Palm Beach County Real Estate Cycle May Be Nearing Its Peak
Compared with the peak of the last real estate cycle in the summer of 2006, Palm Beach County is not nearly as overheated in terms of pricing and is experiencing far less downward pressure on the demand for home ownership. In July 2006, the county was 66 percent above its long-term pricing trend.
The housing market in Palm Beach County is 19.76 percent above its long-term pricing trend, while the market is experiencing moderate downward pressure on the demand for home ownership, according to a new study from faculty at the Florida Atlantic University College of Business.
“All of the good deals are gone from the market at this point in time,” said Ken Johnson, Ph.D., a real estate economist with FAU’s College of Business. “Folks are now purchasing to avoid rising rents or simply buying to lock-in at lower prices.”
At the same time, the Beracha, Hardin & Johnson Buy vs. Rent Index, which Johnson coauthors, indicates a moderate degree of downward pressure on the demand for home ownership in the county. The county’s BH&J score of .28 suggests that roughly only 15 percent of current purchasers will outperform renters that reinvest rent differentials (down payment and additional cost of owning) into a portfolio of stocks and bonds.
“As individuals decide to rent and reinvest as opposed to owning and building equity, we can expect to see the price of housing settle,” Johnson said. “This is all just part of the new dynamic in residential real estate. Housing cycles now make it necessary for all to keep up with where we are at any point in time in our current local real estate cycle.”
Compared with the peak of the last real estate cycle in the summer of 2006, Palm Beach County is not nearly as overheated in terms of pricing and is experiencing far less downward pressure on the demand for home ownership. In July 2006, the county was 66 percent above its long-term pricing trend and was experiencing an extreme BH&J score of +1. That meant that less than one out of every 100 buyers would outperform renters that reinvested. The result was an avalanche in falling home prices.
“It is difficult to say what is next,” Johnson said. “If prices continue to rise rapidly, we could see another market crash. However, we appear to be at the peak of the current cycle. So, it seems most likely that the county will experience flattening prices and extended marketing times.”
-FAU-
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