We can all probably cite examples of irrational exuberance over the years:
- when home prices soared in the mid-2000s
- banks threw all caution to the wind and offered nothing down loans
- the dot.com era of the 1990’s involving the tech industry
- the times leading up to the stock market crash in 1929
- and of course, the tulip mania in the 1600s
I’m certain that at least one of the above examples resonates with you. As much as I am personally enjoying the American Dream and reaping the benefits of home ownership in today’s world, the nagging feeling that “trees don’t grow to the sky” leads me to question how much longer this overheated housing market can last.
Just look at what’s been happening in the Florida market during the last 2 years.
Palm Beach County property values increased 13.7% in 2021 – the highest increase in more than 20 years, according to preliminary data released by Palm Beach County Property Appraiser Dorothy Jacks. The $175 billion-dollar taxable value for the 39 municipalities is a record, as is the more than $4 billion of new construction. Thirty-five of the county’s 39 municipalities registered increases of more than 10%. Taxable values have nearly doubled in the past 10 years. Yes, the numbers are staggering. If you have a homesteaded property luckily state law caps the increase in taxable value to 3%. All other non-homesteaded property is capped at 10%. That’s the good news, however it seems that just about everyone is going to be hit with higher property tax bills, until or unless the market cools off.
No one could have predicted the extraordinary events of the last 2 years. Florida has consistently attracted newcomers but since the pandemic, big city life and high taxation pushed even more people to seek a more relaxed lifestyle and business friendly environment. This migration includes a lot of new, younger families moving to the area. They are drawn by the quality of life, public safety, access to good schools and a wonderful place to raise a family.
Last year alone over half a million out-of-state-driver’s licenses were exchanged for ones with Sunshine State addresses. The license swaps are largely from New York, New Jersey and foreign countries. That’s a 40% increase from 2020 and nearly 20% greater than the five-year average between 2017 and 2021. Surely there’s no downside to this, or is there? One realtor calls the resulting hot housing market “historically, completely abnormal”, another claims the real estate market is “unhinged”. People have been pushed to making faster decisions, with homes going under contract at an average of under two weeks after being listed, with most buyers paying over the asking price and agreeing to forego all inspections. Bidding wars continue to be commonplace. There’s been a lot of talk in the Palm Beach real estate community about the short-term returns that some sellers have achieved on properties they have owned for 18 months or fewer. Strangely enough no one seems to be using the term “inflation” when describing their short gains. Perhaps irrational exuberance fits the bill?
Can prices hold? Probably not. Will there be a housing crash again? Not likely. But as some experts claim, the housing market IS overheated. I don’t think I’m alone when I say we could all do with a little less heat. 85 degrees with 90 percent humidity. Phew …. summer in Florida!
All of us at Liberty Title are doing our best to stay cool calm and collected and as always are here to help you navigate through these unprecedented times.
