In 2024 it’s pretty clear the economy in the United States is pretty dismal. News stories come out every day about exploding inflationary costs about everything from groceries to fast food, and of course to housing. In just 4 short years (pre-and-post Covid) housing in the United States has gone up more than 400% in some areas. This combined with sky-rocketing interest means lots of things for home-owners, potential home-owners, and the broader economy.
One fascinating place to concentrate on is Florida, specifically South Florida. Perhaps in a twist of fate, Southwest Florida in particular – similar to the great housing boom and bust of the early and mid-2000s saw some of the fast and largest growth rates of property values (and lowest inventory) during the great housing migration and subsequent housing price boom during Covid. If the past is any indicator, understanding this area tends to provide fantastic insights into the larger real estate and economic picture throughout the rest of Florida – and the whole United States.
As we move into the middle of 2024, the residential real estate market in Southwest Florida (known colloquially as SWFL) presents a fascinating landscape marked by both opportunities and challenges, but one whose fate seems to be inextricatedly linked to the rest of the broader real estate and general economy throughout the US. We took the time to interview and discuss this subject with Kevin Bartlett, co-founder of Southwest Florida-based residential real estate brokerage Knowledge Base Real Estate (KBRE) as well as Cash & Fast Home Buyer firm, Cobia Holdings. Drawing on his extensive experience and insights from thousands of transactions and nearly a billion dollars in residential property dealings, Kevin provided us a comprehensive analysis of the current real estate climate in SWFL, focusing on Lee and Collier counties. At the end we wrap it up with it’s larger implications on the broader economy and where things may be heading.
The State of the Residential Market in Q2 2024
The second quarter of 2024 has been characterized by several key trends that are shaping the residential real estate market in SWFL. In fact, in a recent blog post by both KBRE & Cobia – they go into tremendous depth as to how this same trend is, in fact, mirrored in every real estate market throughout the entire United States. According to recent reports and market analyses, the region has experienced a steady increase in property values, driven by a combination of high demand and limited supply. This trend is consistent with broader national patterns, but several local factors are amplifying its effects in SWFL.
According to custom charts provided by KBRE via way of the St. Louis Fed (FRED) these trends aren’t just in Southwest Florida, but are mirrored (to a slightly more limited degree) in the rest of the U.S. prices went parabolic early and mid-covid, then dipped slightly in 2023, but are back up overall.
High Demand (Sort of) and Limited Supply (Sort of)
One of the primary drivers of the current market conditions is the significant demand for residential properties in SWFL – however even though demand is high, both affordability AND selling demand is relatively low. The region’s desirable climate, beautiful coastal areas, and attractive lifestyle options continue to draw buyers from across the country, however because rates are now hovering around 8% and prices have skyrocketed in the last couple years – affordability for all housing in the region has sky-rocketed.
This demand is particularly pronounced among retirees and remote workers seeking to capitalize on the area’s quality of life, however new home purchases have virtually slowed to a crawl because of the above factors, and the tradeoff between less urban environments with the benefits of lower property and no state taxes, while attractive, is not enough to offset the massive increases in carrying costs most buyers will have to accommodate if they move. IE – a modest home in Southwest Florida that was $350,000 in 2019, is now approaching $700,000 or more, and the monthly carrying cost of just a mortgage has skyrocketed from roughly $1400/month to nearly $5000 because of increased home prices and rates.
Up until recently however, this high demand is met with a relatively limited supply of available properties. New construction has not kept pace with the influx of buyers, leading to a competitive market where bidding wars are becoming increasingly common. Properties in prime locations, such as waterfront homes and those in gated communities, are particularly sought after. However, as of the last couple quarters, home listings (those homes that are entering the market for sale) have absolutely skyrocketed (a 70% increase in most areas in Southwest Florida). But, because of a number of factors (which we’ll dive into more depth below) many sellers are opting not to lower their prices on their homes despite their listing them for sale.
Reasons Buyers Are Struggling
- High Property Prices – Property prices are just too high, particularly in Southwest Florida where the median income is very low relative to the housing prices (no major middle-class supporting industry locally)
- Carrying Costs Are Too High – With the recent large hurricanes in Florida, insurance premiums – including hurricane and flooding premiums – have skyrocketed.
- Interest Rates are Too High – FED interest rates have gone from 0% to 5.5%. For an end home consumer this has meant rates going from 3-4% (norm pre-covid) and in some cases as low as 2.5% to now rates being 8% at the retail level. EVEN if housing prices remained steady during the last 4 years that would represent a 50%+ increase in monthly mortgage costs which many young people and small families can’t support. In Southwest Florida a modest $350,000 home in 2019 would be roughly $1300/month for a mortgage. Today, that same home would be $2600 for the mortgage. However, since property prices have skyrocketed that same home would be roughly $5200/month (an increase of 400%!). Virtually no one’s income has grown 400% in 4 years (especially working people).
- Freedom – Pressure from COVID measure that drew mass exodus crowds from northern and western states, has slowed considerably. However both demographic and political shifts continue to happen, making Florida, and Southwest Florida in particular – a haven for conservatives.
Sellers
On the opposite end of course, you have sellers. What’s unique here is that across the board in both Lee & Collier Counties (the two major counties that make up “Southwest Florida”) we see the same trends in almost every city, territory, and county – a massive 70% increase in listings (units/homes for sale on the market) during the last 2 quarters. But, they’re simply not selling… here’s some factors as to why:
- Cost of Moving – There are no cost-effective places in the region to move to.
- Primary Savings – Many in the region use their home as their primary savings vehicle, and as such are hesitant to take any loss (even if it’s on paper – and relative to their purchase price, or even the price of the home 4 years ago – their value has gone up exponentially).
- Retirement – Being retired many are on fixed incomes and prefer the safety and security of their current home over the prospect of having to go through the trouble of selling, finding another home, and the uncertain nature of that calculus.
- Addicted to Price – Unwilling to settle for reasonable prices.
- Second Home – In many cases these are retirement homes or second homes. Many sellers are opting to simply “wait the market out” feeling that prices will continue to climb (if slowly and even if liquidation will be difficult) instead of opting out of perceived value they have to part with now. IE… “I’ll hold on to my home because I KNOW it’s worth $1.5 million, regardless of whether or not the market supports that… eventually someone will come along – even if it’s years down the road.” And they’re fine with this, because it’s paid off, the carrying costs are a small percent of their net worth, etc.
Interest Rates and Mortgage Trends
Interest rates play a crucial role in shaping the real estate market, and the current environment is no exception. As of Q2 2024, interest rates have remained relatively stable, albeit higher than the historically low rates seen in previous years. This stability has provided some predictability for buyers and sellers, although the cost of borrowing is still a consideration for many prospective homeowners.
The mortgage market has also seen some interesting trends. There is a growing interest in adjustable-rate mortgages (ARMs), as buyers look for ways to manage their monthly payments in a higher interest rate environment. Additionally, refinancing activity has slowed compared to the peak periods of ultra-low rates, but remains a viable option for homeowners seeking to capitalize on any rate drops.
Market Projections for Q3 2024 and Beyond
Looking ahead to the third quarter of 2024, several projections can be made based on current trends and economic indicators. While predicting the future is always fraught with uncertainty, understanding these projections can help buyers, sellers, and investors make informed decisions.
Continued Price Growth
The trend of rising property values is expected to continue into Q3 2024, albeit at a potentially slower pace. This is driven primarily by creeping inflation and is essentially the cost of the market and money policies over the last decade+. Limited ongoing demand, coupled with somewhat limited supply will likely sustain upward pressure on prices. However, there may be some moderation as more properties come onto the market and as buyers become more cautious due to higher interest rates.
Increased Inventory
While supply has been somewhat constrained over the last couple of years – it’s now healthy. As stated previously there’s been a 70% increase in inventory in the region year over year (which was already up from mid-COVID lows). However, despite this increase, for the reasons listed above, actual home sales have only increased 2-4% (and in some cases as low as 1%). There are signs that inventory levels may continue to increase. New construction projects that were delayed due to supply chain disruptions and labor shortages are now coming to fruition. This influx of new homes, combined with potential resale listings from homeowners looking to capitalize on high prices, could provide some relief to the tight market.
Evolving Buyer Preferences
Another key factor to watch in Q3 2024 is the evolving preferences of buyers. The pandemic has had a lasting impact on what buyers are looking for in a home. There is a continued preference for homes with flexible spaces that can serve multiple purposes, such as home offices or workout areas. Outdoor spaces, including larger yards and proximity to parks, remain highly desirable.
Strategic Considerations for Buyers and Sellers
We’re in a unique time with our market – and this is happening nationwide. We’re in both a buyer and sellers market. For sellers – it’s an excellent time to sell and cash out the equity that was stuffed into housing over the last couple years. For buyers, there’s very little demand for actual purchases due to massive interest rates. Given the current and projected market conditions, both buyers and sellers need to approach the SWFL real estate market with strategic planning and a clear understanding of their goals.
For Buyers
Buyers should be prepared for a competitive market. This means having financing pre-approved and being ready to act quickly when a desirable property becomes available. Working with an experienced real estate agent can provide a crucial advantage in navigating the bidding wars and finding properties that meet specific needs.
It is also important for buyers to consider the long-term implications of their purchase. Given the rising interest rates, locking in a fixed-rate mortgage might provide more financial stability than an adjustable-rate mortgage, despite the latter’s initial appeal. Buyers should also be mindful of the potential for continued price appreciation, which can impact affordability in the future.
For Sellers
Sellers are in a strong position in the current market but should still approach the process with care. Properly pricing a property is crucial to attracting serious offers while maximizing returns. Overpricing can deter potential buyers, while underpricing can leave money on the table. An experienced real estate agent can provide valuable insights into market conditions and help set a competitive price.
Additionally, staging a home and making necessary repairs can significantly impact its appeal. With many buyers seeking move-in-ready homes, addressing any obvious issues beforehand can make a property more attractive and potentially increase its value.
Conclusion
The residential real estate market in Southwest Florida remains dynamic and competitive as we progress through 2024. High demand, limited supply, and stable interest rates are key factors shaping the market in both Q2 and Q3. For buyers, being prepared and working with knowledgeable professionals can make a significant difference in securing a desirable property. For sellers, strategic pricing and home preparation are essential to capitalizing on current market conditions.
Thank you to Kevin Bartlett with Knowledge Base Real Estate, for helping us to craft this post. Knowledge Base is committed to providing it’s clients with the insights and support needed to navigate this complex landscape. Whether you are looking to buy or sell residential real estate in Lee or Collier counties, our team is here to help you achieve your real estate goals.
For more detailed insights and analysis, including monthly market reports, be sure to visit Knowledge Base and their sister company, Cobia Holdings.
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