Hello, Miami Homebuyers! Let’s chat about something that’s on everyone’s mind these days: affordability. You’ve probably heard a lot about how the real estate market in Florida continues to do well, but what does that really mean for your wallet?
The Florida Realtors recently shared some insights into the affordability issue, breaking down how home prices are stacking up against what people are actually earning.
On a side note before we get into some insights on the affordabilty issue, just a quick reminder—when it comes to the Miami real estate market, I always like to point out that it’s super local and can vary a lot depending on the type of property. For example, condos, houses, and townhomes don’t always behave the same way. While Miami’s market is generally doing well, we’re starting to see some slowdowns in certain property types, particularly condos that fall under specific price points and are in certain areas.
Take the Dadeland area in Kendall, for example—condominiums such as, Metropolis, Downtown Dadeland, and Toscano across the mall, were selling like crazy a year ago. As soon as they hit the market, they were gone, making it a clear seller’s market. But now, we’re seeing more condos available and they’re staying on the market longer, which is tipping things towards a buyer’s market. Prices are even starting to decrease. It's important to keep these shifts in mind when you’re thinking about your local real estate.
What’s the Affordability Index?
Now, let’s talk about what is the affordability index. It’s basically a way to measure if the average family can afford to buy a home based on current prices, incomes, and mortgage rates.
Remember that classic money-saving tip about buying a house that's about three times your yearly income? It’s been a useful rule of thumb for people to gauge what they can afford without stretching themselves too thin. But things are getting trickier, especially with Miami home prices climbing faster than incomes.
Lets take a quick look back. In 2010, Miami was still bouncing back from the housing market crash. Back then, the average home price was about $200,000, and the median household income was around $43,000. This gave us a price-to-income ratio of about 4.7, meaning a typical home cost roughly 4.7 times the average income.
Fast forward to today, and things have changed a lot. The average home price in Miami has shot up to around $500,000 or more, depending on the neighborhood. Meanwhile, the median household income has only grown to about $60,000. This puts the price-to-income ratio at a hefty 8.3, showing just how much faster home prices have risen compared to incomes.
It's a clear sign that buying a home in Miami has become way less affordable over the years.
We're facing some unique challenges. Our city is a hot spot for buyers from all over, which keeps pushing prices up. But even though Miami incomes have been creeping up, they’re just not keeping up with how quickly home prices are skyrocketing.
What’s Going On?
There are a few reasons why home prices have outpaced incomes, which I've discussed before and that Florida Realtors have also highlighted:
1.
Cash from Other Markets:Florida’s always been a hotspot for people moving from more expensive places. Folks from high-cost areas like New York or California often come with a big chunk of cash from selling their homes there. When they buy in Florida, their money goes further, letting them spend more and drive up prices here.
2.
Equity from Within Florida: Even within the state, there’s a trend of homeowners selling bigger homes with a lot of equity. They often downsize or move to similar-sized homes but can pay more because of the cash they’ve banked, which pushes prices higher.
3.
Tight Housing Supply; The number of homes for sale is pretty low, especially since many current homeowners don’t want to sell and lose their low mortgage rates. This keeps the supply tight and prices high.
4.
Wages Lagging Behind: While wages have been going up, they haven’t kept pace with the rising cost of homes. Plus, the Federal Reserve is focused on keeping inflation in check, so we shouldn’t expect wages to skyrocket anytime soon. If they did, inflation could get even worse, making everything more expensive.
5.
More Than Just Paychecks: Florida is attracting retirees and wealthy individuals who don’t rely on traditional income from jobs. Retirees often live off passive income like retirement accounts, social security, or investments, while younger folks might have inherited money or other wealth. This extra wealth in the market drives up home prices and makes it harder for people who rely solely on earned income to keep up.
So, Where Does That Leave Us?
The old 3:1 rule doesn’t quite fit the bill in today’s Florida real estate market. If you’re looking to buy a home now, it’s important to understand these trends. Whether you’re a first-time buyer or looking to move, knowing why prices are so high can help you make smarter decisions.
To help ease the affordability crunch in Miami, we could focus on a few key areas such as building more affordable homes could help balance the high demand with limited supply, making it easier for people to find a place they can afford.
Additionally, tweaking policies to support affordable housing initiatives and offer more assistance to first-time homebuyers would provide much-needed relief.
Finally, boosting income growth with better-paying jobs would help residents keep up with the rising cost of living, making homeownership more attainable for many.
Wrapping It Up
Remember, real estate is all about location. Some areas might be cooling off, while others are still hot. Keep an eye on what’s happening in the neighborhoods you’re interested in. Things are always changing, and with the right timing, you can find a home that works for you.
Miami’s affordability issue is a big deal, but it’s not impossible to navigate. If you’re thinking about buying a home here, it’s important to know how these price vs. income dynamics could affect you. And remember, working with a good real estate agent who knows the Miami market can make all the difference.
About the Author: Liz Kenneally is a seasoned real estate agent in Miami with extensive experience in the city's dynamic market. Specializing in coveted neighborhoods such as Coral Gables, Dadeland, Continental Park, East Kendall, Palmetto Bay, Pinecrest, South Miami, and The Falls, Liz ensures smooth transactions for her diverse clientele. Fluent in both English and Spanish, she can be contacted at 786-423-3348 or through the EMAIL AGENT form provided alongside this blog.