Miami-Dade housing “bubble” - Is it set to deflate? Let's find out

Anthony Guerriero, Mar 14, 2022 10:18:21 AM


The Miami housing market reflects the national real estate trends; it has rapidly rising home prices that approach near record levels. Like real estate companies in Miami and other big cities, Miami real estate businesses work with soaring prices, high demand, and short supplies. The factors driving the rapid rise in prices include favorable mortgage interest rates, fewer new homes, and the impact of Covid-19 on the economy.

Covid-19 impacts the economy and the housing market in important ways. First, COVID-19 has changed lifestyle patterns, and homebuyers’ trend towards lower density locations. Young people have increased interest and participation in homeownership. Second, the global impact of Covid-19 has disrupted labor, processes in related industries, and suppliers of building materials. In the Miami area and across the US, home builders experience delays and shortages in building materials.

- Housing Prices Trend Upward

Housing prices have risen steadily in recent years and more sharply in 2021. According to the National Association of Realtors, the median price of a home was $289,000 in 2016. The median price rose to $329,500 in 2020. In 2021, the median price gained upward momentum and rose to $374,800.

The period of 2016 through 2022 may be a real estate bubble. There are no clear boundaries about when it may have begun and how long it might last. There are both national and international forces in the mix. Labor shortages, supply chain disruptions, and low inventories contribute to the current market conditions. The past teaches that bubbles require close attention; bubbles can change suddenly or burst and cause deep contractions in housing prices.

Housing experts look back to the housing market in 2006 and compare conditions. In 2005-2006, local markets overheated and then fell sharply in early 2007. The fall came in the subprime mortgage crisis. Since that time, experts monitor housing markets for signs of rising prices and other conditions that led to the crisis. A period of rapid price increases requires special attention from economists and real estate experts.

There were distinct causes and effects in the 2006 crash that involved institutions and events. Soaring prices alone did not cause the market adjustments in 2007. The crisis involved mortgage lenders, government entities, regulations, and consumer behavior. The 2006 market relied upon continuing elevated rates of price increases that were not sustainable.

- Current Housing Market in Miami

In Miami and the nearby area, demand comes from local, national, and international buyers and investors. Demand in the Miami region trends higher than other areas in Florida, and low vacancy rates contribute to local demand for homes. With fewer new homes coming on the market, consumers must pay more for the available supply.

Low vacancy rates push Miami home prices higher. When rental prices rise, more people seek to purchase from necessity and for economic advantages. When low vacancy rates combine with limited supplies of new housing, the prices for existing homes rise as more buyers work in a small supply of available units for sale.

- Will the Bubble Deflate?

The forces that tend to drive the market downward are higher interest rates, high inventory, and sharply rising prices. Interest rates may rise but the changes may be small and spread out. The investment and housing markets can anticipate gradual rate increases; Miami real estate buyers and other investors can adjust to incremental increases in lending costs.

The supply chain complications suggest that new home inventory will lag for the coming year and possibly beyond. The supply chain problems have slowed or stopped current projects and caused delays in planned activities. Interruptions and shortages in the home building supply chain will keep inventories lower than normal. Builders must consider the availability of labor and materials when planning new construction. The cost impact of the supply chain problems will likely drive up building costs and put upward pressure on prices.

Today, the Covid-19 situation persists, although with optimism, that the country can manage the health situation. Covid-19 caused some remarkable lifestyle changes. Millennials and other segments of the population showed higher levels of homeownership. In a related trend, home buyers selected locations further from the core areas of big cities.

- Miami Seems Strong

Real estate specialists familiar with the Miami market express concern that high demand and inflation have overvalued homes to levels that the market cannot sustain. Experts refer to past housing booms that led to market retreats and dips. It appears that the underlying market structure is strong. Mortgage lenders, regulators, and consumers operate within reasonable limits guided by market conditions.

Miami real estate companies work with markets that differ from other areas in the state. Prices of Miami housing have traditionally ranged higher than the surrounding areas and other regions in the state. The positives in the Miami market are strong. The vacancy rate is historically low, demand is strong, and the inventory is not growing at normal rates.


The memory of the 2008 market crash remains a factor. For big cities like Miami, the recovery from the deep recession took many years. The 2006-2008 drop was sudden and deep, and the lessons learned have changed the way we view housing markets. Interest rate increases can affect housing prices and when combined with high inventory, the market can move downward in sudden drops. Today, the Miami market has gradual interest rate trends and low inventories.

With the lessons of the past in mind, there are significant differences in today’s market when compared to previous eras. The Miami market attracts buyers across the US and international investors from around the globe. The inventory of available housing is low, and supply chain issues limit the inventory of available new housing.

The current capacity of construction suggests that the persistent demand from the US and international investors could cause a surplus at some point in the future. In the short term, high demand, low supply, and low vacancy rates are likely to persist. Economists predict current trends will continue through 2022 before the market begins to stabilize.