What are Florida Economists saying about the 2023 Housing market?
We’ve been talking a lot lately about what’s on the horizon for the housing market. A lot of people are coming to us with concerns over the housing market. The economy and inflation have been big topics of conversion, so it’s only natural that the health of today’s market is on everyone’s mind.
Experts here in Florida believe that the housing market is returning to a more “traditional” market, like the one we saw in 2018 and 2019. Supply and demand are becoming more balanced, and we’re starting to see that buyer frenzy cool. But like we’ve said so many times in the past, 2020 and 2021 were anything but typical years in the housing market, so a lot of people want to know, is a major price correction on the way?
Home prices, in part, are determined by supply and demand. The basic laws of supply and demand tell us that when there are fewer items on the market than there are buyers, the competition for that item makes prices naturally rise. So for the past few years, the housing market has been fueled by that unprecedented buyer demand and a lack of inventory. There were simply too many buyers in the market and not enough homes for sale. With inflation and rising interest rates, buyer demand has decreased as buyers learn they have less buying power. But falling demand is only one piece of the puzzle needed for a major correction; we would also need a huge flood of supply.
In the last housing cycle, we had an overabundance of inventory in the housing market that came from overbuilding and a wave of foreclosures. In other words, supply outweighed demand causing home prices to free fall. But experts say it’s unlikely we’re going to see a flood of newly built homes. For starters, the construction industry isn’t as large as it once was. There are fewer builders than in years past and they’re much more conservative when it comes to taking on new projects. Also, because it’s taking longer to get building supplies, new builds are taking longer to complete.
Supply is also affected by the number of foreclosures in the market. Fifteen years ago we saw a wave of foreclosures. At the height of the crash, we saw over 2 million homes go into foreclosure, which inundated the market and severely tipped the scales of home supply to buyer demand. Today, people have so much equity in their homes, there’s no need to go into foreclosure. They can simply sell their property on the traditional market and walk away, so we don’t expect to see inventory increase as a result of foreclosures.
And we’re also seeing some homeowners who feel “locked in” to their current home and current mortgage rate, so supply is being affected by those homeowners who don’t want to list their homes and buy a new one because they’re likely to pay more on a new home at today’s higher mortgage rates. But that’s not all homeowners. Here in Florida, we’re still seeing gains in inventory and closed sales are strong.
So what does all this mean? It means that prices won’t drop until we see an increase in inventory and we don’t have any indication that inventory will increase to that point. We are starting to see more homes on the market, but again, the market is starting to normalize and return to something like that of 2018 and ‘19, when housing supply and buyer demand were more balanced.
Bottom line, Florida economists agree that the market will return to a more traditional and sustainable landscape. Buyer demand will cool as inflation, mortgage rates, and insurance costs impact their buying power, but the historically low inventory we saw over the last couple of years is going to take some time to rebuild, and we don’t expect to see a huge influx in housing supply. That means supply and demand will balance out and home prices are not expected to fall.