In the 8 years I’ve been doing residential real estate in St. Pete, Florida I’ve seen buyers enjoy interest rates mostly between about 3-4% on 30 year loans. When I first started around 2014, homes were still cheap and interest rates were low as well. There really wasn’t a huge demand to live in St. Pete at that time so anyone that locked down a house in this time period benefited greatly.
I met a spectrum of people with different opinions on where this housing market was heading. Some people in 2015 were cautious and thought the market would come back down. They had recognized the pattern of the cyclical market that was typical in Florida and assumed that this would continue. They thought we may be at the top of the market and it was about to come back down. They didn’t take the risk and unfortunately lost out tremendously.
I remember I also met a successful real estate investor who told me something along the lines of “you can’t go wrong buying any property in this area”. I imagine he’s probably even more successful now because he had the foresight to know that property values would 2-3x over the next 5-7 years.
With that said we’re at a different point in time now. Prices are still high and demand has accelerated the past couple of years due to Le Covid. Where will prices go?
I don’t have a crystal ball but if I did, I’d say that I think we’re about to see a much needed cool off period that hopefully should help regulate prices for the immediate future. My imaginary crystal ball tells me that in the long term we will continue to trend upward and start to parallel more expensive markets like California or New York. I just read an article yesterday stating that Florida had surpassed cost of housing in states such as Minnesota and Virginia so we’re well on our way.
Before that happens I think we’ll find our closest point of reference in the area of Southern Florida like Miami / Ft. Lauderdale. Seeing how St. Pete is trending towards becoming the best city in Florida and possibly the known universe, I think we could easily see those Miami prices in the next few years.
Let me break it down into The Top 4 Reasons We May Finally Be Moving Towards A Buyer’s Market in St. Pete, Florida. If you have any questions for me while reading this article feel free to call or text me (Chris) at 727-307-1111
4. The Market Peaked & Interest Rates Are Starting To Go Up Exponentially
This happened really quickly right? At the beginning of 2022 we saw the first of three rate hikes and as I write this, another one is on the way tomorrow
Interest rates can eat into your affordability real quick. A 1% change in rate on a $500,000 loan is about $300 more per month. Rates have gone up about 2% since the beginning of 2022 so that would be about $600 more per month when financing $500,000. No one knows exactly what will happen but by the end of the year but we could easily see 4% higher than where we started if the Fed continues to use higher interest to combat inflation. That’s $1,200 more a month just for interest on a $500,000 loan is a bit much for most people.
There’s the argument that you can always refinance. That’s a good argument because yes you can always refinance the rate but you can’t renegotiate the price you bought the home for. With that said – our economy has been set up for some major inflation and their main strategy to correct it is to continue raising interest rates. How long will this last? How high can it go? When my parents bought their house the rates were around 16%, could it go higher than that?
A lot of financed buyers have put their house search on hold because they were getting hit from both ends – high prices and interest rates. At the same time these people need a place to live and some rentals are going up in price 30% or more in one year. Is it better to lock in a house even with a higher interest rate rather than be at the mercy of a potentially greedy landlord? I think so.
3. The Florida Covid Boom Is Slowing Down
States with strict covid laws had a mass exodus of people moving to Florida during covid. Why?
- Many people were allowed to work remotely.
- People didn’t want to deal with unjust laws which shut down their businesses or made them isolate themselves from society. Some places required vaccine paperwork to go participate in their job or certain parts of society.
- Florida has been undervalued for a while and for many people coming from higher cost of living areas, this was a smart financial decision.
The market is starting to recalibrate now. There’s not 10-20 offers on every property. Many of the people that planned on moving due to covid restrictions have done so already. I’m advising sellers to be aware of the changing market. Market is still hot, just not white hot like it has been the past two years.
Is Florida still one of the most free states in the US though? Hell yes. Are there tax and business advantages to living in Florida over other states? Also yes. Despite the Covid boom, Florida will continue to be a desirable place to live. This is especially true in the best city in Florida and the known universe – which is of course St. Pete. We were already on the course to becoming a flourishing area and Covid just accelerated the process.
2. Homeowners that were previously on the fence about selling are now more motivated to get their house on the market
Sellers are incentivized to be more accommodating when they have less options just like buyers were incentivized to put their best foot forward during the past couple of years. In the last two years buyers were
- Waiving inspections, taking huge risks for potential repairs in the future.
- Waiving appraisal contingencies and paying any difference between the bidded up contract price and the many times much lower appraised value.
- Taking on high risk insurance policies to close on a house because sellers refused to do any repairs. They were getting the work done after closing to get a clean 4 point inspection for a regular insurance policy.
They were at the mercy of the seller and that’s not always ideal when you’re shooting for a win-win situation where everyone feels good about the deal. Fortunately the majority of sellers have been pretty accommodating because they’re sitting on a large amount of equity and can afford to make some concessions to get the deal done.
Now that the demand has dropped significantly, sellers have to be a bit more accommodating when it comes to buyers needs. Even if you’re paying a bit more with your interest rate, the potential for a price reduction or seller paid repairs / concessions makes the buying process a lot more appealing and less risky.
I’m starting to see more and more inventory pop up. People that thought these high prices would keep going up were trying to gauge the best time to sell to maximize their profit. Now that the rate hikes happened in rapid succession, lots of buyers are falling out of the race and that equals less demand for homes, which in turn starts to correct the market. Sellers are recognizing this and the fear of missing out is starting to settle in.
1. Aging Baby Boomer Population Will Sell Homes Soon
This is just speculation but as I talk to my own parents who are in that generation, I know their plans are to sell their houses and downsize at some point. My Dad is in his 70’s and my Mom is in her late 60’s. Both have homes with yards that require a lot of maintenance. It’s nice to have your own house but a condo or townhome is easier to maintain when you get older.
Baby Boomers are a big part of our population. My Dad was 1 of 9 kids and my Mom was 1 of 15. Lots of Boomers had some great opportunities to buy homes throughout the years, and many bought rental units as well. I don’t know the exact breakdown but they’re definitely putting up those numbers when it comes to home ownership versus Millennials like myself.
I’m assuming that as many Boomers retire they’re going to either cash out their primary residence / rental units to get a chunk of money and enjoy the rest of their lives. I’m hoping this provides us some more inventory and more Millennials and other generations will be able to start building wealth through owning property.
Yes interest rates are rising dramatically but in return more inventory is coming up and staying on the market longer. Listings are staying on the market longer and sellers will need to be more accommodating to buyers whether it comes in the form of purchase price, repairs or seller concessions. Less competition for buyers means more options. Rent will continue to go up as many people continue to move to the limited space in Pinellas County and some buyers have given up on potentially purchasing.
Even though purchasing may be more expensive than renting in some circumstances, you still need to consider the fact that land is limited here and over the long term rent will more than likely continue to climb. You want to make sure you’re not going to get yourself into an unsustainable situation so make sure your real estate agent knows how to crunch the numbers by factoring in your downpayment, interest rate, home insurance and taxes. There may be other costs to factor in such as HOA fees, flood insurance and private mortgage insurance if you put less than 20% down. Feel free to call or text me (Chris) at 727-307-1111 if you are looking for the best buyer’s agent in St. Pete and possibly the known universe.