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Florida Braced To Weather A National Recession

Continued population growth will act as sandbags protecting state’s economic activity

Sean Snaith
Sean Snaith
Florida Braced To Weather Recession

Florida took it on the chin during the 2008-09 and 2020 recessions.

But as what may be the most anticipated recession ever closes in on the U.S. economy in 2023, Florida is in a strong position to weather the storm.

Activity in the housing market has been hard hit as high home prices combined with rising mortgage rates have pushed the size of monthly mortgage payments out of reach of many potential buyers.

Consumer spending on goods has shown signs of weakness as the Federal Reserve continues its fight to bring inflation down to its 2% target.

Because the national labor market remains in a very strong condition, consumers continue to spend on services and experiences, which has reinforced Florida’s important tourism sector.

To be clear, any recession will pull down Florida’s economy. Fortunately, a recession in 2023 in Florida will look nothing like the previous two recessions our state has been through in 2008-2009 (housing collapse) and 2020 (COVID-19 policy).

A recession is never welcome news as always there are those who will experience economic harm, but compared to what our state went through in the previous two recessions, any pain we may have to endure will be far less severe.

If this national economic storm should materialize, it will not be a major hurricane. Florida’s economy is as well prepared to weather it as we possibly could be.

Economically speaking, we have our flashlights, batteries, food, and water. Our gas tanks are full. We have candles as well. Florida’s continued population growth, which led the nation last year, and the associated wealth and income this has brought to the state will act as sandbags preventing erosion of the state’s economic activity. Record-low unemployment rates and continued job growth thus far will act like storm shutters, lessening the damage that the winds of a recession could do to the state’s labor market.

> Expected increase in single-family housing starts in 2026, after falling to 137,100 in 2024.

Like any early storm path and strength predictions, the final outcome isn’t clear. But if we do get “hit,” the damage to Florida’s economy should be minimal.

Florida’s Housing Market Ebbs

The February 2023 single-family home report released by Florida Realtors shows a market for existing housing that remains depleted of inventory — a shortage that was responsible for fueling rapid price appreciation over the previous two years. The median price has been pushed $137,200 above the peak price of the housing bubble in June 2006. The median sales price for single-family homes increased by $13,519 in February 2023, year over year, and now stands at $395,000 — a year-over-year price appreciation of 3.5%. Price appreciation in the townhome/condominium market continues as well, with an increase in the median sales price of $25,000 year over year, registering at $315,000 in February of this year. This price increase represents an 8.6% increase in median prices year over year.

Inventories of single-family homes in February are up from 0.9 months of supply a year ago to 2.7 months of supply this year. This indicates an inventory balance that is still skewed heavily in favor of the sellers in the single-family market, according to the Florida Realtors report.

From February 2022 to February 2023, inventories of condominiums rose from 1.2 months to 3.2 months, indicating that the condo market also is still tilted in the seller’s favor. Put another way, severe shortages remain in both the existing single-family home and condo markets.

Distressed sales of single-family homes in the form of short sales remain at very low levels despite the impact of the recession. They have decreased from 57 in February 2022 to 17 in February 2023, a decrease of 70.2%. Foreclosure/REO sales have increased year over year by 12.5% versus February 2022. Traditional sales are down 21.3% year over year versus February 2022, as rapid price appreciation exacerbates affordability problems amid depleted inventories that are worsened by higher mortgage rates. Distressed sales of condos in the form of short sales were at very low levels in February 2023. Foreclosure/REO sales are down from February 2022 (-52.5%). Traditional sales of condos are down 30.0% in February 2023 when compared to February 2022.

> The median price of a home in February, 2023 — an increase of $13,519, year over year (+3.5%), and $137,200 above the peak price of the housing bubble in June 2006.

In February 2023, the percentage of closed sales of single-family homes that were cash transactions stood at 31.3%. For condos, that figure is much higher, 54.6%. The condo market’s shares of cash transactions declined by 1.8% year-over-year while the single-family home market share of cash transactions has declined by 7.4%, which may indicate a decreasing role of cash investors in Florida’s single-family housing market. This is occurring amidst a sharp decline in mortgage availability.

Wobbling Housing Market

Sales have been on a strong upward path over the past few years, and the 12-month moving average and monthly sales have greatly exceeded their peak value during the housing bubble. Sales growth coming out of the bottom has been on a stronger trend than the pre-bubble housing market, but over the past seven months, the 12-month moving average is declining sharply. This reflects decreasing affordability in the face of the rapid price appreciation over the past several years; the depleted inventory of houses for sale; tighter mortgage credit markets; and higher mortgage rates for those able to get loans. The COVID-19 plunge in sales during April and May pulled down the moving average in 2020, but the immediate post-shutdown rebound was strong, fueled by pent-up demand and record-low mortgage rates at the time.

The housing market in Florida is wobbling a bit under the burden of high prices and rising mortgage rates. Economic and job growth in Florida is forecasted to slow somewhat as the economy enters a recession. More baby boomers continue to reach the end of their working lives and this bodes well for continued population growth via the in-migration of retirees, as well as job seekers to Florida.

We expect this upward trend in sales to resume as increases in the supply of new housing coupled with the recession will dampen price appreciation in an environment with continuing strength in the demographic drivers of housing demand, despite higher mortgage rates.

Median home prices increase

Median sales prices for existing single-family homes continue to climb since bottoming out in 2011. The double-digit pace of price increases in 2016 and 2017, which eased in 2018 and 2019, resumed in 2020. Over the past year, the 12-month moving average of median sales prices has risen by nearly $48,000.

Low inventories of existing homes for sale and lagging housing starts growth since 2016 contributed to the environment where home prices rose at a rapid pace. The shortage in the single-family market will be partially ameliorated as high prices, due to the rapid appreciation of the past several years, have prompted some sellers to get off the sidelines. However, the recession will result in a slowdown in housing starts. A tight housing market may be a persistent feature of Florida’s economy over the next several years.

This period of unsustainable multi-year price appreciation has ended. The recession, coupled with rising mortgage rates and a last-minute rush of sellers trying to get in before the market cools down, will bring an end to the spike in prices. This may lead to some additional price depreciation but not anything compared to the 2008-09 cycle.

Single-family housing starts in 2026 are expected to increase to slightly over 149,000 after falling to 137,100 in 2024. This 2026 level is 54,000 fewer than the 2021 level of starts. 

This article was originally published in the Florida Originator August 2023 issue.
Sean Snaith
Sean Snaith,

Dr. Sean Snaith is director of the Institute for Economic Forecasting at the University of Central Florida.

Published on
Aug 15, 2023
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