South Florida Welcomes Newcomers, But How Long Can Cycle Last?

At the 2022 ULI Miami Symposium in April, Mark Vitner, senior economist for Wells Fargo, and Rebecca Rockey, global head of forecasting for Cushman & Wakefield, gave their assessments of South Florida’s economy, with an emphasis on housing.

“There is more momentum [in the economy] here [in South Florida] than in the rest of the state,” Vitner said. Even so, the region faces a number of challenges, such as traffic congestion and the rising cost of housing, in addition to problems that affect the United States as a whole, such as inflation. In response to fallout from Russia’s invasion of Ukraine, “we reduced our forecast for 2022 real GDP from 3.2 percent to 2.8 percent,” Vitner said. “We don’t think the GDP forecast will be reduced further, because the economy had such strong growth at the end of 2021 that real GDP would grow 2 percent this year if we have no sequential improvement through the end of the year.”

The good news is that “people are still migrating to South Florida because of a business climate and tax climate” that differs from those in many other American cities, he said. In fact, “more people have moved to Florida in the last two years than any other state in the country,” he said. A recent Wall Street Journal article noted that apartment rents have risen 58 percent in Miami over the last two years.

A large number of recent transplants, many of whom are from the Northeast and California, are different demographically from the population already in South Florida, Rockey said. Longtime residents tend to have less education than the newcomers—about 30 to 35 percent of whom have at least a bachelor’s degree, she said.

“These are highly capable newcomers with good incomes,” Vitner said, so they are less likely to experience sticker shock from the price tags for South Florida homes and condominiums. These prices have risen dramatically in the past several years, but especially in the past year—and especially at the upper end of the market, he said. “We are at the beginning of the end of the business cycle,” he said, adding that he expects to see price deceleration.

Home prices, adjusted for inflation, have risen past their previous peak levels seen during the mid-2000s housing bubble, Vitner said. But when the higher cost of building materials is taken into account, home prices are actually 10 percent lower than during the previous peak. Much of the price escalation today reflects the higher cost of those materials, he said.

Rents have also risen significantly, Vitner said. In Miami, about 70 percent of the population rents.

The vacancy rate in the apartment market in Miami is 3.2 percent, and it is closer to 2 percent in some other South Florida markets, Vitner said. Cap rates for apartments in South Florida have fallen more than those in any other area in the U.S. Southeast, he said, on par with much larger markets such as New York City and Los Angeles. At the same time, more apartments are being built in the country today than during any other period since 1973, he said.

At the start of the pandemic, more young adults returned home to live with their parents than during the Great Depression, Rockey said. But now, even as rents are soaring, people in their 20s are starting to leave their parents’ homes and becoming renters.

Because the job market is strong now, hybrid work patterns will survive the pandemic, Vitner said. But this trend will only continue until jobs start being cut, he said.