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Identification of Four Florida Markets Vulnerable to Home Price Decline

Identification of Four Florida Markets Vulnerable to Home Price Decline

A prominent real estate data and analytics company recently identified various areas in Florida as “top markets at risk of home price decline,” including the North Port-Sarasota-Manatee metro area.

The monthly CoreLogic Home Price Index utilizes 45 years of sales data from public records and real estate databases to monitor the residential real estate market. The most recent report, analyzing May data, was released last week, revealing a 1.4% increase in home prices compared to May 2022.

Although the report acknowledges that May marked the 136th consecutive month of year-over-year home price growth in the United States’ residential real estate market, it also indicates the lowest increase in prices since May 2012. Among the identified areas, the North Port-Sarasota-Bradenton metro area is flagged as one of the five markets with a “very high” likelihood of home price decline over the next 12 months.

The remaining five markets with a significant risk of price declines include Provo-Orem, Utah, along with four Florida markets: Lakeland-Winter Haven, North Port-Sarasota-Bradenton, Cape Coral-Fort Myers, and Port St. Lucie. The report assigns a 50% to 75% confidence score to this rating, estimating a 70% probability of these five markets experiencing home price declines in the coming year.

Despite the forecasted decline in home prices within the Sarasota metro, the CoreLogic Home Price Index indicates that prices remain at record levels, with a year-over-year price increase of 5.5% in May, inclusive of distressed sales, according to the report. Selma Hepp, CoreLogic’s chief economist, commented in a written response that the Sarasota metro has an elevated probability of price decline over the next 12-month period due to a comparatively stronger surge in home prices. Her response suggests that local incomes have not kept pace with the post-COVID increase in housing costs. “Due to prices outpacing incomes, many households in the area are priced out of the market, leading to the likelihood of slower price growth while incomes catch up,” she explained. “In Sarasota, home prices have grown by 64% since the start of the pandemic, compared to a national increase of approximately 40% during the same period.”

Budge Huskey, President and CEO of Sotheby’s International Realty, expressed uncertainty when several Florida markets were highlighted as “top markets” for price declines, despite validating the underlying data from the CoreLogic HPI. While some may interpret this report as a sign of impending doom, Huskey views it as a testament to the resilience of property values. Comparing the current situation with the pre-Great Recession real estate cycle, he points out that the market has not suffered significant price decreases despite experiencing 21 consecutive months of declining closed sales. Instead, there has been a gradual deceleration of price declines. Furthermore, Huskey notes key differences from the previous real estate crash, such as historically low inventory levels along the Gulf coast. With confidence, he asserts his bullish stance on Sarasota, highlighting its favorable prospects and suggesting that the only threat to prices and values would be a severe recession.

In last week’s release of the Consumer Price Index by the US Bureau of Labor Statistics, the national inflation rate was reported at 0.2%. This figure includes energy prices, notably a 16.7% decline in gasoline costs compared to June 2022. Excluding food and energy, the Consumer Price Index rose by 4.8% in June 2023, exceeding the Federal Reserve’s target inflation rate of 2%, albeit lower than previous months.

As the Fed continues to raise interest rates, mortgage rates have climbed above 7% in July, potentially curbing spending and economic activity. Economists are hopeful that this will lead to a decline in inflation. Huskey sees the possibility of the Fed achieving a “soft landing,” which would have a positive impact on the local housing market. With no foreseeable concerns on the horizon, he reassures people about the stability of housing values.

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