Housing Bubble and Miami Real Estate

For most of us, owning a home has always been a serious business because we look at it as our most valuable asset. This is the reason why owning one is like striking upon a pot of gold at the end of the rainbow, so to speak.

In recent developments, homeowners are sometimes scared by the “words of gloom and doom” from experts in economy and media. Say for instance, Robert Shiller, a Yale economist, calls the global housing boom “the biggest bubble in history.”

Scared? Don’t be. There is no housing bubble, according to other sectors of the real estate market. If we only scrutinize available data points and analyze the situation, there really is no housing bubble. The strength of the housing market was due to multiple factors fueled by genuine economic conditions. Each of the following factors has contributed to rising home prices: buyer’s earning power outlook and increase in purchasing power, local job growth, low interest rates, buyer’s emotional attachment for his home, and of course, contributions from family members, specially from the parents.

Statistics show that home prices have a rising annual pace of 6 percent on the average since 1999 and escalated up to 13 percent over the past year.

Going back to data 25 years ago, second home purchases exploded as number of immigrants continued to rise. Likewise, tear-downs of houses significantly reduced existing home inventory. All of these were incorrectly manifested in endless data publications every day.

Others believe that what we have is not a housing bubble which could burst anytime. Rather, we have a serious housing shortage and housing affordability crisis as government continued to slash tax subsidies.

Over the past 10 years, Census data showed an average household formation at 1.49 million families a year. According to UBS, an estimate of 6 percent of the new home sales were for second homes while about 360,000 units every year were torn down because of non-functionality. If the last two numbers are accounted for, the actual quantity of new homes is nearly 1.2 million only, or 19 percent less than the average quantity of new households formed annually.

If government subsidies continue to be slashed, many Americans could not afford to buy their own homes. Unless other sectors like the developers and sellers could not come up with low cost housing projects, then these can’t-afford Americans will likely remain renters for a longer time than they would dream of.

In November this year, Miami home sellers dropped prices to cushion slow sales. According to the Florida Association of Realtors, median sales price for this month went down by 2 percent in Miami-Date, or $372,400 per unit, and 7 percent in Broward, or $362,000 each unit.

In the condo sector, prices were down by 6 percent in Miami-Dade while it remained constant in Broward, according to the report. Its sales volume drastically declined up to 24 percent during the first eleven months in Miami-Dad and 33 percent in Broward.

Despite slight increases in sales in different areas across the nation, this was insufficient to stop the drop of US home prices.

Real estate players are glad to bid 2006 goodbye and are looking forward to a stable 2007. For those buyers waiting for prices to collapse before buying a home are in for a disappointment, they said.

According to Homeownership Alliance, the next decade will require about 2 million homes annually in view of “new household formation, replacement demand and second home demand.”

In bidding, it would be safe enough to quote what one analysts said about the Miami real estate with a hopeful note: “Instead of the bubbly bursting, it ended up being a soft landing.”

Ma Roma Agsalud