June 2006

What’s driving the Orlando Florida market?

There seems no end in sight for the growth in Orlando Florida. Over 1.35 million people have made Florida their home over the past 4 years. There were 400,000 new arrivals in 2004 alone! What’s driving this unprecedented expansion?

Some might think its retirees and others may think it’s the growing job market. In this case both would be right, including a few factors you may not have realized:

First: More jobs! Florida experienced strong job growth opportunities during recent
years. Not only the growth but the variety of jobs has been very broad. Strong job growth led to good income gains with personal income going up 8.4% during the past year. This kind of employment market has attracted job seekers from other states, resulting in…you guessed it, more people!

Second: We are experiencing the result of retiring baby boomers. The aging of the generation born between 1945 and 1965 has fueled an increase of retirees, second home buying and homeownership.

Third: The ever constant fact, a warm climate attracts people who want a vacation, a nice place to retire or nice atmosphere for raising a family.

So where will all the new arrivals in Central Florida live? With the latest statistics showing approximately 1000 people per day moving to Florida, it might seem that another housing shortage will occur. While there is no shortage of homes currently, the market will always be active as families move in or out for various reasons.

There has also been a huge increase in the purchase of secondary homes or vacation homes. Vacation homes make a significant portion of home sales annually. However, the owners of those homes might surprise you as many are foreign investors. In fact the
National Association of Realtors showed 15% of homes sales in 2004 were
made by international home buyers.

When you combine all of these factors with previous years low interest rates you get an interesting result. Home prices went up, way up! Florida experienced dramatic gains in home prices with the median price going up 105% over the past 5 years. For example, a house bought in 2001 for $100K is worth about $220K or more right now.

New and larger homes sales also skyrocketed as people realized they could afford more home for their money. This was especially true starting in 2003 when record low mortgage rates fueled a new home development craze. Investors and private owners were able take advantage of affordable financing and increasing home values.

As a result, The Orlando area has a higher than average amount of available homes in inventory today. This is a great situation for home buyers who are facing higher interest rates and need to bargain their way into affordability by nudging the sales price down.

This bargaining will slow home appreciation values but it will not cause a drop in overall home prices. Why? Because the constant demand for homes is not decreasing. The market is simply slowing temporarily with thousands more each year looking to make Central Florida their home because of the warmer climate, attractions and job opportunities.

Where is the real estate market going in Orlando area?

A lot of people are wondering about the stability of the real estate market in Orlando, Florida. The two main cycles that real estate market goes through are expansion and recession. The cycle of expansion started in 2002 and it was at the highest point during the summer-autumn of 2005. That period registered record high sales for 4 consecutive years.

Today we are experiencing an oversupply of real estate. This causes prices to adjust. The market will continue to cool; price appreciation will still be positive but very slow. Depending on the area in central Florida, there is a housing supply capable of lasting somewhere between one to three years. That’s a lot of For Sale signs! Houses in $100-$200K price range are still in high demand but homes in the $300K+ range may not sell even after 4 to 6+ months on the market. A lot of sellers are already experiencing this cold reality.

There are several factors that caused the cooling of the market. Mortgage interest rates have been going up which raises the monthly payments associated with buying a home; therefore, eliminating some potential buyers. Raising rates can also result in higher delinquency and foreclosure rates. For example, a traditional 30 year mortgage rate is around 6.7% for those with immaculate credit. If rates go above 7%, some areas will experience price softening. Housing prices continue to rise which further complicates the issue. In summary, increased interest rates combined with rising home prices have made housing unaffordable for prospective buyers.

Is there light at the end of the tunnel? Yes! Based on the number of people moving to Florida and constant demand for housing, the market should bounce back by 2007. The rest of the country may see a slower trend but Sunny Florida continues to attract home buyers interested in warmer climates