Sunny Days Lie Ahead In 2023 For Florida Market

There’s a retro feel for a market that strengthens in the second half

Look to the near-term past to see the near-term future. At least that’s the perspective of economists surveying the Florida real estate market for 2023.

Everyone knows the details of the past few years: In 2021 historically low interest rates fueled a buying frenzy that drove up prices to the point that many first-time homebuyers couldn’t compete with buyers offering tens of thousands above asking prices.

Then in 2022 the Federal Reserve’s Open Market Committee got serious about bringing down inflation and ramped up the fed rate, which led to mortgage interest rates more than double in a matter of months to levels not seen since the turn of the century. Mortgage costs shot up and shut out more potential buyers, while sales inventory dropped because potential sellers were locked into low-rate mortgages and had no desire to trade in for the higher rates.

So what’s in store here in the Sunshine State in 2023?

Economists for the trade group Florida Realtors expect this year to look more like 2018-19, with supply and demand finding more of a balance and no major correction in pricing.

The typical buyer in 2023, they say, will be very well-qualified as banks aren’t going to be taking on high risks and interest rates will continue to inch up as long as the Fed’s plan to curb inflation shows progress. However, affordability will continue to be a major issue for first-time homebuyers.

Brad O’Connor, chief economist for Florida Realtors, which hosted the healthy and diverse, with employment rates outpacing the rest of the country. That job growth is driven by financial services, education and health services, as well as state and local government work. The leisure and hospitality sector is also rebounding and a surge in in-migration — a daily net of 1,100 people according to the US Census — has led to a diversified workforce.

On the downside, supply chain and labor market shortages, high oil and gas prices and high inflation continue to be a challenge. The state was also rocked by hurricanes Ian and Nicole, and there are ongoing challenges in the international travel sector. The economists say there was possibly a hidden silver lining to the dual natural disasters: recovery can be an economic engine.

But there’s another issue lurking as well: prohibitive homeowner’s insurance rates.

2023 Florida Real Estate Trends summit in January, said he expects housing sales to continue to be off by 35% to 40% early this year compared to 2022’s peak, but added that trend will reverse somewhat in the second half as long as mortgage rates stay where they are now or begin to move lower.

The Good And The Bad

According to Florida Realtor’s economists, the state’s economy is

“It’s a real problem and it has been for a while. The primary issue is excessive litigation. We get 80% to 90% of all the litigation in the country,” O’Connor said. “Louisiana and Texas get hurricanes too, but they don’t have the same issues we do.”

O’Connor said the issues of a lack of competition for insurance and high litigation costs aren’t going to go away overnight, but he is encouraged by recent work to address the issue by the

Florida legislature during a recent special session. “I think they’ve taken good steps,” he said.

SO WHAT'S AN ORIGINATOR TO DO?

As mentioned above, higher mortgage rates are likely to discourage both would-be buyers and sellers from making a move in 2023. Florida Realtors predict that the situation will lead to fewer pending sales, and as a result, fewer closed sales. Silver lining — a softening in prices is possible as sellers are forced to accommodate buyers facing higher rates. Those accommodations would include a return to concessions and accepting reasonable offers.

The new housing market won’t help much either as high cancellation rates have caused builders to pull back, exacerbating an already-low supply of units.

Florida Realtors economists have THREE pieces of advice:

• Avoid comparisons to the boom years and look instead at the monthly and annual numbers to get a broader picture of the marketplace when it was still somewhat normal;

• Look again at 2018-19 to know what the normal transaction pacing should be, because even though it’s taking longer to sell a home than during the last few years, they are selling more than 30% faster than they did pre-pandemic;

• And take the time to understand your market to ensure that you know what’s really going on. Your clients will benefit from your local knowledge so make sure you use your local association as a key resource to understanding what’s happening.

O’Connor added that a 1 or 2 percentage point drop in mortgage rates — which is possible if the FOMC backs off after two more expected small increases — is foreseeable and will get millenials and retirees back into the mood to buy.

But a price crash is not in the cards unless the economy takes a nosedive. “A recession would have to be really bad, and we don’t see that,” he said. b