More inventory in Florida? Depends on price level

Florida Realtors Economist: Active inventory is up 68% year-over-year, but largely at higher prices as listings in the $150,000-$300,000 range continue to contract.

ORLANDO, Fla. — Strong demand from local and overseas buyers, fueled by cheap mortgages in recent years, has pushed the overall active inventory to historic lows. Strong demand and limited inventory created an environment conducive to intense competition and rising selling prices.

The situation was becoming untenable as more and more people were driven out of the market by high prices and high risk. The Fed also added fuel to the fire by raising the federal funds rate, which in turn raised mortgage interest rates.

Fast forward to today, and the market is finally seeing more homes for sale, which should come as a relief to buyers who until recently had little choice. In July 2022, active inventory in the state of Florida grew nearly 68% year-over-year. Current owners looking to cash in on record prices have an incentive to try their luck in the market.

However, there’s more to it when you consider different price points. Simply put: Not all price levels behave the same. Stocks for the low end of the market, between $150 and $300,000, continue to contract, especially compared to pre-pandemic years. Three years ago, when “corona” was still associated with a lime, Florida’s inventory for properties at that price was between 7,000 and 11,000 homes on the market during a given month. Today, there are fewer than 1,500 homes priced between $150,000 and $200,000 – and only slightly more below $300,000.

There are a myriad of reasons for this. First, investors have long targeted lower price levels in their search for a weak base that offers healthy returns. And for some first-time home buyers, pandemic-era changes have helped them make a down payment and buy a home, including government stimulus checks issued at the start of the pandemic and mortgage rates record that further stretched buyers’ dollars.

If we think of the “Musical Chairs” game, the music started in mid-2020, and many people were able to get chairs. But as more and more people entered the game, there weren’t enough chairs. Now the music is slowing down and people who got a seat at the start of the game are reluctant to give up their chairs. As a result, fewer of these lower priced homes are coming back on the market, and when they do, they are often at a much higher price.

In fact, much of the story behind shrinking inventory in lower price levels is a function of price maturation; that is, house prices have increased overall so that what would have been a $150,000 house in 2019 is now in the $250,000 bracket. It’s the concept of the rising tide that goes up all the boats at work.

An interesting story is also playing out at the high end of the market. Typically, in times of economic uncertainty, money floods quality as a way to create security. The inventory of more expensive homes certainly fell rapidly at the start of the pandemic, as one would expect. However, over the past few months, active inventory has grown the strongest among homes over $400,000 and even $1 million homes.

Whether that’s due to longtime homeowners listing homes at seemingly ambitious prices to cash in on this crazy market or some version of buyer’s remorse, it’s hard to tell just by looking at the data. But the trend is noticeable as we continue to navigate the recovery phase of this economic cycle. Demand is also somewhat challenged as rising lending rates limit purchasing power, making the trend to a higher price less likely.

Consider the price tier you typically work in and dive into the stats for your area using SunStats. You may find that the inventory in your area may be different depending on the price and type of property. Being able to discuss these differences with your customers will certainly help them better navigate this ever-changing market.

Jennifer Warner is an Economist and Director of Economic Development for Florida Realtors

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