What's Driving Demand In Florida's Housing Market?
Demographic shifts, changes in consumer housing preferences, low mortgage rates, and rapidly rising rental prices.
- The primary drivers for homebuyer demand in Florida are demographic shifts, changes in consumer housing preferences — such as location, size, lot size — low mortgage rates, and rapidly rising rental prices.
- Some analyst's predictions call for 30-year fixed mortgage rates to reach 4.5% by the end of the year.
- The most important factors to pay attention to when it comes to buyer demand are homebuilding and housing supply.
- Florida’s housing market had more than 528,000 sales of existing homes, up 19% from last year.
What trends should Realtors, investors, and policymakers pay attention to when it comes to Florida’s housing market? What’s driving buyer demand? Florida Realtors chief economist Dr. Brad O'Connor told more than 300 Realtors during last week’s 2022 Florida Real Estate Trends summit; but, in case you missed it, we’ll let you in on the secret:
The primary drivers for homebuyer demand in Florida are demographic shifts, changes in consumer housing preferences — such as location, size, lot size — low mortgage rates, and rapidly rising rental prices.
"The biggest wave of millennials are now in their mid-30s and they'll be in prime homebuying years for some time to come," O'Connor said. "And who are they buying from? The Gen Xers – and there are a lot more millennials than Gen Xers. And, here in Florida, retirees are a pretty big deal – combined with the millennials, that puts pressure on the market here."
Additionally, analysts are waiting to see what will happen with inflation and how it will impact interest rates in the long term. O’Connor noted that some predictions call for 30-year fixed mortgage rates to reach 4.5% by the end of the year. "That's what we experienced a few years ago, and if that happens, while it will certainly impact buyer demand and financing, we'll see the market change and return to similar conditions,” O’Connor said.
The most important factors to pay attention to when it comes to buyer demand are homebuilding and housing supply.
"It's a long-run problem; we have a long way to go when it comes to building," O'Connor said. "We need construction workers. Builders continue to face constraints, but have been building at the fastest pace in recent memory. However, high prices and low rates of starter home construction will remain a challenge."
In 2021, Florida Realtor’s latest housing data shows that Florida’s housing market had more than 528,000 sales of existing homes, up 19% from last year and resulting in a total dollar volume of about $241 billion. That is despite the ongoing Covid-19 pandemic.
"In terms of sales, 2021 could also be called 'The Year of the Condo'," O'Connor added. "Over 160,000 existing homes in the condo and townhouse category sold in 2021, marking a more than 34% increase over 2020's total. In contrast, the over 350,000 sales in the single-family home category, while over twice the size in number, represented only about a 13% increase, year-over-year."
Meanwhile, the decline in inventory impacted the housing market statewide over the past year. Although many in the industry had gotten their hopes up, inventory did not improve except slightly over the last few months. The year started with a 1.6-month's supply of existing single-family homes, but ended 2021 with a 1-month's supply. “In many of your local markets, it's down to a half-a-month's supply,” O’Connor said. “For years, Florida has had more existing condos than single-family homes, but by the end of the year, existing condos and townhomes are down to a 1.3-month's supply, which is very close to the single-family category.”
Meanwhile, demographic and behavioral changes within the population are affecting the housing market. The first time buyer’s median age is 33 years old, the same age it has been for several years; however, the age of typical repeat buyer has increased significantly.
"Repeat buyers' median age is 56 years, and some may be looking to downsize, which can be added competition for the first-time buyers,” said Dr. Jessica Lautz, NAR vice president of demographic and behavioral insights.
There was an uptick of multigenerational buyers at the start of the pandemic as older parents came to live with their adult children, or also had college-aged children or older children come back home, according to Dr. Lautz. Multigenerational buyers have leveled off 11% since the start of the pandemic, though.
Research by Dr. Lautz on buyers and sellers working with real estate brokers and agents shows that agent use is trusted.
"People are embracing technology and using technology with real estate professionals," she said. "Agent use is extremely high now; 87% of buyers today are working with real estate agents, and the youngest buyers out there are using agents at the highest rates. For sellers, 90% are using an agent, and they're working with someone who will be a one-stop shop for them with a broad range of expertise, who will handle it all."
Meanwhile, for sale by owner (FSBOs) fell to historic lows at just 7% today.
Dr. Lautz also noted that real estate is being seen as a “refuge” and is attracting people who seek flexibility and independence, especially women.
"We see this wave of more Realtors entering NAR membership (1.5 million) than ever before," Dr. Lautz explained. "And we're seeing more women agents and brokers; it's a pretty stark change from 1978 to today."