What is happening to the real estate market in major U.S. Cities? Is it true that real estate is beginning to show signs of a downturn?
Recession, rising of interest rates, and general market saturation are beginning to give the result that many expected, a slowdown in the real estate industry. The markedly upward trend we witnessed in the post-pandemic period could not last forever, and it is physiological to observe a period of adjustment, as per basic market rules. The inventory of properties then begins to grow again and absorb demand (no longer as exorbitant as in 2021). Sales times are stretching, prices are showing signs of settling, and in general, there is a lack of that “gold rush” feeling that characterized the post-pandemic real estate scenario. However, major U.S. metropolises are holding up well and are still an exception, showing no signs to date of imminent decline (let alone collapse).
Taking the Miami market as an example, official data tells us that in May 2022 the total number of real estate sales was 3203, compared to 3546 in the same month of 2021, thus a reduction of 9.7%. However, the average sales price was not affected by this “slowdown”; on the contrary, it continued its upward trend. Compared to 2021, May showed a 15% increase in average prices for single-family houses and a 27.7% increase for condominium apartments. Another important figure is cash sales. The data show that cash sales in Miami are 77.6% higher than the national figure in May 2022.
And furthermore, looking at market numbers and average rents, the price-to-rent ratio suggests that it is still more rational to buy a property than to rent it. Therefore, the data tell us that we are still in a seller’s market.
The impact of the real estate industry in the economy of large urban areas continues to be very high. The National Association of Realtors has estimated that every single real estate transaction in the United States produces an average wealth shift of about $112,000.00 (including commissions, costs, professional fees, moving expenses, renovations, etc.). Well, in the Miami area, in May 2022 real estate transactions had an impact of about $360 million on the overall economy, suggesting anything but a crisis in the industry (data source: Miami Realtors).
In addition to these numbers, it must be considered that the human flows that have moved in the past year from or to the major metropolises have not had mere investment intentions at their base and, more importantly, are mostly American nationals. At other times, the American economy has been influenced by large flows of foreign investors, capital from abroad that could leave as easily as it arrived. Today’s flows, on the other hand, are mostly American companies and families, relocating, starting new businesses, enrolling their children in school, and starting a new life in a new city. This type of buyer has a great connotation of stability compared to pure investors, which makes the market more solid and strong swings less likely.