July 2022 Florida Housing Market Update

Florida Housing Inventory is Increasing 

The Florida housing market is changing fast! The severe inventory shortage that has kept prices so high is easing. The year-over-year inventory of single-family homes for sale increased by 61.8% in June. While homes for sale in the Miami-Fort Lauderdale-West Palm Beach Metro Area increased by 30.3%.  Some South Florida cities saw a major boost in inventory last month.  New listings increased by 39.6% in Boynton Beach, 33.7% in Boca Raton, and a whopping 64.7% in Greenacres.   Listing agents are noticing a drop in open house attendance and fewer bidding wars, making price reductions on homes listed above market value more likely.

However, increasing supply only tells half the story in the Florida housing market.  This influx of new listings is occurring at the same time that many buyers are being priced out of the market by rising interest rates. The Fed has been sharply increasing interest rates to curb inflation. With the consumer price index rising to 9.1% in June, the Fed is expected to raise interest rates another 75 basis points by the end of this month.  While the Fed does not set mortgage rates, key players in the mortgage industry watch the Fed's actions closely and inflation plays a big role in mortgage rates, making further increases to mortgage rates highly likely.

Interest Rates are Hampering Demand

According to Mortgage News Daily, the current average rate on a 30-year fixed mortgage is 5.55%.   This is very significant considering that the average 30-year fixed rate for the first week of January 2022 was just 3.41%.  To give you a rough idea of how these interest rates impact home buyers, let's look at an example.  If a buyer burrowed $330k (the median price of a home in the Miami-Fort Lauderdale-West Palm Beach Metro Area) to purchase a home with a 3.41% interest rate, monthly payments would be $1,465 before taxes, insurance, and fees.  At 5.55% interest, the monthly payment before taxes, insurance, and fees would jump to $1,884.  This is an additional $419 that the homeowner would have to pay monthly.

The waning home buyer demand is apparent in the mortgage industry.  David Westenhaver, a journalist at Forbes explains the projections for loan originations in a June 23rd article,  "Experts are forecasting a 35 to 50 percent dropoff in mortgage origination this year, from almost $4 trillion in 2021 to as low as $2 trillion in 2022."  The mortgage industry went into a hiring frenzy to keep up with demand over the past few years, but now employees are finding themselves on the chopping block.  To make matters worse for the industry,  refinance applications are down 80% year-over-year.   Online mortgage lender Better.com has laid off 3,900 employees since December.  JP Morgan Chase let over 1,000 home lending employees go in June.  While LoanDepot is expected to cut its workforce by 6,500 employees by the end of the year.

June Statistics Reveal Leading Indicators for a Florida Housing Market Correction

The Florida housing market correction that we have been anticipating at Real-ativity is underway.  South Florida is still in a seller's market but conditions are shifting to favor buyers. Single-family closed sales were down 25.8% and pending sales decreased by 33% in June for the Miami-Fort Lauderdale-West Palm Beach Metro Area. With supply increasing while demand is decreasing, homes are taking longer to sell and price reductions are becoming more common.

Jack McCabe, owner of Jack McCabe Expert Services, a Deerfield Beach real estate research firm, explains the significance of June's statistics, “Usually when you enter into a correction cycle, you see the sales decline. You see inventory increase, but the prices lag behind those leading indicators. We’ve had temporary artificial variables come together that are now changing.” The market correction will bring prices down when sellers are forced to lower their list price as they face competition from heightened inventory. Of course, their homes will have to sit on the market for a while before the reality of the new market conditions sets in. Sellers have become accustomed to selling well above appraisal price with only a few days on the market. Brian Brackeen, who runs an investment company called Lightship captured seller sentiment nicely in a recent Washington Post article,

“If you are a seller and you are so close to the gold rush, you don’t want to give that money up when your friends sold for top dollar, on the first day with multiple offers.  The world that current sellers are dealing with is more like their normal local market, not the prior coronavirus-fueled supermarket, where people from all over the country are coming into each other’s markets and inflating the number of buyers in any given place."

It will take some time before buyers and sellers find equilibrium again, but the market is heading in the right direction for buyers seeking more affordable housing options.  On the other hand, sellers may have missed the top of the market but there is still time to cash in on tremendous equity if they act fast.

If you're looking to retire in Florida, it may be wise to concentrate your home search in 55 and over communities to protect your investment from a downturn in the near future. The active adult market is less susceptible to market volatility with a steady stream of demand from retirees flocking to the Sunshine State and more cash buyers that are not at the mercy of rising interest rates.