Updated February 14th 2018
Why You Need to Know Where Florida Real Estate Prices are Heading Before You Buy or Sell
If you are thinking of selling your home in the state you now live so you can buy a home or condo in Florida, knowing exactlywhere the Florida real estate market is now and where it’s heading is extremely important. Why? Well, there are many reasons, but here’s just a couple:
- About 30,000+- people move into, and out of Florida every month. Changes in the number of people moving in compared to people moving out can cause wild swings in Florida home and condo prices.
- It’s not common for Florida real estate prices to rise steeper and faster during booms and then fall quicker and farther than in most other states.
- Studies show a very high percentage of people who relocate to Florida will eventually decide their relocation was a mistake and want to move out of the state.
Why is This Important?
Because Too Many People Have Moved to Florida During Good Economic Times, Paid Too Much for Their Home, and Then Had to Sell at a Loss When Their “Florida Dream” Didn’t Pan Out and Wanted to Leave.
When a higher number of people are moving to Florida, it’s easy to pay too much for a home during a strong seller’s market when prices are high. If you later decide that moving to Florida was a mistake and you want to sell and move out of Florida, you may find yourself in a strong buyer’s market when Florida real estate prices are low. This can lead to a large financial loss. Florida real estate prices dropped an average of 60% during the last recession. Yes, the person who bought a $340,000 home purchased just before the last downturn, ended up with an “investment” that was worth only roughly $136,000 afterwords. Read further and I’ll explain how you can move to Florida and avoid this devastating trap.
However, if you move to Florida and buy a home when prices are low during a strong seller’s market, then later want to sell and move out when prices are climbing steeply during a strong seller’s market, you could stand to earn a large profit. If moving to Florida turns out to be a mistake (over 12 million+ have already moved out) because it wasn’t what you expected, how bad could you feel if you got to leave Florida with $150,000 more cash in your pocket than you moved to Florida with? Best mistake you ever made, right? That’s why it’s extremely important to move to Florida the right way, just in case.
The 3 Common Florida Real Estate Markets and Which Ones Are Best to Buy or Sell In
1) A Balanced Florida Real Estate Market
A balanced real estate market is where both the supply and demand for homes and condos in a particular area is roughly equal. In a balanced real estate market there is about a six month supply of homes on the market.
A balanced real estate market is not something that usually happens for a long period of time in Florida. It’s usually just a threshold that is passed as Florida is transitioning from a buyer’s market to a seller’s market or vice-versa. The odds are that you will not likely move to Florida when it’s a balanced market.
2) A Florida Buyer’s Market
A buyers market in Florida happens when there are more people who what to sell (often to leave the state) than there are people who want to buy. During a buyer’s market in Florida there will be more than a six month supply of homes for sale. This means there will usually be a lot of homes to chose from in your price range.
Because the supply of homes exceeds the demand for them in a Florida buyer’s market, buyers can take their time when shopping for a home because homes will sit on the market for many months, possibly a year or longer without selling. Buyers may not want to be too eager to make an offer because sellers will often reduce their prices. Even if they don’t drop the price, more sellers are willing to entertain low offers because they have no idea how long it may be until the next offer comes along, if at all. And that offer may even be lower.
“The best time to buy in Florida is during one of the many frequent buyer’s market’s, when homes and condos are selling at steep discounts of 30% or more”
In a strong buyers market, you will notice more for sale signs appearing on more homes every week. Those new listings may also be priced lower than existing for-sale homes in the area thereby pressuring those older sellers to reduce their price in order to compete. Buyer’s markets can be lots of fun for buyers but not much for sellers and real estate brokers. The best time to buy in Florida is during one of the many frequent buyer’s market’s, when homes and condos are selling at steep discounts of 30% or more and there’s more homes coming on the market every day.
3) A Florida Sellers Market
A seller’s market is when there are more buyers looking for homes and condos in an area than there are properties for sale. When this happens, sellers can expect to sell their home in less that six months. In a strong seller’s market a nice home may sell within weeks, days or even hours.
When there are more buyers than available homes, prices go up. In Florida, it’s not uncommon for demand to far outstrip the supply of homes for sale and push list prices skyward. During a strong seller’s market you may notice fewer for sale signs in the front yard of homes every week.
Seller’s markets are not fun for buyers. Prices are high. There is less inventory to chose from. Buyers may feel pressured to buy now because if they don’t prices may even be higher next month. During strong seller’s markets, many buyers may end up paying far more than they want for a home they really don’t like very much, simply because they believe it will be even worse if they don’t act now.
Strong Seller’s markets are fun for sellers, real estate agents that can still successfully compete for listings as inventory gets scarce, flippers (investors that buy homes, do no or minimal improvements, then jack up price and put it right back on the market) and new construction builders. When inventories get low and prices shoot up fast, this can be the worst time for a buyer to make a purchase in Florida because you may be buying in a real estate bubble right before it is about to pop. This is where I see the Florida real estate today. In bubble territory, right before it pops.
Here’s just a few reasons why I Expect Real Estate Prices in Florida to Drop Soon
- The effect of rising interest rates on Florida real estate. Every up tick in interest rates means buyers qualify for less mortgage money to buy a home with. Mortgage interest rates have jumped half a point since the presidential election just a few weeks ago and the Fed is expected to raise rates in December 2016. Experts also expect more Fed interest rate hikes in 2017. As rates rise, buyers are forced to look at cheaper homes, and Florida home sellers will have to reduce their prices in order to sell to them.
- The effect of rising interest rates in states other than Florida. If it wasn’t for people selling homes in New York, New Jersey, Michigan and other states to move to Florida, real estate agents in the Sunshine State would starve. Most people relocating to Florida to live full-time must sell their home in their in the state they now live, in order to move. As mortgage interest rates rise in the states people sell homes in order to move to Florida, sales will slow there. This will lead to less demand in Florida.
- The hurricane drought in Florida has ended. After a record 10 years in which Florida escaped a direct hit, Hurricane Matthew made it’s way up the east coast of Florida during the 2016 hurricane season. Since the hurricane was covered in the national news for days, it gave some would be Florida buyers, doubts about moving to Florida. In addition, that hurricane will cause many Florida residents who experienced evacuations, damage, flooding and extended power outages from it, to decide to leave the state. The combined net effect will be more Florida home supply from more people than normal selling and moving out and less demand in Florida from buyers moving in from other states.
- Population studies and my own personal experience from talking with 1000’s of buyers and sellers in Florida, show that many people who move to Florida will eventually decide to move back/out. There has been a surge of people who have moved from other US states to Florida during the 10 year hurricane drought. That surge caused the increase in demand for homes and seller’s market that pushed prices skyward. If history continues to repeat itself, a high percentage of that surge will decide that Florida isn’t right for them, and move out. I expect that surge of people moving out to cause a spike in inventory as they put their homes up for sale to leave, causing prices to fall.
The Timing of the Next Big Fall in Florida Real Estate Prices
The Effect of Rising Interest Rates on Home Prices in Florida
Florida real estate prices will begin to soften in 2017 as the toll of rising interest rates makes homes in other states harder to sell, and “overpriced” Florida homes more difficult to finance. If the trend of higher interest rates continues into 2018, it would signal an end to historically low interest rates that buyers have enjoyed (and now need) for several years now. Florida home and condo prices could sink substantially in 2018 and 2019 as the market adjusts to more historically “normal” market and rates.
The Effect of a Return to Normal Hurricane Seasons in Florida
If Florida experiences more direct hurricane hits in 2017, that could also signal a return to “normal” hurricane seasons. This could shell shock people who have moved to Florida in the past 10 years who may have come to believe that the hurricane drought was “normal”. The Florida Move Guide says that a certain number of people would normally leave Florida every year citing the effects of hurricane season as one of the reasons. That hasn’t happened much in the last 10 years because of the hurricane drought. A return to normal hurricane seasons where Florida can expect to get hit every year could cause all those people who would have left annually, but didn’t because of the drought, to leave all at once. This could cause a severe drop in real estate prices similar to what happened after the record Florida hurricanes years of 2004 & 2005.
If I was Going to Buy or Sell in Florida I Would…
If I was thinking of selling in Florida, I would sell now before this strong seller’s market comes to an end, which may happen much quicker than many realize.
If I was thinking of buying in Florida now for a very compelling reason, I would rent until real estate prices dropped, then consider buying (I would also have a better idea if Florida was what I expected after renting a while). If I was thinking of moving to Florida but didn’t have to move right now, I would wait until after the current Florida real estate bubble pops and homes prices drop and lots of homes come on the market to choose from.
- The Fed has lowered interest rates to the lowest point ever and kept them there for longer than ever before. We are in uncharted territory as they raise rates.
- The US has a downturn or recession every 7 years on average. It’s been longer that that since the last one. So the odds are, normally, …but he stock market hit a new high right after the 2016 presidential election. If a recession develops in 2018-2019, Florida real estate prices could drop substantially causing a fantastic buying opportunity of up to 50% or more off current home prices.
- I’m hearing “you should buy now because if you don’t, prices will just be higher next week” and “It’s different this time because there’s a wave of babyboomers coming that will cause prices to just keep going up and Florida is the new California, etc.” This is exactly what they were saying right up to the last day before the Florida real estate bubble popped and home prices proceeded to drop 60% on average.
- When this current bubble pops, prices will likely drop the most in neighborhoods where homes are occupied mainly by people who bought to live in Florida full-time.
- Prices usually drop less in areas where homes and condos are mostly owned by wealthier folks who mainly only occupy them during the winter months such as in Palm Beach (Note: Not Palm Beach County in general, not West Palm Beach, etc., but the town of Palm Beach on the key) and Naples proper.
So Where Are Florida Home Prices Now and Where Are They Heading
- People who moved to Florida during the 10 year “hurricane drought” only to be forced out of their homes for the first time in their lives during the “return to normal” 2017 hurricane season, will decide that where they moved from, wasn’t so bad after all and want to sell. This will increase supply and lead to lower prices.
- People that were forced out of their homes and have not been able to return to them because hurricane damage, have already move and established life elsewhere. A high percentage of these homes will go up for sale, increasing supply and lowering prices.
- The 2017 hurricane season which devastated parts of Texas, then Florida and finally Puerto Rico was heavily reported nationwide, slowing demand as people think twice about moving to Florida. This is reducing demand.
- The “normal” 30,000 or so who move out of Florida for monthly now for reasons other than hurricanes, continues.
- This will worsen throughout the year as the 2017 hurricane damage money is spent and all the those additional workers and jobs leave the state, reducing housing demand and leading to lower prices.
Bottom Line: What will Happen to Florida Real Estate Prices in 2018 and 2019
- Look for growing inventory, homes sitting on the market longer and price reductions in 2018. This will gain steam as the year progresses and interest rates increase.
- If the annual 6 month hurricane season in Florida in 2018 is another “normal” one like 2017 with evacuations and damage, look for Florida real estate prices to tank in 2019.
- If the country experiences a downturn or recession (historically we are overdue for one) look for Florida real estate prices to drop like a rock in 2019.
- If both of those things happen, look for Florida real estate prices to collapse and rapidly drop up to 50% or more in 2019 as the floodgates of sellers opens up and the pipeline of buyers slows to a trickle
Most people have to sell elsewhere before they can buy in Florida…
Ron Stack “That Best Places Guy”