To put it bluntly, the real estate market in Orlando, Florida has hit a snag. Despite the long, hot Summer of 2018, the market is now cooling off. New listings are down, prices are adjusting, and demand has softened. The perfect storm that was supposed to bring buyers and sellers together has not arrived, and it’s putting a damper on the entire Orlando real estate market. While there are still signs that the market is improving, property owners and investors should proceed with caution.
Rising Mortgage Rates Hurt Buyers
Mortgage rates went up suddenly and dramatically in early 2018, rising by over a trillion dollars in total between March and June of this year. With mortgage rates rising, it’s no wonder that demand fell, as home-buying becomes more expensive. According to Red Ventures, a real estate brokerage firm, mortgage rates have surged by over 10% since early March and are still rising. This makes purchasing a home more expensive, especially since mortgage insurance is included in most loans today.
The good news is that mortgage rates are still relatively low by historical standards. The rates today are comparable to mid-2017 levels, which is great news for prospective buyers. If you can qualify for a mortgage at all, it’s not a bad idea to jump in and purchase a home now, before rates go up even more.
New Home Construction Slowed
Builder confidence in the U.S. homebuilding industry hit an 11-year low in 2018, according to the National Association of Home Builders (NAHB). The NAHB’s home builders’ index, which measures future home construction intentions, plunged by 11% in the fourth quarter of 2018. There are multiple explanations for this, but perhaps the biggest factor is that the cost of building a new home has increased, as lumber, materials, and steel prices have all risen in the last year. For example, the cost of a small bathroom added to a basic house increased by $650 in the last year alone.
Tourism Still the Key Industry
The industry that depends on tourism for its very existence is feeling the effects of growing costs and a limited supply of high-end luxury accommodations. Hotels and other lodging sectors saw bookings decline by 6% and 7% respectively in the last year, according to the Florida Travel Commission. Tourists are also being impacted, staying closer to home and opting for cheaper options.
This is having a domino effect on the entire Orlando real estate market. Local hotels are seeing fewer guests, and those that are sticking around are opting for cheaper rooms (like Micro Hotels), which in turn, is hurting sales. The limited supply of luxury accommodations available in Orlando is also leading to higher room rates and fewer deals.
Demand Slackened
According to Red Ventures, there was a significant decrease in demand for new homes in the Orlando market in the last quarter of 2018. Sales were down 21% compared to the previous quarter and 55% compared to the same time last year.
New home purchases in Orlando are also heavily weighted towards more expensive homes. In the last quarter of 2018, the average sale price of a new home was $387,400, up 8.7% from the previous quarter, and up 28.8% from the same time last year. According to Remax, a real estate brokerage firm, average sales times decreased by 23% and 22% in the last two quarters respectively, which correlates to a decreased demand, since more people are choosing to buy properties that they already own.
Buyers’ Remorse
One of the biggest problems for buyers today is a sense of buyer’s remorse. After putting in the hard work to find a dream home, buyers are afraid to make a move, especially since the market has shifted and it’s harder to find that bargain they scoped out. They feel anxious as if they’ve lost something valuable. This is where the anxiety and stress come in. It’s very normal to feel a little anxious about buying a home, especially since the market is shifting and it’ll be harder to find that bargain you’re looking for. You’ll just have to learn to live with it and not worry about it too much. Buyers are also afraid of buying a property that isn’t in good condition since they’ll have to spend more money on repairs than the property is worth. Even with the added stress, it’s still a good idea to buy a home. It doesn’t have to be perfect to become livable.
Supply Issues
The housing supply in Orlando has also become a problem. According to the Orlando Apopka Area Association of Realtors (4A’s), there are too many listings and not enough buyers to meet the demand. This is creating a stressful situation for buyers, as they have to compete for a limited number of listings and have to hurry up and make a move before the deal of the century disappears. One of the biggest problems is that new construction is at a standstill, and it’ll be some time before it starts moving again. This problem is compounded by the fact that there’s a lack of luxury accommodation, leading to higher-end properties going unsold, which in turn, decreases the supply even more. There’s also the issue of land, which is becoming more expensive and difficult to come by. All of these factors contribute to the decreasing demand and increasing prices in the Orlando real estate market.
It’s important to remember that buying a home is not a decision to be made lightly. If you’re weighing the decision, you should certainly take all the relevant financial factors into consideration. Of course, you want to make the right decision for you and your family, but you also don’t want to make a major financial mistake. Buying a house, even a luxury property, can be a costly mistake and you shouldn’t rush into it without thinking. Be realistic about what your financial situation is and how much you can realistically afford to spend. There are plenty of good properties out there for sale and available mortgages, so you don’t have to rush into a purchase just to make a quick buck.
