Florida's red hot and highly competitive housing market is driving up rents to new heights. I have been a Property Manager for more than 20 years in Florida, both in the rental division and residential HOA communities. This year is the first time that I have witnessed overbidding requests by prospective renters. As a result, there is a sense of urgency on both sides of the industry.
Home prices in the US have seen one of the sharpest spikes since the great recession. From June 2020 to June 2021, growth (in major urban markets) has been the highest in recent history. The Federal Housing Finance Agency (FHFA) reported a house-price index rise of 18.8%, significantly higher than the comparable period a year before.
The housing market is hot throughout the country, and even though Florida doesn't exactly top the charts for the housing heat index (it was 25th for the first quarter of the year), the housing market in the state is quite aggressive.
Florida housing market
In June 2021, two Florida cities (Lakeland and Winter Haven) topped the charts for the most significant gains in the median home price, 32%. One Florida city (Jacksonville) tied for second place, and another (Orlando) reached third place. With three towns occupying the top three positions for the most massive median price gains, it's safe to say that Florida's housing market is still hot.
The factors behind this premium price surge in Lakeland (in fact, for the whole state) include low-interest rates and higher-than-average population growth. The major cost-driving factor, however, is most likely the lack of inventory. There is a significant disparity between potential buyers and new houses hitting the market, ensuring that units don't sit around for very long. Selling a home used to take months; now, it takes about 22 days on average.
The trend is shifting slightly in Southwest Florida, where some experts believe a correction is already underway. A gradual shift from a seller's to a buyer's market has begun. It's difficult to predict when this trend will sweep across the rest of the state, but it will likely happen soon enough. Thankfully, even the red-hot Florida housing market has many fundamental weaknesses that triggered the great recession. A correction would be a shift of negotiating power from sellers to buyers.
But buyers are not the only ones suffering in Florida's highly competitive housing market. It has impacted the renters as well.
The Impact of low inventory and high prices on Florida's rental market
Many factors driving property prices in Florida sky-high contribute to the rents rising at an unprecedented pace. For example, renters in Orlando, Central Florida, are experiencing a massive 20.3% rent rise. Many other Florida cities dominate the list of rising rent values from 2020 to 2021.
Some of the factors that stem from the competitive housing market triggering the rapid rent rise are:
Low inventory
The low inventory is just as a problem for renters as potential buyers, albeit differently. With fewer inventories, fewer new properties will change hands and join the rental market, especially if investors are not keen on buying at current prices. Unlike homebuyers who might not mind paying a bit extra if they can lock in the current low-interest rates will distribute the costs over decades in most cases, investors looking to buy to rent out might bide their time.
So, the "fresh" rental inventory might grow even slower than the overall residential stock.
A transition from renting to buying slower
Many Floridians are taking the advice of experts to stay their hand from buying a property in the current red-hot housing market. So they continue to rent or go back to renting and don't free up space for the new renters. And even they too have to suffer from the high rents; they might be able to offset it a bit by carefully investing the money they would have saved for a down payment.
But it's bad news for renters since the number of people entering the market is higher than the number of people leaving it, causing "lag" and creating a highly competitive rental market. Landlords too might prefer to negotiate a new lease and rent reflective of the current rental market with old renters (potential buyers biding their time for the market to cool off) instead of going through the process of renting out to someone new.
Fierce competition
Florida is one of the ten fastest-growing states (by population) in the US. And more people mean more buyers and renters. And if you couple it with potential buyers reverting to renting and low inventory, it creates fierce competition in the rental market, something landlords can use as capitalization. Another aggravating situation is that many people put off moving to a new rental home because of the pandemic, and the backlog is pushing on the current supply.
These situations led to a rental market just as fiercely competitive if not more as the overall housing market. As a result, many experts suggest that you be ready to move in as soon as possible if you like a property. If you wait around for better opportunities, someone else might swoop in with a better price. It's also leading trends like landlords demanding higher security deposits and clauses (like the escalator clause) included in lease agreements.
Newcomers raising the ceiling
Apart from a report that claims newcomers have (on average) a rental budget of $300 higher than locals, there is little quantifiable proof that newcomers are heating the rental market for the locals. Still, it's easy to deduce why it might be happening. In 2020, Florida saw the ninth-highest inbound state migration as a state, and it's one of the most desired states for people to retire in. But even more than retirees (since they have their accommodation preferences), the "newcomers" that might push the rental ceiling higher are the people moving to the state for work.
If someone has moved to Florida for a new job or starting a business, they have to get situated and rent a place since they might not have other options like locals do. And in their desperation to find a place to rent, they might be willing to pay a bit more than someone with more time and alternatives would.
No rent control
While it's not a direct impact of the competitive housing market, Florida's lack of rent control also contributes to the problem of rising rents. Since the state can't and doesn't intervene, the market sets the "rent," In a phase with low inventory and many potential renters, the landlords have a lot of power and leverage.
Conclusion
Even if the housing market cools off in a few months, the rental market might still carry on with a higher rent until most of the leases (with the high rent) expire. Other factors likely to impact the rental market include inventory growth, new properties joining the market, more renters purchasing, freeing up rental spaces, forcing the landlords to entice potential renters with lower rents, zero or lower security deposits, and better terms.
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 or rental decisions.
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