Property prices in Florida are steadily rising, especially in the wake of single-family homes. The increase in prices across the US was greater than in the mid-2000s. Would it be a new bubble similar to the one we witnessed in the Subprime crisis in 2006? Everything indicates that it is not!
The Florida Realtors website released January figures showing that the average selling price of a single-family home in Pinellas County, where the cities of Clearwater and St Petersburg are located, was $ 309,450 – compared to $ 265,000 in January 2020. The average selling price in Hillsborough County, where the city of Tampa is located, was $ 297,500, 11% higher than last year.
In the Orlando region the inventory of residential homes dropped to the lowest level in 15 years last year, while average house prices have increased by almost 10% compared to 2019, according to the Orlando Regional Realtor Association.
The Orlando region is one of the most attractive to new residents. Americans from other states placed the city among the top three in the United States to take up residence, surpassing cities like Austin and Atlanta, both known for their rapid population growth.
How to explain an extremely heated sector in the midst of a global recession due to the pandemic? Was it a new bubble?
Everything indicates that it is not!
The main characteristic of a bubble is the speculative behavior of the market, which creates an expectation of future price increases. In the market for single-family homes in Florida, this is not what is happening. People are actually looking for houses to live in. Florida receives more than 1,000 new residents daily. The city of Orlando alone, in 2020, received almost 70 thousand new residents. It is natural that there are no houses on the market for all this public, pushing prices upwards. There is, therefore, an economic basis for the increase in prices and not mere speculation.
Another factor that points to this being a completely different scenario from the great Subprime crisis is the credit policy. Financial agents who worked in the market at the time say that loans in those days were granted in an extremely irresponsible manner.
Carol Hasbrouck, a former credit analyst at the time of the Great Recession, explains a little about the irresponsible conduct of granting credit lines. In an interview with the Tampa Bay Times, Carol reports that loans were approved even for people the day after they filed for bankruptcy. There were cases where loans were granted with negative repayments, where borrowers would pay less than the amount owed on interest and sink further into debt each month.
The Subprime crisis was a structural crisis, related to the fundamentals of the economy! What we see today is a warming of the market based on Supply X Demand. That simple! There is not enough inventory of residential houses on the market to meet the expressive demand from buyers looking for this type of property.
Low Inventory
At the same time, the inventory is low. Anyone who owns a home does not want to sell! Many homeowners do not want to receive strangers into their homes for fear of contagion. In addition, they know that if they sell, they will have serious difficulties in finding another home in a market with a very low offer in Florida.
And to “aggravate” the situation, historically low interest rates in the United States at this time encourage homeowners to refinance their homes instead of selling them in search of smaller mortgage installments. And why not refinance, instead of selling, and take advantage of the appreciation trend?
Lack of single-family homes in the market drives demand to other segments
The lack of single-family homes is “forcing” buyers to look for properties in other segments. Apartments in luxury condominiums in Florida, which lost their appeal at the beginning of the pandemic, have once again gained prominence. Buyers realized that spacious apartments in condominiums with a large infrastructure and leisure area can be even more interesting and safe than homes in suburban areas. At the same time, this type of property in cities has extremely attractive prices and has not yet recovered from the crisis, making the segment a great opportunity. In this context, the so-called low-density condos are noteworthy, which are more exclusive condominiums with few units and, consequently, few residents.
The elegant neighborhood of Sunny Isles Beach, in the north area of Miami, offers many luxury condos with great amenities and with very attractive prices during this period of a pandemic. A good number of unities in luxury towers are listed with a reduced price, making this time a great moment to invest. Porsche Design Tower is a good example. The tower features a high-tech car elevator that allows owners to park their fancy cars inside their units. Also, every unit in Porsche Tower offers a private pool on the balcony.
US foreclosure moratorium extended until June 30, 2021
There is an expectation that, with thousands of defaulting Americans on their mortgages, an expressive number of homes would invade the market, bringing some balance. However, that would be good news coupled with another bad news, where thousands of Americans would lose their homes experiencing difficulties, which would have a negative impact on the economy. At the same time, the Biden administration has extended the moratorium on foreclosures in the United States to June 30, 2021. Therefore, this addition of residential homes to the market’s inventory will not come anytime soon.
Prices will continue to rise
In our analysis, the average home price in Florida will remain upward. There is not enough inventory for the expressive demand of new buyers, both within the state of Florida as well as the so-called “Snowbirds”, buyers from northern states who seek Florida in search of pleasant weather and a better quality of life. There is a big movement on the part of developers in Florida buying new areas for new buildings. However, the availability of free land is not so great and the projects take time to be approved, built and, finally, delivered.
The condominium market (buildings in large urban centers) will also benefit from this movement. The price of so-called “condos” in Miami (luxury apartments in buildings) is already increasing, as buyers looking for single-family homes do not find the product on the market and start to divert their attention to other segments. Condominiums in Miami have gained prominence since they offer spacious units and infrastructure (amenities) that a residential home cannot offer. Some condos are true “mini-cities”. With the evolution of security protocols related to the pandemic, there is no way to say that a house is safer than an apartment. It is worth noting that many of these condominiums are also located in suburban areas or in residential neighborhoods with low demographic density (less risk of contagion).
About AMG International Realty
AMG International Realty is a global real estate company specializing in Florida. If you are interested in learning more about the real estate market in Florida, contact us now and chat with me on WhatsApp: + 1 305 318 6968 (Heloisa Arazi).