These days we read alarming news about the American real estate market, everyone tries to use the 2008 housing crisis to create sensationalist headlines and thereby generate engagement in their readings, but in the vast majority of locations, as in our case in Florida, it's not easy to find available homes for our clients and we haven't seen prices plummet over the last year as the headlines boasted.
On the one hand, we wonder why it's not easy to find houses on the market and, on the other, some are tempted to wait for the tide to turn, but this probably won't be the best decision because, as I'll show with the data below, the lack of houses on the market is not an indicator generated by recent decisions or effects, but rather a combination of factors that were already present in recent years and are now only more evident due to one-off issues.
Let's take a look at some of the factors behind the shortage of homes on the real estate market in the United States and especially in Florida.
We have built very little over the last few years.
When we look at the graph of single-family homes being built and delivered over the course of an 52-year historical streak provided by the Census, it is very easy to see that over the last 14 years we have built well below the average of those 52 years.
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For 14 consecutive yearsSome of this decision came just after the real estate crisis to give the market time to absorb a very high volume of homes for sale, but even after the market had normalized, builders kept the level of construction below the historical average before the crisis and even if we consider the post-crisis period, the level of construction was well below average.
If we take into account the average including the 14 years of low construction, a total of 5.8 million fewer houses were built, and if we take into account the historical series without the 14 years of below-average construction 8 MILLION fewer houses have been built than in the past.
Even though construction companies are building again at a faster pace, it is not possible to close this GAP of 8 MILLION homes in a short space of time, because the entire supply chain and workforce would not be able to cope with more significant growth.
So in my opinion we'll see more activity from builders, but not enough to reduce the pressure of low inventory of homes for sale.
Current financing rates have created an exit barrier
Another factor that has contributed greatly at the moment to a lower volume of houses available for sale on the market is an Exit Barrier effect due to the increase in the interest rate on real estate loans.
People don't have the courage to advertise their houses for sale, no matter how much they want to buy new ones whether it's an increase in the value of the house, due to the growth of the family or the average income, or a decrease in the value of the house, due to the reduction of the family or any other reason, because when they sell their houses with very low interest rates, they will end up exchanging a cheap mortgage for an expensive one.
The graph below shows that 70.7% of all real estate loans based on the rates at the time they were obtained are below 4%,
Today the rates are over 6%, in simple terms a 30-year loan of $300 Thousand which today costs $1,432.25 for more than 70% of people would cost $1,798.65 , i.e. without taking into account any other factors moving house would generate an impact of 366 on the installment, a growth of more than 20%.
Historically, of the 100% of houses sold during the year, the used houses represented 75% to 80% of the total volume of housesThis makes it clear how much the "exit barrier" effect impacts on the volume of homes available and also reinforces that this effect has no sudden solution - interest rates usually rise and fall gradually.
As with the volume of houses built, it is unreasonable to imagine that the effect of interest rates will be resolved in the short term by generating a decompression in the inventory of houses for sale.
My criticism of the behavior of the media and the spreaders of bad news
The dynamics of the real estate market are often shaped and influenced by the prevailing narrative in the media.
In recent times, the media has been the scene of alarming headlines, with prophecies of an imminent collapse in the market and drastic declines, suggesting house price falls of up to 20%.
These scenarios, painted in gloomy tones, even if they haven't materialized in reality, have created an atmosphere of caution and hesitation. Many potential buyers and sellers may have been influenced by such reports, opting for a more reserved and defensive approach.
Jason Lewris, co-founder and chief data officer of Parcel, astutely observes:
"In the absence of accurate data and constant updates, real estate decisions are often clouded by feelings of fear, uncertainty and doubt."
This widespread sentiment not only curbs activity, exacerbating the current shortage of supply, but also represents a missed opportunity. Many individuals who could benefit from favorable conditions are now hesitating, influenced by discouraging forecasts.
However, it is essential to understand that the market, in its essence, is more resilient and multifaceted than the headlines suggest. The reality is a mosaic of micro-trends, local nuances and emerging opportunities. Over the last 12 months I have tried to use primary data and information to counter the scares about a new real estate crisis that never came.
So instead of surrendering to the dominant narrative, consult a real estate expert, our team at The Florida Lounge is prepared to offer you a balanced and informed perspective, allowing you to make informed choices, effectively separating fact from media fiction.
Migration
When we talk about the shortage of real estate in the United States, the factors explored above already help us to understand the design of the current market and a little of where we are heading in the short and long term.
However, those who work in Florida have an additional impact: in the last decade Florida has been the state with the highest volume of people migrating to it, and this factor alone has generated a significant impact. movement of almost 3 million people from 2010 to 2022If we consider an average family of three (remembering that Florida is a destination for many retired people who move without their children) this has generated a need for somewhere between 750,000 and 1 million homes in addition to organic growth and according to government forecasts and plans this pressure will not be reduced in the next decade.
Just citing Orlando's government program, Orlando 2030, the region's population is expected to increase by almost 2.5 million by 2030. an additional housing need of 600,000 homes by 2030.
How it all affects you
If you're wondering how today's low stock affects you, it depends on whether you're selling or buying a house, or both.
- To buyers: A limited number of houses for sale means that you should seriously consider all your options, including various areas and types of housing. A qualified professional will help you explore all that is available and find the house that best suits your needs. Often our knowledge of the market and the regions we serve will help you expand your search area by taking all your needs into consideration.
- To sellers: Today's low inventory offers incredible benefits because your home will stand out in a market of few options. A real estate agent can explain why it's worth selling with these conditions. And since many sellers are also buyers, this agent is also an essential resource to help you stay up to date on the latest homes available for sale in your area, so you can find the next home of your dreams. It's worth noting that even in a market with a shortage of houses, it would be a big mistake to think that this could make your house worth more than it really is, and by listing an overpriced house it will most likely go unsold because buyers are careful when it comes to making a real estate investment and will probably be supported by experienced professionals who will help you in this process.
Additional considerations: about vacation homes
At this point in the reading it would be natural for everyone to be reflecting on how all the above data influences the vacation home market in Orlando. The vacation home market suffers from other influences besides those mentioned above:
- Tourist demand
- ADR (Average daily rate)
- Interest Rate Variation
At the moment we are experiencing a relatively high volume of homes for sale in the Orlando vacation home segment, there are a few explanations for this effect at the moment.
In recent years, due to the effect of the pandemic, strong migration to the city and tourism with a sequence of more than 10 years of strong annual growth, just to give you an idea the volume of tourists in Orlando has almost doubled in a decade, vacation homes have appreciated well above the historical average, reaching almost 100% of growth in the last 5 years.
As a reference, in 2017 a 4-bedroom house in the Storey Lake condominium was sold for $294 Mil, today the same house is sold by the developer for $580 Mil, an appreciation of 97%. However, this growth has not been accompanied by ADR, i.e. there has been a deterioration in the profitability of a vacation home.
With higher interest rates and a slightly lower return, the buyer needs to be prepared to pay for the mortgage and not rely 100% on the return on the house for this task.
What's more, the vast majority of vacation home buyers are foreigners who, when they buy, can't lock in the rate for 30 years. In other words, many vacation home buyers are currently having to renegotiate the interest rate on their homes and, because we're at a time of higher rates, these vacation home owners are experiencing an increase in their installments.
We add to the above indicators a summer with fewer tourists as a result of various factors, which had an impact on the profitability of the market as a whole.
All of these factors together have created an almost perfect storm in the vacation home market, generating a greater volume of homes for sale and at the same time opening up an opportunity for the American buyer, who can get lower rates than foreigners and therefore has a little more room to monetize.
For those with capital and you don't need to leverage yourself to buy a vacation home, now is a great time to go shopping because the market has a high volume of houses for sale, some of which need decorative updates and therefore stay on the market longer, putting pressure on owners who need to honor their mortgage payments at a time when the tourist market is less profitable.
Summary
Any doubts?
Now that you've understood that it doesn't make sense to panic without consulting an expert, we can help you understand the behavior of the real estate market and consider investing in vacation homes in Orlando.
To make the most of all the tips we've given you and go even deeper, you can talk directly to our relationship agents. They are always happy to talk to you to answer any questions you may have about investing in Florida.
Did you like the article? Keep an eye on our blog! Looking to live or invest in real estate in Florida? Check out the list of houses for sale in Florida that we've selected for you!
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