Real Estate Focus

Many things are continuing to press on the real estate markets. When both supply and demand are creating downward pressure, the market cannot but respond forcefully and dramatically.

The supply side of things sees an extraordinary amount of new product being delivered to market. Add to that the stuff that is already in inventory from speculators and the "normal typical market" sellers and you have a dramatic imbalance in available property on the market. Such an oversupply cannot help but push prices lower. The commonly used measure of units relative to demand is called "Absorption". This expresses the number of units relative to the amount of sales. Instead of a number that is measured in months, there is so much product that absorption is now being measured in years.

Also, the effects of overbuilding in one area are not localized, or contained within the area in which the inventory is located. There will be spillover into a larger region surrounding the problem. The extraordinary inventory in Miami will press on the larger South Florida market.

The demand side is also pulling prices lower due to the affordability issue: The income levels of the area can only support a certain amount of spending allocated towards housing. Increases in taxes and insurance have substantially eaten into these available funds. Less money available for a mortgage means a smaller loan, which by extension implies a lower house price the homebuyer can afford to pay. Additionally any upward pressure on interest rates exacerbates this situation. And finally, stricter underwriting standards will reduce the number of people that will qualify for loans.

This situation will take a substantial amount of time to correct. Recently many have joined us in predicting that the situation will need years to work through the system. That is the only logical conclusion the data suggests.