get to the half a million market, that’s where things start to wobble and teeter,” Dweck said. “Sellers’ expectations are too high right now. If you’re around $500,000, you better be priced right, or you’re going to sit on the market.”
Appreciation varies by location, too. Over-55 neighborhoods are languishing, but hot neighborhoods such as West Palm Beach’s South of Southern area have seen big price jumps.
“In that section of town, we’ve had huge appreciation,” Bianchi said. “The prices are getting a little crazy.”
Mortgage rates are an important wild card for the housing market. Bankrate’s McBride expects the typical cost of a 30-year fixed-rate loan to remain below 4.5 percent in 2017. The average now stands at 4.1 percent, according to mortgage giant Freddie Mac.
Even at 4.5 percent, mortgage rates still would remain near record lows.
“The real determinant of whether people are going to buy a house is not whether mortgage rates are 4 percent or 4.5 percent,” McBride said. “I don’t see mortgage rates being an impediment to the housing market at all this year.”
However wage growth and affordability concerns could put a damper on price appreciation.
“We’re going to see the market settle,” Bianchi said, “and maybe we’ll get back to normal appreciation — perhaps 2 percent to 4 percent.”