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                22 JUL

                The Letter “I” in Real Estate and Is Now the Time To Buy?

                The Letter “I” in Real Estate and Is Now the Time To Buy?

                They say that there is no “I” in Team.  That is true but I’d beg to differ on Florida real estate.  Everything about real estate involves the letter “I” right now.

                Interest Rates, Inflation, Insurance , Inventory & Immigration.  You could even add Income tax, Investors, Influx.   They all interrelate as well.  Interest rates were low.  Inflation went up.  Interest rates then went up. Inflation went down.  What will Inflation do next? How does Insurance and Immigration effect all of this?!?

                One could get tongue twisted! And I did. On live TV!  

                Back in high school, my good friend, Judd, opened the door right in the middle of my high school speech for public speaking. And I became speechless. Attempting to memorize my Ty Cobb Georgia Peach book report without notes turned out to be a terrible idea. I ended up dictating my notes the next day.  Lots of public speaking in college, running company meetings, and maybe being on the news fifty times helped me get better.

                Fast forward to this week and I found myself in a similar situation. I was live on air at CBS when I realized that I just mixed up the interest rate and inflation numbers. 

                This time I back tracked and got through it. Phew, it was a hair disquieting but I got through it!  I was also interviewed by the Palm Beach Post this week as the June numbers came out and prices remain slightly up despite transactions being down. 

                So, with all eyes on the I’s, here is what is going on in 8 parts, as there is a lot to take in.

                 

                1. Inflation: The inflation drop nationwide is remarkable. 9.1% to 3% in one year. 

                 

                Monthly 12-month inflation rate in the United States from June 2020 to June 2023

                 

                 

                  Of course, it took the Fed unabashedly raising the fund rate and interest rates followed from in the 2% range to 7% to accomplish this.

                 

                 

                The great news is has worked. All the while with unemployment low (3.6% in June 2023) and a soft landing. 

                 

                 

                1. Interest Rates: The goal of all this of course in raising the borrowing rate by the FED was to curb inflation and then have interest rates go down. Most financial analysts I talk to see that occurring late 2023 or sometime in early 2024. The FED acted conservatively on purpose to make sure COVID was in the rear view mirror before raising the borrowing rate.  I would imagine they will do the same on borrowing costs so as not to rev up the economy too early/quickly. 

                 

                1. Insurance:  Florida has higher insurance than the rest of the country. Much of this has been in the news and I’ve written about this on multiple occasions. However, I think some good things have been done but they take time before we will feel lots of the effect. Condo Chaos or Condo Calm addressed both the condo reserves and insurance changes including the curbing of frivolous lawsuits and fraud.  Part of this will take time.  One insurance agent I talked to thought about 18 months. Over the long haul, more people are getting impact glass, generators, and have better construction and that will limit damage.  More still needs to be done. Still, we do live in the tropics and if you want to live in the prime spots close to the ocean, there is an added cost.

                 

                1. Immigration:  There are 3 parts to this.  The first is a new state statue limiting and regulating the sale, purchase and ownership of certain Florida Properties to foreign country of concerns.  Much of this is if it’s within 5-10 miles of military bases. The biggest impact I’ve heard have been some foreign country of concern investors who have been caught in-between purchasing and now not being able to close with their builder since the statute went into effect on July 1, 2023. In addition the law is being challenged so who knows. You can read the details of the disclosure on the newly updated AS-IS contract on page 13.  The other part of immigration has to do with E-Verify.  E-Verify has been mandatory to certain sections but the new law expanded it to all private employers with at least 25 employees. Some builders and contracting firms told me that they were having issues filling positions. Think drywall installers, roofers, landscapers.  One builder said it was causing delays of a few months so far. Speculation is that it will cause some state inflation because of lack of supply of these laborious jobs. It’s still too early to tell. Last, there has been an influx of foreigners moving to Florida. According to Driver’s license migration data, 20,387 foreigners moved  to our state in 2021.  In 2022, it more than doubled to 47,479.  In the first half of 2023 that number went up again to 78,226.  Cuba, Venezuela and Haiti were the largest countries fueling this.  One Cuban friend of mine who fled when Castro took over when she was 9 years old told me because there was no hope.  Another theory was that people wanted to get in before the new laws that just went into effect which I talked about earlier.

                 

                1. Influx: People keep coming. The inhabits of people already here multiplies more people who are familiar with South Florida.  This combined with the weather, lifestyle, and baseline of relatives and friends who are already here.  576,000 in 1980 versus 1,518,000 today. The triple multiplier effect and sophisticated infrastructure are a train that is not going to stop growing. Migration from other states did slow to 13% in the first part of the year but nationwide, closed transactions are down 15% nationwide meaning the numbers are just mirroring each other. 

                 

                1. Income Tax:  It’s 0.0%.  For all the insurance issues and higher costs, this is why Florida is still such a bargain.

                                                                                                   

                1. Inventory. Inventory nationwide is still too low.  There are 1,080,000 homes on the market and the spring bump has passed.  A healthy market should have over 2 million.  In 2007, we were over 4,000,000.

                 

                8. Invest?

                So, what does that mean for real estate and is now a good time to buy? 

                The big picture to that answer is “YES” I believe now is a good time to buy.  Last year I called this period “The Pause” . Prices had stabilized or dipped a bit but really had gone down because inflation was high and homes prices were not going up at the same rate.  While inventory did increase and more equilibrium occurred in the marketplace, it never became a Sellers’ market due to Sellers not putting their homes on the market because they wanted to hang on to their “Precious” 3% intertest rate.

                In addition, the Palm Beaches, east of 95 and the Turnpike ran out of vacant land. The basic laws of supply of no land and influx of new people demand means prices should continue to rise. Some of it will be slowed by the insurance costs and higher prices in general. Many of those Buyers will go west or to Port St. Lucie. The pioneer stage of the market in Palm Beach County is over.

                Even more so, the big reason for why this is a good time to buy is projecting where interest rates will go.  With inflation coming down so dramatically, interest rates should follow within the next 12 months.  Most experts I have talked to think 5.5% is the magic number.  If rates hit that number, it’s close enough to the 3% mark of what people own at today, to get them off the fence and buy. While lots of Sellers will become Buyers, there are tons of first-time home buyers sitting on the sidelines saving money. These pent-up Buyers should fuel a major dip to an already low inventory.  We think an immediate 5-10% increase in prices and the return to love letters and bidding wars will occur if rates dip as projected.  Plus lots of confirmation of Realtors saying, “Aye Aye” following orders of their clients to write offers. At least aye aye gets off of the “I” sort of.

                 

                Jeff Lichtenstein, originally from Chicago, got his start in the home furnishings textile business where he traveled over 35 weeks a year selling fabrics. After the family business was sold, Jeff moved to Florida and became a real estate agent. Today he is the owner and broker of Echo Fine Properties, a luxury residential brokerage voted best brokerage of the year. Jeff manages a non-traditional model of real estate that mimics a traditional business model. Echo has 80 agents, an average of one million dollars per transaction and over 500 million in annual sales. Between traveling for work and annual family trips to national parks with his wife and 2 now adult children, Jeff has visited 49 states. He is also one of the few Chicago White Sox fans you’ll ever meet.  Some publications he has been quoted in.

                Feel free to ask him a question directly at [email protected] including a complementary  valuation of your home.

                Posted in Open House Blog, Real Estate Tips on July 22, 2023 at 6:15 am.

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