As a Licensed Property Manager in Florida, I have clients ask me throughout the day about Florida's real estate market. People are scrambling to figure out if they should continue renting or buying or consider buying a home, while others inquire if it is the right time to put their place on the market. I walk them through my thoughts and experience in the Florida market to give them educated options. I have noticed as prices continue to rise, Floridians are left confused about the future of the state's real estate market.
During the past year, there were almost 900 people, at one point, moving to Florida every day for several reasons. The influx of people has created yet another housing bubble as housing demand surges while supply lags.
However, will this bubble also pop like past housing bubbles, leading to a market crash like the one we saw in 2007-2008? What is going on with Florida's real estate market?
Flocking to Florida
The increase in relocations to Florida has not been a sudden one. On the contrary, the Sunshine State has always been a desirable place with many visits from tourists and retirees. However, recently there has been an increase in young people and families permanently relocating to Florida over the past couple of years.
According to U.S. Census data, between 2010 and 2020, Florida's population grew by 14.6% or, more specifically, by 2.7 million people. This growth is double the rate of population growth in the entire U.S. The warm climate is not the only reason behind the move.
For starters, Florida has proven to be a much more affordable state. It charges lower property tax, and more importantly, there is no personal income tax. It is a crucial factor why most of the influx has been from states like New York and New Jersey, where the government has proposed increasing taxes for the wealthier residents.
The state offers a great job market as well. Many leading businesses and tech organizations are shifting their operations or headquarters to Florida, attracting more labor and employment opportunities.
Other than that, the most significant factor has been the pandemic. The COVID-19 pandemic has been one of the primary factors behind what is going on with Florida's real estate market. As more and more states went into stricter lockdown, Florida still offered relatively relaxed living conditions.
Moreover, as the pandemic saw a rise in remote working, people had more options with where they want to live. These factors combined led to a substantial spike in people moving to Florida during the pandemic. And the relocation trend is not expected to change even after the pandemic is over.
What is going on with Florida's real estate market?
As you can expect, the more people move to the state, the more the demand rises for housing. However, the increase in demand has primarily overtaken the rate of growth in the supply of housing.
This difference has led to a housing bubble in the state, leaving everyone confused and anxious about the future of Florida's real estate market. Single-family homes, condos, and apartments have been rising in the past decade and more so in the past year.
With estimates saying that around 845 people will relocate to Florida every day until 2025, the demand is not going anywhere either. The issue is that there isn't that much supply to satisfy the demand. There's a shortage of residential sites where builders can construct homes. The cost of materials to build those homes is constantly increasing due to the high demand.
In addition, there is a shortage of labor as well to help construct those homes. As a result, there is insufficient inventory in the market, which has created some challenging times for buyers, realtors, and builders.
Some real estate buyers have become so desperate that they have started offering unique offers to distinguish themselves from sellers and close the deal. In one instance, a buyer offered the seller their pet python to secure the property.
Nevertheless, the continued demand is causing a further surge in prices. Active listings in the state have dropped to a little over a month's supply for single-family homes and about three months for condos. A typical and healthy market usually has about six months' worth of active listings available.
Likewise, at the start of the year, houses in Jacksonville were thought to be overvalued by 18%. However, a few months later, they were considered to be overvalued by 23%. Furthermore, overvalued homes are not just limited to Jacksonville. The problem extends to many cities within Florida. Three areas that have witnessed the most of the housing market boom include St. Petersburg, Miami, and Tampa.
Between May 2020 and May 2021, Miami experienced a 137% increase in pending sales, a 40% increase in new listings, and a 29% reduction in inventory. As a result, median sale prices rose by more than $60,000 during the same period. Tampa faced a similar situation, with the median sale price increasing from $273,000 in May 2020 to $320,000 in May 2021.
Amidst all this chaos and confusion, many Floridians have one question on their mind: What should they do next? Should the sellers sell? Should the buyers buy? The demand does not appear to be stopping anytime soon, and the inventory problem can't be solved that quickly either. So, then does this mean that we will see the bubble burst and market crash like in 2007-2008?
According to some economists, this won't be the case. The market has already started experiencing some corrections in prices. However, the bubble will not burst as much as it will slowly deflate over time. The demands will continue to outpace the supply, leaving the market unbalanced.
So, what should you do then? If you are a seller, the Florida real estate market is the best place for you to be right now. As discussed, demand is abundant, and buyers are desperate to close deals. In addition, properties in many cities, are overvalued which means you can fetch a great price on any real estate you own as long as it is reasonable.
On the other hand, the prospects aren't as good if you happen to be a buyer. The state's real estate market is the worst place for you right now as a buyer. Regardless of all the benefits of residing in the state, you can't avoid the simple truth that real estate is grossly overvalued, which means you would be paying a lot more for the property than usual.
Even if you manage to secure a reasonable deal, you will have high premiums on your house once the prices level out. Unfortunately, as we have learned from experience, mistakes in real estate can take years to recover from, so buyers need to be careful.
Going for the deal
If you decide to make a deal, either way, remember to do full due diligence. And equally as important, request and review a copy of the Homeowners Association Covenants and Restrictions.
While everyone dreams of owning their house, especially in a state like Florida, one must look at the current market conditions and long-term effects before making such a decision. Unfortunately, it is still a little vague about what is going on with Florida's real estate market.
Therefore, the best advice would be to hang tight and wait and see what happens.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. The market fluctuates; therefore, not all information will remain the same. Consult a financial or real estate attorney before making any significant real estate decisions.
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