The Real Estate Fountain

According to the S&P Case-Shiller Home Price Index, values of single-family homes in the Miami metro area were rising at about 2.49% per month as of May 2013 (more precisely, it’s the May report for the rolling average of the three months that ended in May).  That’s about 30% per year!  The last time — indeed, the only time in Case-Shiller data — that Miami real estate saw such gains was . . . . . . wait for it . . . . . . in June 2005, just before the bubble burst.

Source:  Standard & Poor’s

The relatively short-term chart above begins when Miami real estate prices peaked in January 2008.  Viewed alongside the black-diamond ski slope of the real estate crash, the price gains of the last year or so seem respectable but perhaps not all that unusual.

On a longer-term chart, however, it is indeed highly abnormal for Miami home prices to rise this rapidly:

Source:  Standard & Poor’s

After asset bubbles burst, a phenomenon called an “echo bubble” is sometimes observed.  And the Federal Reserve, which intentionally created the housing bubble in the first place to offset the collapse of the late-’90s stock bubble, is up to its old tricks.

Considering that the price-to-income ratio is already above pre-bubble historical highs, incomes are rising at a low single-digit annual percentage, and interest rates spiked in June to drive up mortgage costs by a double-digit percentage, there is reason to doubt whether 30% annualized price gains make sense.  (For a chart illustrating how fast opportunity in the real estate market has vanished, see Bloomberg — American Dream Suddenly Isn’t So Affordable.)

But hey, as one spirited auctioneer liked to say: “C’mon people, it’s worth whatever you pay for it!”

If you must buy Miami real estate (or sell Miami real estate), the least you can do to give yourself a fighting chance is to give REF Real Estate a call.  Buyers get 1% cash back on the purchase price, and sellers get full service for the lowest possible commission.