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13 Florida Housing Market at Risk of Price Correction

13 Florida Housing Market at Risk of Price Correction

The U.S. housing market has entered a seasonal shift. The spring boom, typically marked by a rise in home prices, is over. In its place comes a traditionally milder period. Historically, regional housing markets plateau on the verge of correction during the spring boom, only to experience price declines later in the year.

A recent report Parcl Labs, a real estate data and analytics firm, identified 15 housing markets that are most susceptible to price corrections in the coming fall and winter. While a price correction is not guaranteed, these markets are showing signs of softening, potentially giving buyers more leverage than they have had in recent years.

Interestingly, 13 of the 15 risky markets are in Florida. Let’s dig deeper into the data and explore the reasons behind this trend.

Growing inventory and affordability issues in Florida

Florida’s dominance on Parcl Lab’s “at-risk” list is not accidental. The state has seen a significant increase in active inventory over the past year. This uptick can be attributed to several factors.

One contributing factor is Hurricane Ian, which devastated parts of Southwest Florida in September 2022. The storm’s impact is still being felt, and its lingering effects are further weakening the region’s housing market.

Another factor affecting affordability is the sharp increase in home insurance premiums. Florida homeowners are struggling with these rising costs, further squeezing their ability to purchase a home.

Additionally, stricter regulations implemented after the 2021 Surfside condo collapse have put downward pressure on the values ​​of many older condos along the Florida coastline. These regulations are intended to improve the safety of buildings, but they can also make these properties less attractive to potential buyers.

The combined effects of increasing supply, rising insurance costs and stricter regulations have created a complex situation in the Florida housing market.

Parcl Labs has identified the following 15 housing markets that are showing a confluence of factors that could potentially lead to price corrections:

Supply exceeds demand: The most significant trend is the growing gap between supply and demand. Cities like Pensacola and North Port have seen active inventory increases of over 50% compared to last year. This significant increase coincides with a notable drop in buyer activity, with demand in some areas falling by as much as 28%.

Price reductions are increasing: As sellers grapple with changing market dynamics, price reductions are becoming more common. North Port leads the way with more than half of listings undergoing price adjustments. Other major Florida markets, such as Tampa, Naples and Palm Bay, are also seeing significant increases in price reductions, signaling a potential softening of home values.

Early signs of price declines: The impact of this supply-demand imbalance is translating into initial price declines in 11 of the 15 markets analyzed. Lakeland, for example, has experienced a price decline of more than 4.6% compared to its peak. While not all markets are yet on a downward trend, these early signs suggest a potential correction is on the horizon.

Markets breaking the trend: Interestingly, four markets, including Palm Bay and Naples, appear to be bucking the trend for now. These locations have maintained their price increases, with no declines seen from their peaks. This suggests that certain market factors, perhaps a desirable location or a strong local economy, may be mitigating the broader softening.

13 of the 15 housing markets at risk of price correction are in Florida

Florida:

  • Crestview-Fort Walton Beach-Destin
  • Deltona-Daytona Beach-Ormond Beach
  • Gainesville
  • Homosassa sources
  • Lakeland-Winter Haven
  • Miami-Fort Lauderdale-Pompano Beach
  • Naples-Marco Island
  • Ocala
  • Orlando-Kissimmee-Sanford
  • Palm Bay-Melbourne-Titusville
  • Port St. Lucie
  • Sebastian-Vero Beach
  • Tampa-St. Petersburg-Clearwater

South Carolina:

  • Myrtle Beach-Conway-North Myrtle Beach

Alabama:

Methodology behind Parcl Labs analysis

Parcl Labs’ methodology provides valuable insights into how they identified these potentially vulnerable housing markets. Here’s a look at their approach:

  • Data collection: Parcl Labs used their application programming interface (API) to gather information on the 1,000 largest housing markets in the U.S. They excluded smaller markets with less activity and focused only on markets with at least 500 annual home sales and 500 active listings.
  • Supply and demand trends: To identify markets experiencing declining demand, Parcl Labs looked for a greater than 10% year-over-year decline in home sales over a rolling three-month period. Conversely, for supply, they looked for markets experiencing an increase in active inventory, with a greater than 20% year-over-year increase over a rolling three-month period.
  • Measuring market problems: They also took into account signs of stress within the listing market. Markets where more than 35% of active listings were experiencing price reductions were considered distressed markets.
  • Threshold for price increase: The analysis focused on markets that had seen significant price growth since March 2020, with a minimum threshold of 50% appreciation. This ensured that they did not encroach on markets that were already undergoing a correction.
  • Excluding existing corrections: To avoid redundancy, Parcl Labs excluded markets where home prices had already fallen by more than 5% from their peak. This approach was aimed at identifying markets that were on the verge of a potential correction rather than markets that were already underway.

Potential implications for the 15 risky markets

While Parcl Labs’ analysis identifies potential risks, it’s important to remember that a price correction is not guaranteed. However, these markets deserve closer scrutiny due to the combination of weakening demand, rising inventory, and affordability issues.

These are the potential implications for potential buyers and sellers in these markets:

  • Buyers: More inventory can mean more bargaining power for buyers. They may be able to negotiate better deals or wait for further price reductions. However, rising interest rates can still affect affordability, so careful financial planning remains crucial.
  • Sellers: The softening market may necessitate adjustments to pricing strategies. Sellers may need to be more realistic in their expectations and consider accepting offers lower than the original asking price. The time it takes to sell a home may also increase.

It is essential for both buyers and sellers to stay informed about local market trends and consult with a qualified real estate agent so they can make informed decisions.

It’s also worth noting that not all 13 Florida markets will be hit equally hard. The severity of a potential correction will likely vary depending on the specific circumstances within each location. Local economic factors, employment trends, and the overall attractiveness of the area will all play a role.

Florida’s Housing Market – A Look Ahead

Florida’s housing market is at a crossroads. The confluence of rising inventory, affordability concerns and tighter regulations has introduced a layer of uncertainty. Parcl Labs’ analysis highlights areas that could be susceptible to price corrections, particularly in the fall and winter months.

However, it is crucial to maintain perspective. A price correction does not necessarily translate into a crash in the housing market. It may simply signal a return to a more balanced market, with price growth slowing after a period of significant appreciation.

For potential buyers, this could be an opportunity to find deals that they would have missed during the height of the frenzy. But remember that affordability remains a key consideration. Rising interest rates can have a significant impact on purchasing power, so careful budgeting and a realistic assessment of financial options are essential.

Sellers, on the other hand, may need to adjust their strategies. Pricing properties competitively and being open to negotiation may be necessary in this changing landscape.

The long-term outlook for Florida’s housing market depends on several factors, including the national economy and interest rate trends. While some softening is likely, Florida’s underlying strengths, such as its sunny climate and diverse economy, should not be underestimated.


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