I must admit, it’s been hard for me this year to come up with anything meaningful to say about real estate, in the face of COVID, a contentious election, and everything else.
I suppose in part it’s a desire on my part to separate what is important from what really isn’t. When your friends are sick, when you yourself have to quarantine for a time (I was exposed but fortunately tested negative throughout), it gives you pause.
Still, the business of real estate continues. People continue to buy and sell — in some areas, at some price points, with great enthusiasm. But I believe that like much of society, we will define an era in real estate before COVID, and then after.
How will the two eras differ? For one thing, this may be the final nail in the coffin of shopping malls. However, I think open-air shopping areas and central business districts could grow at the expense of the large mall.
(I expect online shopping, of course, to continue its ascendance.)
I have been arguing for some time that the underlying economics cannot justify the increased levels of valuations in Florida, and in South Florida specifically.
No, I don't think things became as overvalued as they were in the 2006 bubble. Still, commercial valuations plummeted more than 20% on average nationally as COVID ravaged the country earlier this year. I think it’s fair to say that residential properties could be similarly overvalued.
This of course will vary widely by community, price point and type of property. And while I believe prices will recover, I expect condo and townhouse valuations to recover more slowly than single-family homes.
I think areas of lower population density (small cities, towns, more rural areas) will see better price appreciation than big cities for the foreseeable future. The fewer the people, the less the risk of contracting COVID (or any successor virus).
Square footage will become much more important, driving changes away from condos and toward single-family homes. Increasingly, people will be calling on their living space to fulfill multiple requirements.
Your home will not just be your refuge and place to chill and sleep. It will be an office, restaurant, theater, health club, and (for those of us with children) a school. Only single-family homes of more than a certain size will be able to play all these roles while minimizing compromise.
This leads me to a new bit of research I have conducted recently. We know that real estate prices in South Florida bottomed out in the first half of 2011, after the bubble burst. From that point we have seen tremendous appreciation. Prices have essentially doubled, on average, from that point.
It’s very easy for Realtors to track price changes by city, or even by zip code. The state association does the heavy lifting there, for those who care to use the information.
But here in South Florida, that’s not nearly the level of precision we need. Our market is hyper-local and varies by neighborhood.
About the only way I know to track that is at the census tract level. There are roughly 30 municipal divisions/cities in Broward County. However, the US Census Bureau further divides those into 360 different census tracts (somewhat analogous to neighborhoods).
My question was, did price changes vary across these neighborhoods? Did they double everywhere? Or was there a dispersion of results?
Well with great difficulty I constructed a dataset at the census tract level of all single-family home sales from the first halves of 2011 and 2020. To try to make sure outlier values did not skew the result, I restricted the analysis to neighborhoods where there were at least 10 sales in each period.
Perhaps not surprisingly, there was a wide dispersion of results. In the poorest-performing neighborhood, the median sale price of a single-family home actually decreased by six percent between 2011 and 2020!
The strongest performing neighborhood, on the other hand, increased by 537%. (A sextupling.)
The attached chart shows the 10 best neighborhoods – all of which quadrupled or more in value.
So, what does it all mean for us in South Florida?
While changes in society will tilt the landscape in favor of single-family homes and away from condos (all other things being equal), if you are looking for a return on investment, you must select your location carefully. Some locations may vastly outperform the overall averages.
In general, lower-priced neighborhoods will outperform on a percentage basis. But not every low-priced neighborhood. Proximity to key services and more in-demand locations is essential to consider.
For example, four of the top returning tracts here in Broward County are within 10 minutes of Wilton Manors. Low price is one thing; low price plus a “story” to tell is preferable.
Regionally, we face in my opinion two countervailing trends. On the one hand, I think people from the northeast corridor (primarily) and California (secondarily) are going to find the post-COVID lifestyle and cost of living here superior to their current locations. On the other hand, I could see current residents of South Florida buffeted by the same societal trends and seeking less densely populated (and less expensive) areas of Florida and the Sunbelt.
People will still be buying and selling homes — though probably different people buying and selling different types of homes. Markets will adapt. Realtors must, too.
James Oaksun, Florida's Real Estate Geek(SM), is Broker-Owner of New Realty Concepts in Fort Lauderdale. In addition to having degrees from Dartmouth and Cornell, he is a Graduate of the Realtor Institute (GRI).