Demand for Downsized Homes in South Florida

Country club homes and luxury developments are becoming the proverbial wall flowers in the real estate market in South Florida. The wealthy, along with the middle class, appear to be downsizing in size, as well as price.

According to the U.S. Census Bureau, new single-family homes went on a square foot diet last year and reduced themselves from 2007’s high of 2,277 to a svelte 2,215 square feet last year. While this is not quite a 2% reduction, it represents the first significant drop in size in more than 14 years. What is more important, it indicates that American buyers are looking to purchase smaller homes in hopes of keeping their costs down.

More high priced homes than low priced homes are for sale.

That same purchase price drop is manifesting itself in South Florida. Sorting through the current multiple listings of homes for sale in the relatively expensive towns of Boca Raton, Delray Beach, and Fort Lauderdale, we find 1447 listings for single family homes priced between $100,000 and $499,000. However, we find 2051 homes priced between $500,000 and $19 million for sale, with the majority priced over $1,000,000. There are almost 30% more high priced homes than low priced homes on the market, and dozens of the higher end homes have been listed for 6 months or more.

What appears to be happening is that buyers who can afford more are opting to purchase less. For example, a buyer with whom I recently worked toured a lavish 6500 square foot home in Boca Raton with 8 bedrooms, 5 baths and a 500 square foot kitchen. The home also featured uninterrupted vistas of the intra-coastal and was asking close to $4 million. The buyer was comfortable with this pricing. He owns several homes around the country and is used to large living spaces

However, the buyer was renting a home in Fort Lauderdale that while, hardly as lavish, had been refurbished with upgraded kitchens, baths and tile, and was nestled comfortably on a canal with ocean access. Although the rental property was less than one third the size of the mansion, he opted to purchase the smaller property because the asking price was 80% less than that of the home he originally desired. It all boiled down to current and future expenses. This was a vacation home for him, just an occasional stop. So he opted not to spend the extra dollars.

Luxury homes piling up.

This trend of high income buyers moving to lower cost properties appears manifest based the large number of homes available in many luxury communities. Consider these three examples, all in Boca Raton: in the Royal Palm Yacht Club, one of the most beautiful and expensive subdivisions in the nation, there are currently 73 homes, all listed at over $1 million, that are languishing in the multiple listings. In St. Andrews Country Club, an impeccably maintained country club community, where golf membership equity costs $125,000 on top of the price of a home, there are 59 properties for sale at asking prices of $1 million or more. There are 17 more ranging in price from $500,000 - $999,999. In the strikingly designed community of The Oaks, there are currently 36 homes for sale at asking prices of $1 million or more.

At a typical tax rate of 2%, with no mortgage, the a buyer’s carrying charges on the million dollar homes are at least $20,000 per year, not including HOA fees and insurance. If that same buyer purchases a $400,000 house, which may be somewhat smaller, but still provides more than adequate shelter, it will cost him only $8,000 in taxes. The $12,000 saved by purchasing the smaller home can be used for investment or to purchase a car, or to send a student to college. But it won’t be spent on housing costs that are no longer deemed necessary by today’s changing breed of buyers.

Written by Marc Jablon, Realty Associates
marcjablon@yahoo.com / 561 / 213 – 6139
www.MarcJablonHomes.com