The posting below is a copy of an article published in Boca/Delray Life Magazine in November of 2005. 

Talk to several experts and you’ll get several different opinions. The answer depends on local market conditions, in other words supply and demand. Lets look at recent history and the factors that determine supply and demand. The surge in real estate began with the collapse of the stock market. Investors shifted money out of the stock market into safer real estate assets. As interest rates declined to record lows, interest in real estate grew. Adding fuel to the fire were low interest variable rate loans and new interest only loans.

Florida is one of the fastest growing states so the real estate market has and will, over the long term, continue to trend upwards. This existing demand plus the influx of foreign investors as well as domestic investors or should we say speculators lifted the market even higher. Just like the stock market before the bubble burst, it appears everyone is into real estate and it’s the hottest topic of conversation at any gathering. To meet demand developers began building more and more homes. In most real estate cycles developers usually over build which leaves an oversupply at the end of the cycle. The condo market is the best example. If you look back to recent history there were hardly any new condos built from the late 70’s to the early 90’s due to the oversupply. Today new condo projects are everywhere and they’re even converting rental housing into condos.

Interest rates have been rising and will likely continue to rise. Home prices have increased to a point that rents don’t cover holding costs which means recent investors may be forced at some point to sell. As home buyers begin to be priced out of the market they may look to rent rather than buy as rents have not kept pace with the increases in home prices. Foreign investors will start to shy away as they see the outlook for upside potential decline. If the economy starts to slow due to any number of potential problems this will only exacerbate the downturn. All parties come to an end. When or will all this come to pass and will it be a sudden shift or a soft landing? Long term predictions are easier to make but short term forecasting is rather difficult. In my humble opinion the market will slow over the next year or two and have a soft landing, at least, when it comes to single family homes and townhouses in our area.

What does this mean for the average home buyer? I always tell clients, make decisions based on your time frames. In the long run, as mentioned before, the

Florida real estate market will trend upwards. There may be ups and downs along the way but as a home buyer if you plan to be in your home 4-5 years I wouldn’t be too concerned with short term trends. If you’re planning to be in your home 2-3 years you need to be more cautious.
(Please note that all factors and facets of the real estate market cannot be addressed in such a short article. Do your homework and seek the advice of a professional to discuss your particular circumstances.)

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