South Florida homes heavily overvalued, report finds, with greater Miami region ranked 11th in nation

While Florida remains highly rated as a landing spot for businesses and people seeking to relocate from elsewhere in the U.S., nine of the top 15 metropolitan areas in a national survey of overvalued home markets are in the Sunshine State, according to researchers at two South Florida universities.

While it’s hardly news that steep home prices continue to flummox would-be homebuyers around the state, Florida Atlantic University real estate economist Ken Johnson was not expecting so many cities to be in the grip of over-the-top prices.

“What’s surprising is that all of the Florida metros we measure are now within the top 15 of overpriced markets over a year ago,” he said in an interview Tuesday.

The following Florida metropolitan areas are where buyers are paying rising average premiums for homes, according to the Beracha and Johnson Housing Index:

• Tampa: 42.56%
• North Port: 41.93%
• Cape Coral:  41.66%
• Lakeland, 40.26%
• Palm Bay, 39.89%
• Greater Miami: 38.89%
• Jacksonville, 38.37%
• Orlando, 38.18%
• Deltona, 38%

Currently, the Greater Miami area, which includes Broward and Palm Beach counties, is the 11th most overvalued area in the country, Johnson said. A year ago, premiums in the region were among the lowest nationally. The typical home price reached $458,749 at the end of this past June.

“We have a huge demand coming from an influx of population into Florida, as well as more new households being formed in the state,” said Eli Beracha of the Hollo School of real estate at Florida International University.  “Millennials are forming households at a nearly unprecedented rate, creating significant demand for housing.”

The  FAU and FIU researchers ranked the 100 most overvalued metro areas in the U.S. each month using data from Zillow or other providers. The figures date back to January 1996 through the end of this past June. They measure the prices of single-family homes, townhomes, condominiums and co-ops, FAU said in a statement.

While Tampa was ranked third nationally in soaring average price premiums,  Atlanta (47.34% premium) and Detroit (46.08% premium) topped the national overvalued list.

The South Florida supply of homes is not keeping pace with the heavy demand, the researchers and other real estate industry professionals say.

A future of buying less for more?

“We’re getting wealthier people making over $200,000,” said Mike Pappas, CEO of the The Keyes Company and Illustrated Properties. “Florida has had more in-migration, 2-to-1 or 3-to-1 over any other state. They’re coming in not as second home buyers but people empowered to earn dollars  and cents like we have never seen before. I’m not so sure prices are going to go down. We’re going to have to adjust to buying less for more.”

He cited the arrivals of financial and technology companies to the area that are bringing along top executives who can continue to pay premium prices.

A case in point: Pappas said he spoke with officials of a Mexican corporation that is contemplating moving its headquarters to Miami. No fewer than 17 “C-suite” executives, he said, would come along to become permanent residents in South Florida. Pappas did not identify the company.

“Are we going to attract world wealth and are we going to continue to grow?” he asked. “If that’s the case we are going to get increasing numbers.”

The supply side, meanwhile,  is largely frozen by regional land limitations for new construction, high interest rates and baby boomers who are holding onto their homes longer than before.

Mortgage rate dilemmas

“The baby boomers aren’t selling,” Pappas said. Many are locked into mortgage interest rates “at 4% and under.”

If they decide to sell and seek to finance a new purchase, they’ll be facing interest rates reaching 7%.

All of the trends impacting price were affirmed last week by the Mortgage Bankers Association, an industry trade group in Washington, D.C.

“Homebuyer affordability is still strained this summer with mortgage rates remaining high and volatile, and home prices high because of low inventory,” said Edward Seiler, the association’s associate vice president.

“The median purchase application amount fell from $330,000 to $326,000 in June, which is one positive sign that home prices are stabilizing. An ongoing combination of flattening home prices and lower rates would offer (a) reprieve for households who are looking to buy a home.”

But in Florida, that day is more likely to come later than sooner given the continued migration trends into the state.

Johnson said household formations in Florida are continuing to lead much of the nation. There are 40,000 households per year forming in the region constituted by Miami-Dade, Broward and Palm Beach counties.

“You’ve heard a lot about the 22,000 to 23,000 apartments coming online,”  he said of regional rental construction forecasts. “It’s not a lot when you still need 40,000.

“We’re still short and that’s what’s keeping this upward pressure” on prices,” he said.