Closing out the year
The year has been quite turbulent, causing the U.S. economy to head toward a pasta-bowl-shaped recession, and Florida is not behind in this downturn. However, in an economic report, the Director of the UCF Institute for Economic Forecasting, Sean Snaith, predicts that the pasta-bowl recession in Florida may not be easy to digest.
" I predict the U.S. is on its way to a Pasta Bowl Recession." -Sean Snaith, Director of the UCF Institute for Economic Forecasting
There are, however, some benefits from this extended period of slow economic growth.
Numbers to ponder
- Florida’s economy will expand at an average annual rate of 1.4% from 2022 - 2025. For 2023 & 2024, the recession will slow down to 0.5%, but it will accelerate in 2025.
- The labor force growth in Florida is forecasted to average 1.4% from 2022-2025, but this is after growing by 2.5% in 2022.
- The payroll job growth in Florida will begin to falter during the recession, but this is only in some sectors. For example, there was a year-over-year growth of -4.9% in 2020, then a rebound to 4.6% in 2021. However, with job growth of 3.9% in 2022, payroll employment will contract by 0.6% in 2023 and 1.3% in 2024 before expanding to 0.8% in 2025. The unemployment rate jumped from 3.3% in 2019 to 7.9% in 2020, then fell to 4.8% in 2021 and 3.6% in 2022. The recession has the 2023 rate predicted at 4.9% -5.8% in 2023
- Real personal income growth will average -0.7% from 2022 - 2025. Though there was a pullback in 2022, the growth average was 1.7% through the end of 2025, hitting 2.5% that year. Florida’s average growth will be 0.5% higher than the national rate over those four years.
- Housing will pick up in the coming months but might not be slower to offset the significant shortage of single-family housing in the short run. Rapid house price appreciation will vanish as supply catches up with the demand tempered by rising mortgage rates, decreasing affordability, and recession.
- The impact of weather on the market in Florida is noteworthy. The first thing you notice in winter is that inventory decreases. The number of homes available for sale begins to decrease from December to February. Buyers will need help finding homes because only a few are available. In 2018, winter inventory dipped to around 1.8 million, then bounced back to 2.4 million in summer. Although home values will generally appreciate over time, the growth is not linear because it will grow faster in some months than in others, especially towards the end of the year.
What lies ahead
It can be challenging to forecast and project Florida’s real estate for the coming years. It is challenging because there are multiple possible scenarios.
The first circumstance to consider is the impact of the Russia and Ukraine war on real estate in Florida. In a short period during the war, there became an undeniable effect of the war on the global economy, which eventually spilled into the real estate market in Florida.
We began to see inflation of mortgage rates, soaring gas prices, and food prices since Ukraine provides about 40% of Europe’s wheat basket. Aside from the food Ukraine provides, Sunny Isles Beach in Miami is an active market for Russian investors buying luxury homes. However, since the sanctions imposed by Financial Crimes Enforcement Network, it is believed that Miami and Manhattan are the two most attractive U.S. locals for money laundering.
Impact of the war
How does this affect the year and subsequent real estate forecasts? The first contact is the price increase for merchandise and services in a given economy over a set time. The latest inflation figures are putting a considerable dent in the purchasing power over time. When high inflation happens, there are rising prices for rental property rates. A high mortgage rate means buyers will have less purchasing power, causing higher housing prices and more customers for rental properties.
However, real estate has value for many people regardless of the money; people want roofs over their heads. I already see rental properties having a higher-than-normal demand and return, and investing where banks provide higher-than-standard quantities will result in less competition and lower prices.
On the other side, inflation could lead to a slower market.
"Behind the inflation risks sits the likelihood that the global economy will become slower and stickier." -Charles Hecker, a partner at Global Consultancy Control Risk -
Hecker also suggests that friction will increase and geopolitical risks will loom. As a result, we will see more investors and businesses become more selective about how they invest.
Another critical factor contributing to the delay in building new homes is the result of increased supplies, labor costs, and subsequent price increases for available homes. Considering the many happenings this year, like the weather mishap and Ukraine and Russia conflict, property prices will be adversely affected in 2023-2025. Zillow projected a home price growth rate for 2022 of up to 16.4%. The growth will peak at 21.5% in May and then drop to 17.3% at the end of the year.
A sidebar note is that since the recession and pandemic, the value of housing in the United States has doubled. The market value reached the $40 trillion mark in June 2021 while gaining an estimated average of half a trillion dollars per month. Even with the rising mortgage rates and high housing prices, the housing market will remain strong due to increasing demand as more millennials prepare to buy houses in 2022. Millennials collectively are the most significant percentage of U.S. homebuyers, according to a 2020 survey from the NAR.
Some prospective investors are pessimistic about the 2023 market as they anticipate a rise in 30-year mortgage rates by the end of 2023. However, low borrowing costs offer buyers some relief as prices continue to escalate, which is good news for investors.
As things continue to be a whirlwind in the Florida market, residents hope that price appreciation and increased inventory will be positive in 2023.
"Florida is a place for innovation, for prosperity, for pioneering." -Hendrith Vanlon Smith, Jr.-
This article is for informational purposes only. It should not be considered Financial, Real Estate, or Legal Advice. The market fluctuates; therefore, not all information will remain the same. Consult a Financial or Real Estate attorney before making significant real estate decisions.
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