High Demand but Low Inventory

High Demand and Low Inventory:

Pensacola’s Hot Residential Market

By Jonathan D. Scull, Broker/Owner of Hanban Real Estate LLC & 2022 President of the Pensacola Association of REALTORS®

“THE PENSACOLA AREA REAL ESTATE MARKET IS HOT!” How many times have you heard this in the past few years? What exactly does a “hot” market look like? How does it affect everyday individuals? Will the market stay this way? Let’s first compare four categories of statistics provided by the Pensacola Association of REALTORS®, Inc. for the month of January, dating back to 2019. These categories include average number of days on the market (DOM), average sold price, inventory and sales volume. In addition, we’ll take a look at numbers within the rental market as well as the growing competition between cash buyers and buyers utilizing a common mortgage loan.

The average DOM is defined by the day a home is listed publicly up until the day a seller accepts an offer. Looking back to January 2019, the average DOM was 67 days. Compare that to January 2020, with an average DOM of 62 days; January 2021, at 44 days; and January 2022, at 25 days. Over three years, the average DOM went from more than two months to less than a month. With that perspective, homes are flying off the market in 2022, compared to 2019.

The average sold price in January 2019 was $235,848. Compare that to January 2020, at $240,610; January 2021, at $298,192; and January 2022, at $356,530. As you can see, the average cost of a home has increased a whopping $120,682 within the past three years. Rising home costs is another sure sign of a hot real estate market.

Inventory is certainly an important factor to note when observing the real estate market. The following statistics refer to the number of homes still available for purchase at the end of the month. At the end of January 2019, inventory stood at 2,387 homes. January 2020’s inventory stood at 2,051 homes; January 2021’s

inventory fell drastically to 768 homes; and in January of 2022, inventory rose slightly to 809 homes. The pandemic surely had an influence on inventory from 2020 to 2021, with many homeowners facing uncertainties during those challenging times. However, a comparison of the inventory to sales volume revealed that the market was still smoking hot, despite the pandemic.

Sales volume refers to the number of homes sold within a given time period. In January 2019, 541 homes were sold; in January 2020, 607 homes were sold; in January 2021, 729 homes were sold; and in January 2022, 835 homes were sold. Place these figures side-by-side with the remaining inventory numbers for January of each year, and the data shows that the real estate market was actually speeding up through the pandemic, rather than slowing down. More homes were selling, and fewer homes remained available for purchase. Not only are home buyers being affected by the hot real estate market, but those looking to rent a home in the Pensacola area are struggling as well. Considering an average home in the area with three bedrooms and two bathrooms up to 1,800-square-feet, the median monthly rent in January 2019 was $1,175 per month, with the highest rent being $1,900 per month. In January 2020, the median monthly rent rose to $1,200 per month, with the highest rent jumping up to $2,500 per month. In January 2021, the median monthly rent rose again to $1,285 per month, with the highest rent increasing once again to $3,000 per month. Lastly, in January 2022, the median monthly rent for a home within the same search criteria jumped up to $1,650 per month, with the highest rent still hovering at $3,000 per month. Whether you are looking to buy or rent, everyone is experiencing rising housing costs. a home, usually either cash or common mortgage loans, such as Federal Housing Administration (FHA) and Veterans Administration (VA) loans. In January 2019, cash buyers made up 24.58 percent of the buyers that month, with 130 cash buyers. In January 2022, cash buyers made up 25.55 percent of the buyers, with 208 cash buyers. Buyers utilizing common mortgage loans rose from 399 in January of 2019 to 606 in January 2022. On both sides, the amount of buyers increased each year, but the overall percentage of cash buyers increased, which also increased competition. Part of the reason for there being more cash buyers is an influx in the amount of people that are used to more expensive housing markets from other states moving to Florida and the Pensacola area. They are selling their homes, taking that equity and purchasing homes outright in a cheaper market.

809

Homes on Market as of Jan. ‘22

28%

Increase in Rent Costs since 2021

22

Avg. Days on Market

“The common question is, ‘When will the market crash?’ No one can predict the

future. However, it’s looking like these numbers will more likely plateau for the Pensacola area rather than drop, establishing a new normal once the market cools off.”

mind, the common question is, “When will the market crash?” No one can predict the future. However, it’s looking like these numbers will more likely plateau for the Pensacola area rather than drop, establishing a new normal once the market cools off. With the recent announcement from the Federal Reserve, which is raising interest rates due to various factors such as inflation, the COVID-19 health crisis and the war between Russia and Ukraine, the buying frenzy may be slightly soothed as this decision also inadvertently affects mortgage interest rates. As mortgage interest rates begin to increase, the number of buyers looking to purchase homes will likely decrease. The low supply of homes and the high demand from buyers has been driving a seller’s market. As inventory increases and as the number of potential buyers decreases, the real estate sales market should begin to balance out. In regard to the rental market, the demand will only increase as buyers convert to renting instead of buying a home.

As the data shows, the Pensacola area real estate market is indeed hot. Over the past three years, homes are selling quicker, homes are selling for more, there are fewer homes available to purchase, the number of buyers is increasing and the cost to rent is skyrocketing. Everyone is feeling the heat and they are all starting to sweat. Love it or hate it, the real estate market has been booming, and it only continues to plow onward and upward. For those looking to purchase property, the best approach is to connect with a local REALTOR® and allow them to help you get into position to be able to purchase a home and explore all options available to help you achieve your dreams and experience the power of home ownership.

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