Florida Housing Market Looks Unsettled: Could the Bottom Fall Out? (Video)

Something is wrong in the Florida housing market.

“FLORIDA’S APARTMENT MARKET REMAINS IN CORRECTION MODE,” Lance Lambert, co-founder of the ResiClub newsletter, wrote late last month, noting that apartment prices were declining year over year in 18 metropolitan areas across the state.

Another post last month by Nick Gerlie, CEO of Reventure Consulting, a real estate analytics firm, found that the assessed value of a condo in St. Petersburg, Florida, was 41% lower than it was at the height of the pandemic.

“I spoke to (the) real estate agent. She said she was facing a $100,000 assessment because of the construction,” Gerli told me later.

Perhaps they are right.

The state’s median home sales price fell 1.3% in July, the latest data available, marking the first year-over-year decline since at least July 2020, according to online data from Florida Realtors.

That’s a far cry from the double-digit annual price gains that hit through November 2022, and the decline continues as inventory piles up and demand wanes. The decline has outpaced even the Sunshine State’s already sluggish single-family home market.

Two major factors behind the decline—rising insurance costs and still-high mortgage rates—are also putting pressure on single-family homes. But a third anchor—new condominium maintenance regulations that increase condominium costs—only weighs on condominiums.

However, despite the state’s well-known periods of prosperity and crisis on the real estate market, there is no housing crisis on the horizon like the one that occurred at the beginning of the 21st century, experts say.

“It’s a different situation. Prices are not going down at all,” Lawrence Yun, chief economist at the National Association of Realtors, told Yahoo Finance.

“There may be some price reduction, but remember that after the significant price increases over the past four years, the price reduction is negligible.”

This may be true, but if the decline in property values ​​continues, homeowners and buyers may start to worry.

Like every real estate market in the country, Florida’s housing market is still transitioning to a new normal of higher mortgage rates. Potential buyers are on the sidelines, waiting for interest rates to fall further after the Federal Reserve indicated last month that it would lower its benchmark rate at the end of this month.

“They want to get a lower interest rate,” said Tony Baroni, general manager of the Tony Baroni Team at Keller Williams.

At the same time, condo owners — and homeowners, too — are facing higher insurance costs, which is scaring away some would-be buyers. Insurance costs have skyrocketed in recent years after major insurers stopped offering policies in the state, citing rising claims amid worsening natural disasters.

Hurricane Ian in 2022 only exacerbated the problem, causing $112.9 billion in damage — mostly in Florida — making it the third-costliest storm to hit the U.S.

“That has significantly reduced the availability of housing” for buyers, Baroni said.

“Excessive Assessments”

The third blow, however, is specific to condominiums. After a deadly condominium collapse in Surfside, Florida, in 2021, state lawmakers tightened regulations governing condominium buildings.

Condominiums that are at least three stories tall must undergo inspections after 30 years and every 10 years thereafter. Buildings older than 30 years must complete those inspections by the end of this year. Other regulations specify how often condo associations must review their reserve funds and how much must be placed in the reserve based on inspection findings.

This means some potential apartment owners may have to pay higher monthly occupancy fees or one-time fees after a building inspection reveals the need for maintenance or repairs.

“Condo fees are going up by $500 or more a month, or there’s a lump sum check of up to $10,000,” Yun said. “Many retirees who don’t have access to funds are being forced to put their properties up for sale to get out of this.”

That has boosted the number of apartments on the market. The number of active apartment listings in July was nearly twice as high as a year ago, up 91.1%, according to Florida Realtors.

The excess supply is putting pressure on prices, and any property for sale in an apartment building that requires major repairs will suffer even more.

“Buildings where we have overvalued prices certainly affect the price,” said Ron Shuffield, CEO of Berkshire Hathaway HomeServices EWM Realty in southeast Florida. “The buyer has to put a certain amount of money into the work each month. The only way to offset that is in the price.”

“It’s definitely going to be something more mainstream.”

“The most important factor”

Of course, the regulations only apply to older buildings, Shuffield said, noting that prices for newer buildings and those under construction may not be hit as hard. That could help keep the rest of the condo market from collapsing in price if demand remains strong.

Yun believes that will happen because job growth in the state has been outpacing the national average for some time now, drawing new residents to the Sunshine State. And with mortgage rates falling, buyers will be more likely to return to the market, further boosting demand.

Another key difference between the current housing price decline and the dramatic price decline during the Great Recession is home equity.

While home prices are falling, they are significantly higher than they were four years ago. The median sales price was $315,000 in July, up 50% from $210,000 in July 2020, according to Florida Realtors. Only 1.1% of Florida homeowners owe more than their home is worth.

That means if costs become an issue, homeowners have a number of options. They can use their equity to pay for a one-time assessment. If they bought when mortgage rates were higher, they can refinance when they fall. In the worst case, they can sell and still have some money stashed away.

The market won’t be flooded with as many sales. In July, Florida saw only 47 foreclosures and three short sales.

“That’s the biggest factor for me,” Baroni said. “People’s homes are worth a lot more than what they paid for them, and that gives them a lot of options, no matter what.”

Janna Herron is a senior columnist at Yahoo Finance. Follow her on X @JannaHerron.

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