Will Winter Cool Our Hot Real Estate Market?

It’s 2020 and we are headed into the holiday season. We’d all like to celebrate Thanksgiving and our Christmas/Hanukkah/Kwanzaa like we have in years past, but the realities of the pandemic are going to have an effect on our holidays.

Thanksgiving usually evokes the image of being elbow to elbow at grandma’s house chowing down on turkey and watching the football game, in a stadium filled with crazed fans. This year will be a hollow shadow of that image. The same can be said about Christmas/Hanukkah/Kwanzaa where family gathers to exchange gifts and spend quality time with relatives that are often scattered around the country.

This year, we will challenge our traditions. Is it worth mixing and mingling with people who are not normally under the same roof. Can our aunt bring Coronavirus from Cleveland or from the flight she took? What is each family member’s risk tolerance? It is going to be an interesting holiday season to say the least.

This bring me to real estate in South Florida. Dare I say, no one could have predicted the recent days of multiple offers and over asking price contracts that we’ve seen. Driven by historically-low interest rates, this frenetic market is likely to take another sharp turn in the coming days and here are my crystal ball predictions.

• Many of buyers who rushed to take advantage of the sub-3% interest rates gobbled up the inventory in late August and September have now purchased. Therefore, I believe that the mini bubble of lots of buyers and little inventory is waning. This will mean less competition and fewer multiple offer, above listing price homes.

• Sellers who were holding off listing their homes this summer have now heard enough of these frenetic stories that they are now rushing to get on the market for fear of missing out (FOMO). This will create artificially high inventory during what is traditionally a slower Q4 market.

• Appraisers are flooded with work and are feeling the pressure to raise their valuations solely on the heels of a frothy market where these ‘insane’ over-asking price contracts are the new normal. With the overall market price of the average home up 27% year-over-year in Miami-Dade County, our exuberance will get the better of us. I predict this can’t last. Appraisers will begin to force the frothiness out of the market and prices will stop rising (and likely fall).

• It is simple banking that lenders will always find a way to increased profit margins. If they can’t achieve profit from the interest rate, they’ll find other ways to do it. Currently, lenders can’t justify a higher interest rate in this ultra-competitive marketplace. Instead, they are being much more stringent on how buyers can qualify and increasing fees for loan-related services. I see lenders tightening up requirements for borrowers further.

One more prediction is on my mind. But it is also a question. Many existing mortgagees have been on forbearance, meaning they have been able to skip many months of mortgage payments without penalties from the lender. While this is great for the sustainability of a homestead during the pandemic, it creates a problem going forward. Included in most mortgages are insurance and tax escrows.

When property taxes and insurance premiums are due, the lender will need to pay them on behalf of their borrower. What happens next year with this deficit spending? The borrower will need to pay back the lender. And when the typically steady monthly mortgage bill balloons to a new, higher rate how many borrowers will be able to keep up? I predict many more listings, beginning as soon as June 2021.