SETTLING IN

By Staff | on August 24, 2023

At long last, the post-COVID real estate market is here, settled across southern Florida from east to west in a quirky combination of factors that affect most people the same way, even in different markets and circumstances.

They present not just difficulties, but opportunities, real estate experts say. Among those factors:

¦ Higher insurance rates for homes and businesses, especially in flood zones and coastal areas, estimated to include roughly 3.5 million of the state’s 22 million-plus population, along with increasingly rigorous construction standards required both by local governments and insurers who stay in the Florida market.

¦ Higher interest rates, now about 7% for long-term fixed mortgages, up from just above 2%, 3% and 4% a year or two ago.

¦ A relatively reduced inventory of pre-owned homes.

¦ A continuing paucity of so-called affordable housing.

¦ The seemingly ceaseless flood of new residents arriving to take up lives in the state, more than 1,200 per day, demographers estimate.

“Because of the continuing in-migration of people, demand for housing remains high,” says Denny Sharma, a Coldwell-Banker Realtor based in Lee County, where 1,900 people arrive to establish resident lives each month, he estimates.

“Builders are not able to build fast enough due to material and labor supply shortages. Existing home prices are stabilizing but not declining. Listings are harder to get because (would-be) sellers cannot find homes to replace theirs — not at prices they consider affordable.”

As a result, says Denny Grimes, owner of Denny Grimes & Team, operating mostly in Collier and Lee counties, “I’m going to sound like a politician, but this market is good for both buyers and sellers, and I don’t think any county in South Florida is different.”

Good for buyers, perhaps, because prices aren’t climbing significantly, and doubling an interest rate on a loan doesn’t mean doubling the price, he says. Those interest rates won’t affect cash buyers — and there are plenty of them these days, by all accounts. For others, he recommends buying a “dream” home at the higher interest rate and then refinancing the loan when interest rates go down. “Which they will,” Grimes predicts.

And the market is good for sellers because prices aren’t going down significantly, although homes that were on the market for only 15 or 20 days when COVID brought so many buyers into Florida might now remain up for sale for double the time.

NOGA

Michelle Noga, a luxury sales associate at William Raveis in Palm Beach, frames the short sweet life of the market from COVID to post- COVID, this way: “A couple of months after the pandemic started, all hell broke loose. It’s pretty, sunny, there are palm trees and coconuts and beaches here, so people came. This summer has been the first time since then it’s slowed down. But everything is cyclical.”

Slowing down a bit doesn’t mean a completely normal market, however. “There are two sets in the market: the luxury high-ends — the cash buyers — and they buy what they want. They’re always insulated. The market is resistant in that regard,” she explains.

“The other set may be locked in because of their interest rates on mortgages. Normally if they had 3% to 4% they could consider selling. But prices have doubled, the insurance is now doubling, and the property taxes affect (their calculations). The affordability isn’t there. So they tend to be locked in.”

Her view differs from that of Grimes in this respect: “It’s not a buyer’s market; we still have a tight inventory.

“We even have sellers who want to raise their prices. And sometimes they will get record deals that are not even based on comparable sales.”

That happens on either coast. In a recent Fort Myers deal, the highest priced single family home ever sold in the City of Palms went for $8.95 million, several million above comp sales on the mile-wide Caloosahatchee River in nearby neighborhoods, although the price was roughly comparable to previous home sales on the same stretch of river just outside the city borders.

It was a cash sale, the kind of deal Noga, on the Atlantic coast, is familiar with.

But other factors may be newly at work on the Atlantic side — where barrier islands and the Lake Worth Lagoon did not experience Hurricane Ian 11 months ago, like some west coast barrier islands, including Sanibel, Captiva and Pine Island. They were shattered, leaving many property owners having to sell beachfront or near beachfront simply for land values, since insurance would not be enough to rebuild at higher elevations and to meet new regulations.

“The cost of properties on the ocean isn’t going down. They’re rising,” Noga says.

For noncash sales, “the banks must not be concerned because they’re still lending money on these things.”

One factor in the east coast luxury home market as well as in middle- or upper-middle-class markets may be the new Brightline rail system extending from Miami through Fort Lauderdale to West Palm Beach, then northward to Cocoa and the Orlando International Airport, suggests Noga.

In June, she points out by way of example, one of the world’s most sought-after soccer players, the Argentine great Lionel Messi, signed with Inter Miami, in a huge boost to American soccer.

“There’s a rumor he could be moving to Palm Beach. This whole Palm Beach luxury thing? With Brightline, people could live here or in Fort Lauderdale and be in Miami in a short time, without ever having to mess with the traffic challenge!”

Brightline trains can travel at 79 mph between Miami and West Palm Beach, and at 110 mph between West Palm Beach and Cocoa, say the operators.

If Messi is a game changer in soccer, that may be a game changer in real estate: A job in Broward or Miami-Dade County, and a home out of them.

By the numbers

But for everybody else, even if the numbers in general are different for each county, similar opportunities may exist as a consequence of several Florida-wide factors.

And the numbers do differ. In Palm Beach and Collier counties, for example, prices were up in June over median home prices a year earlier: 6.2% in Palm Beach and 3.2% in Collier. In Lee and Charlotte, however, prices were down 3.6% and 5.1% respectively. Median June sales prices in those counties were $489,000 (Palm Beach County); $640,000 (Collier County); $400,000 (Lee County); and $360,000 (Charlotte County), according to www.redfin.com, a real estate site that also reported the median sales price in the state at $410,000.

Grimes explains his positions this way:

“Sales are down year over year, but prices aren’t. Prices are relatively flat. That’s good for buyers because it’s not double-digiting month over month. This is significant.”

Even in Lee, where median prices this summer have climbed to about $420,000, he says, “they’ve leveled off. That’s a V-8 moment. It’s good for sellers because a low inventory — it’s down 15% over last year — is keeping prices up when the market is not favorable.”

In addition to a relative shortness of materials and workers, one major factor now reducing on-the-market inventory, he adds, is interest rates.

“People in houses with 3% interest rates are not selling to go to houses with 7%. So the natural conveyor belt of houses on the market is not working. Potential buyers are saying, ‘I don’t want to go to 7%.’”

Gay and Tom Weekes COURTESY PHOTO

For Tom Weekes, a longtime Keller & Williams Realtor with his wife, Gay Weekes, in Peace River Partners, “We are in the process of returning to a NORMAL market.

“For the past several years we have been in a crazy market. The crazy market was good for Realtors and sellers, but for buyers … not so much. You could not buy anything unless you paid cash or were willing to not make your offer subject to a loan. So it was impossible to buy unless you had the cash to qualify. That’s difficult on first-time buyers and younger people.”

What is a normal market, in his mind?

“Normal means six months inventory. In the past, I have seen inventories as low as two weeks in the Punta Gorda Isles area.”

Two weeks inventory means the estimated time required to sell each remaining home on the market, if no new homes became available.

“In June 2022 we had 2.2 months for the Punta Gorda ZIP and in 2023 we had 5.2 months,” Weekes says. “The number of unsold homes at the end of the month (June) was 113 in 2022 and 172 in 2023. That’s over 50% more.

“Prices are down year over year only 2.4%. As far as demand, the list to sell ratio is a good indicator. That is, the percent of asking price paid. In 2022 it was 100% and in 2023 it is 93%, so the demand is going down which is also reflected in the higher inventory. Again, prices are holding.”

Residential boosts commercial

THIBAUT

At LSI Companies, a firm specializing in the buying and selling of real estate assets, market research and appraisals, Justin Thibaut, president and CEO, points to the inseparable marriage of the residential and commercial markets in any Florida region.

If decent housing is difficult to find at affordable levels, commercial Florida — aiming to grow more resilient by becoming less dependent on tourist-based economies strongly affected by weather or pollutants — may have a more difficult time finding and retaining workers.

“When you look at permit activity for housing, we remain steady and strong,” Thibaut reasons. “We are delivering more housing — multifamily and single family for sale or for rent, all of them.

“That’s nice, in basic economics terms, because more availability should bring prices down.

“But in reality it’s good and bad, because when 1,200 people come in every day gobbling up for-sale or for-rent products, the demand remains so high we’re in a perpetual battle to deliver units, which are seemingly harder and harder to obtain. Pare that with high interest rates, and we create a tough situation.”

One that not only challenges young families, but also puts pressure on their employers.

“It means that all business owners, even universities, are struggling with retention, because it comes down to housing costs, nine times out of 10. And people in every class of housing are paying a lot more than 30% of their incomes for housing.”

The traditional recommendation for the living budgets of salaried working people is to restrict rent or mortgage payments to 25% of income. American life, and life in Southeast and Southwest Florida, has increasingly required Americans to ignore that formula.

But one class of residential buyer can sidestep the factors affecting everybody else, and it can happen in any market range, not just high-end luxury: cash buyers.

SHINN

In addition, the influx of people — people who won’t require a bank loan but who will require the services of small businesses, which may need bank loans themselves — is helping the commercial market.

The banker’s view

Tyrone Shinn, born 64 years ago in Southwest Florida and raised in Manatee County on a dirt road that bisected an orange grove and ended in water chock-a-block with manatees, oysters, scallops and fish, is Centennial Bank’s market president for West Florida.

In the old days, he says, the demographics of Florida markets were pretty standard: The southeast coast filled with Northeasterners because that’s where Interstate 95 went. And the southwest coast became populated by Midwesterners because I-75 went to the Midwest.

“What’s happened recently, though, with changes in the economic and political environments (of the north and west), brings in people from places like California and Illinois and Virginia — from places like Chicago and New York — almost in a big wave.

“So we have new tentacles, as I call it, reaching into those markets. Across the country the housing market is deteriorating, but not us. There’s new energy at the price points. That was driving our pricing above what it should be. It’s been way overheated, but there’s been a decrease of less than 10% in home costs, and it’s still moving. Last year the average home was on the market for 20 days, and it’s gone to 43 days.”

Prices remain up.

Because of the higher interest rates, however, the home loan market is more constricted and cash sales are common.

That in itself may not be good for banks, who bring in deposits then loan the money out at a higher interest rate than they pay for the deposits.

“We have to make money on the spread,” Shinn explains.

Even if that’s not happening as frequently, with many new people continuing to arrive as cash buyers, “those cash buyers have to have restaurants and stores and other businesses. So those business people are coming in to get loans because they’re growing.”

In all of this, insurance rates create significant pressure, he adds.

“I get several calls a day. People say, ‘I didn’t expect my insurance rates to double.’ Either the companies won’t insure you, or they require new roofs or other work. I heard one customer say, ‘I’m being extorted.’”

He understands why they feel that way, he acknowledges, but he also recognizes that new costs in insurance or weather-proof construction standards are likely going to be the new costs of living in Florida, especially on or near the water — any water.

Going forward

Living or maintaining a business on or near the water nowadays raises a question that rarely used to be asked, Justin Thibaut says: the question of climate change. What is weather going to do to construction requirements, insurance rates or asset resales?

If real estate markets are profoundly affected by these factors, there may be good in it.

For one thing, explains Thibaut, “there are some good things on the horizon, like the Live-Local Act approved by the Florida Senate as a way to incentivize affordable housing and provide an overstep of local regulations, whereby more projects can be put in place by a city or county as they deliver affordable housing to the market. It’s new, you’ll see the first few tries this year.”

Also known as Senate Bill 102, the Live-Local Act “is a comprehensive, statewide workforce housing strategy, designed to increase the availability of affordable housing opportunities for Florida’s workforce, who desire to live within the communities they serve. This Act, also known as SB 102, provides historic funding for workforce housing,” according to a state Senate description — funding to the tune of $711 million in the budget, a jump from $362.7 million last year, a way that taxpayers have stepped into the affordable housing real estate market on the marching orders of legislators, to help it.

“It will be interesting to see how the first few of these play out,” adds Thibaut.

The many effects of the legislation also include side-stepping regulations restricting density and building height in some circumstances, providing significant tax breaks for any developments that include at least 70 units for affordable housing, and speeding up the permitting process for developments that include affordable housing.

Nelson Taylor, LSI’s vice president of market research, notes of the real estate market in general that “we’re in a weird period when those with a low-interest rate who bought in 2020 or 2021 aren’t willing to trade that away.”

But he suggests there are roses on the thorn bush.

In this environment, he says, “the new home market is winning. There are new construction codes, and they’re not in a flood plain, so insurance is cheaper. Home prices are holding strong. If you look at the national perspective, homebuilder stocks are at all-time highs. So for buyers, my opinion is, get to the new home market.”

On the southwest coast, where Ian, the most expensive hurricane in Florida’s history, took lives, homes, businesses, possessions such as boats and cars — it permanently altered entire communities — building back means building forward. The personalities, characters and especially the appearances of barrier islands and bay front or coastal villages and towns will not be the same again.

Another way of putting it, perhaps: funk is gone.

“We’re not going to see the Fort Myers Beach or the Matlacha (near Pine Island) we all knew and loved, anymore,” says Thibaut.

“We’re going to see elevated structures, hurricane-proof buildings. Not wooden funky structures. That can’t be built again.

“So we’ll have higher rents, higher prices for condos. It will change our coastal areas, when we look back on it 10 years from now.”

Part of the discussion about building or living in hurricane or flood-prone places requires a willingness to consider the details and potential effects of climate change in residential or commercial ventures, Thibaut has concluded.

Those who do well buying or selling in any markets now, will be the masters of detail — people who look at all the big and little factors, and weigh them.

“For buyers — both home buyers, and commercial real estate buyers — plunge into the details. True research is the key. This is not 2021, when they’d perform no inspection and close on a house in 10 days.

Now you have to know if it’s in a flood zone, what’s happened in the past on the property, if you’re flood prone — and what’s coming next. What the operating expenses are, what your insurance bill will be next year — how will it affect rents.”

And that’s not just advice for buyers, he says.

“On the seller’s side, being armed with information you can share to mitigate those questions — having information about what insurance will look like in the future — that’s important.

“We’ve seen where those unanswered questions can come back (to bite them).”

In any market, perhaps, Michelle Noga’s advice to people seeking homes — people likely to spend some years of their lives in those places, whether hugely expensive, highly expensive, moderately expensive or inexpensive — is the most reasonable and also compelling, especially given the current markets.

“Find the right home, and if you like it, just buy it,” she says.

That may not sound like your mother talking, but hear her out.

“If you find your dream home, buy it. Traditionally and historically, prices of those homes will go up. It’s an asset class that appreciates — and people do find comfort in buying real estate. It has an intrinsic value.

It stays with inflation — in fact, inflation doesn’t affect it.”

That’s real estate for you. ¦

Properties priced below median values

Here are two properties that demonstrate a single fact: It is still possible to buy a home in either Southeast or Southwest Florida for significantly less than median home values in those markets.

FORT MYERS

Pictured at www.Realtor.com

Address: 1853 Braman Ave., Fort Myers.

Built 1956, 3 bedrooms, 1.5 baths on a .27-acre lot.

List price: $325,000.

Description: “Perfect starter home or just a fantastic place to live centrally located off McGregor Boulevard, right around the corner from a recently renovated public park. This charming 1950s three-bedroom, 1.5-bath home has been updated, but maintains much of its original charm and character, including the original pink and black bathroom. The kitchen and flooring have been updated throughout the main house, and the original carport is now a fantastic bonus room with a separate window air conditioner. It also boasts a beautiful back yard, complete with a firepit and loads of fruit trees. There is a second bonus room at the back of the home to store all your goodies, as well as an outdoor shed. You can make the backyard even larger by removing the second shed or it could be converted to a charming playhouse. The backyard is fenced on all sides and is very private. A brand-new instant water heater was just added, the main AC unit is 2 years old. All appliances have been replaced within the last three years, and a new roof was installed in January 2022. All the windows in the home have been replaced and are a mix of impact and non-impact windows. Truly a move-in ready home!”

WEST PALM BEACH

Pictured at www.redfin.com

Address: 5254 Tiffany Anne Circle, West Palm Beach.

A two-bedroom, two-bathroom home, 1,645 square feet.

List price: $349,900, but includes HOA dues of $358 per month or almost $4,300 per year.

Description: “Beautiful and spacious single family home with a 2-car garage. Recently landscaped front and rear. Features include complete impact glass windows, 2022 A/C and 2022 water heater, and beautiful wood laminated flooring, huge master bedroom with a large walk-in closet. Cypress Lakes is an active 55+ community with a security gate, Free golf, pool, hot tub, modern fitness center and sauna, tennis, clubhouse and so much more. Close to major highways, airport and downtown.” ¦

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