Is Florida a Warning Sign for the US Housing Market?

Dave:
Florida is seeing broad price declines across a lot of different metros with no clear end in sight. So is Florida a warning sign for the rest of the country or is Florida a unique case unto itself? Today? We’ll find out. Hey everyone, welcome to on the Market. Thanks for being here. In today’s episode, we’re going to be focusing not just on Florida, but we’ll be looking at Florida specifically and then sort of extrapolating out what’s going on there and whether it is likely to spread to the rest of the country. Because if you look at the data, and we’ll get into this in more detail, there is a real correction in terms of prices going on in that market. That doesn’t necessarily mean that it’s a sign of things to come elsewhere in the country, but it could be. So the question is, is Florida unique or will other markets follow suit and start seeing the kinds of corrections that we’re seeing in that market?
But actually before we get into today’s topic, I just wanted to let you all know that Henry Washington, one of our co-hosts here on the market, and I do something super fun this summer and we would love for you guys to join. Basically, we’re going on a road trip. We’re going to be driving around the Midwest looking for cash flowing deals, meeting with investors, agents. It’s going to be super fun. It’s called the Cashflow Roadshow, and it’s happening from July 14th to 18th across the Midwest. We’re going to be starting in Milwaukee, then we’re going to Chicago where we’re going to have a free meetup on July 15th. So if you’re in that area, definitely come check that out. We’re going to be doing a lot of fun stuff there. We’ll also have a meetup on July 16th in Indianapolis. If you’re in that market, it’s going to be super good time, so make sure to RSVP, they are free events, but if you do want to come to either the Chicago or the Indianapolis event, make sure to RS VP ahead of time because there are limited spots and it will sell out.
We’ll put the link in the show notes or you can just go to biggerpockets.com/roadshow. Hope to see you all there. It’s going to be a lot of fun. All right, so back to our topic today, which is again about Florida. Let’s just talk about what has been going on in that market. You probably know, but during the pandemic, Florida was one of the hottest, if not the single hottest state prices just between March of 2020 and June, 2022. So just over two years, prices went up 51%. Just to put that in perspective, that could take over a decade during normal times, and that happened in less than two years. And another important thing to note is that although the whole housing market was crazy during that time, national housing prices went up 41% over that period. There were up 51% in Florida, so it definitely outpaced the national average.
Now to understand what’s happening today and if that’s going to spread into other markets, I think we need to understand why Florida has boomed so much in the first place. There are several different tailwinds that fueled Florida’s dramatic increase in home prices. The first one probably not surprised, is just this massive migration shift that happened during the pandemic, and I guess actually shift isn’t the right word. It’s an acceleration because even before the pandemic, we were seeing domestic migration patterns where people were moving from the north colder states to the Sunbelt. Florida was already sort of a beneficiary of that pattern, but it really, really accelerated during the pandemic. Just as an example, net domestic migration, which is basically all the people who move to a state minus the people who leave the state peaked at 314,000 in 2022. That is huge. It was the highest of any state, and I think pretty notably where a lot of these people came from was from a lot of times higher price markets.
You saw a lot of people from the New York metro area, for example, moving from that area to the Florida area, and that not just created more demand, but it came with people who had a lot of money and a lot of times these people had cash and it created a lot of competition. There was all these bidding wars in Florida and that helped push prices up. So that immigration was definitely one thing. The second thing is jobs, right? Because one, people follow jobs, but jobs also follow people. There’s kind of this reciprocal relationship, but basically in addition to the migration growth, there was a lot of job growth that sort of reinforced the trend because people were moving there. There were more jobs, so more people would move there. And so you saw that the state added hundreds of thousands of jobs in recent years.
In 2023, for example, Florida gained about 240,000 jobs. That’s 2.5% employment growth. That’s huge, outpaced the US average of 2%. So that was really important. If you really want to go down the rabbit hole, you can start to think why are jobs moving there? Well, Florida doesn’t have a state income tax that is attractive. There is definitely a business friendly climate in Florida, so that is attractive as well. And so this whole just job and economic growth also fueled Florida’s housing market. There are of course other things, but I think population growth, job growth, probably the two major drivers going on there. So as of today for single family homes in Florida, 66% of markets, so not every city, but two thirds of all markets in Florida have already seen prices fall year over year, and that is happening in different degrees. We’ll get into that, but that’s pretty significant.
When you look specifically at the condo market in Florida, 92% of markets are seeing prices down year over year and take that into account because as of right now, even though as I’ve said, I think we’ll see more markets in the US shift into this corrective area, we still have prices up year over year by most measures. If you look at Redfin or Zillow or K Shiller, whatever, they’re all up year over year as of right now, Florida is bucking that trend. Now, if you break it down, different markets are doing different things. Small markets like Punta Goda, seeing double digit price declines, northport, Cape Coral, they’re all seeing big declines. When you look at bigger markets like Miami still up year over year, Orlando’s about flat tampa’s down a little bit, but not as significantly. And so there are some regional variances, but we need to ask ourselves, because again, the goal of this episode is to say is what’s happening in Florida going to happen elsewhere?
We need to now think about what happened. Why did we go from this massive growth that was outpacing national averages to a situation where prices are underperforming national average? Well, the first obvious thing is a reversal or at least a slowing of the trends we just talked about, the pandemic migration surge has not stopped, but it has really, really slowed. I said before that it peaked in 2022 at over 300,000 people net migration in that one year alone in 2024, it’s 80% lower than it was just two years ago. And so in terms of relative demand and demand growth, that is a really big change. And if you factor in again, how this might impact the overall market, if you believe that a lot of the people that we’re moving to Florida we’re in a good financial position, then when that starts to dry up, that changes the buyer pool to be more heavily saturated by current residents.
So current residents are making more of the buyer pool and they might not have the financial resources as the people who just sold the property in New York or Connecticut and are moving down there with a lot of cash. And so that’s happening at the same time where we have just harder financial conditions, right? Mortgage rates are a lot higher right now, and so this is creating a real affordability problem. That’s one thing. The second thing is just supply, right? We talk about it all the time on the show that markets that have the most supply are seeing the biggest corrections, and Florida is no different. Florida has a lot of land. They have really built a lot. Historically speaking, they build a lot when demand is strong. So we see this all over Florida. There’s just been a ton of building and that can work when you have 300,000 net migrants every year.
But when that slows and you still have all of the supply coming online like we do right now, that creates a condition for prices to go down. The third dynamic is insurance costs, and this is one of the most important shifts weighing on the Florida housing market. In my mind, it’s just the overall cost of homeownership. This is just going beyond purchase price and interest rates. Florida has been hit with very significant increases in insurance premiums and property taxes, and if you happen to live in a condo, condo association fees. But let’s just talk about the insurance thing first because when I was doing the research for this, I was honestly shocked. Florida has the highest insurance premiums in the country and it’s not even close. The average homeowner insurance in Florida is above $10,000 a year. Right now it is $11,000. The next closest, which is a neighboring state in Louisiana is $7,000.
So it’s nearly 50% higher than the next closest. If you get down to, let’s just pick the 10th highest in Arkansas, you’re already below $4,000. So you see how quickly these insurance costs drop off. Florida is just absolutely by far has the highest insurance premiums and they’ve really gone up over the last couple of years, and that exacerbates that affordability problem that I’ve already was just talking about. In addition to that, property taxes go up when property values go up. And so while Florida tax rates are actually quite moderate, they’re not well above national averages, they’re actually quite close to the average. They’re about 0.8 where the national average is close to 0.1, so it’s pretty close, but just because the fact that all these people who have lived there for a long time, they’ve benefited from enormous equity growth, but the trade-off with that is that your taxes go up.
And so some people might be having cashflow problems paying for these things like taxes and insurance even though they have more equity. The last thing here in terms of overall cost of home ownership is condo fees. As you might remember, there was the surfside condo collapse back in 2021, and after that tragedy, there have been a lot of new regulations put into place to prevent it from happening again. And as such, a lot of condos have to make upgrades and they’re issuing special assessments. And I can’t find great data about this, but pretty much every anecdotal source I can find on this says that this is a major contributing factor. And so I can’t get you an exact number of how much this are, but I do think it’s playing into the overall affordability challenge that’s going on in Florida. So that’s what’s changed and has driven Florida from one of the fastest growing markets in the country to definitely the state with the biggest correction. The question then is, is this going to happen somewhere else? Is this going to spread to the rest of the country? We’re going to look at that right after this break.
Welcome back to On the Market. I’m Dave Meyer here talking about the correction going on in the Florida market and whether or not that’s going to spread to the rest of the country. And to do this, I thought we could compare this to the national market and we will, but I kind of wanted to just compare it to other states because when you look at the nation in aggregate, it can be hard to make comparisons to a single state. And so I picked two states. One is Texas, which I think draws a lot of comparisons to Florida. So I wanted to just look and compare and contrast those states. And then the other is Wisconsin, totally different market. I just thought it would be fun. It’s actually a place Henry and I are going on our road trip, so I thought it’d be interesting to compare and contrast.
Let’s start with Texas though. So Texas kind of like Florida enjoyed this huge pandemic influx of residents. They saw home prices soar 40% from 2019 to 2023, and when mortgage rates dropped, Texas also felt to cool down. So it sort of has followed some of the similar patterns. Both states have strong job growth, they don’t have income tax, they have a lot of new construction. There are a lot of things that are similar here, but one thing that’s happened is Florida’s downturn has been more widespread. It’s happening in more markets and it’s lasted longer. Where Texas has seen decline in specific markets, Austin is sort of like the one we always pick on, whereas other markets like Dallas and Houston, they’ve had mild dips, but they’re not as significant. In Texas, the declines have been a lot more measured. You’re not seeing many states, cities in those markets with 12% declines like we see in some markets in Florida.
And so the question is what is the difference? Because the migration, the supply, the things are going differently. To me, the one key difference that I see is sort of this total overall cost of home ownership. And that comes down to those three things that I was talking about, which is insurance, it is taxes, and it is condos and special assessments. And the interesting thing here is that in Texas, Texas actually has a higher property tax rate. It’s pretty high In Texas, it’s close to 2%, it’s one of the highest in the country. So I think that is contributing to the Texas decline, right? This increase in property taxes is negatively impacting the cost of ownership and is probably contributing to the corrections that we’re seeing in a lot of markets in Texas, but they are not getting this one two punch of both the insurance costs and the tax costs going up.
And to me that is sort of the unique thing that differentiates Florida from Texas. There are obviously a lot of different regional differences. I’m making broad comparisons, but I think Texas and Florida are similar in a lot of ways. And the one difference I see is the insurance costs, and that to me is maybe one of the main reasons why Florida is seeing this sharper correction than the correction we are seeing in Texas. Now, the second market I wanted to compare to I don’t think follows many similarities to Florida at all. Wisconsin, obviously in the Midwest it’s much colder. It did not see a massive pandemic influx of population. The population from what I’ve seen, did grow during the pandemic. It is one of the Midwest states that has continued to see a stable or growing population, but nothing crazy. We did see prices go up in Wisconsin, but seven 8% annually, which I should say is huge for a normal year.
But during pandemic years, some markets were seeing 10, 15, even 20% in individual years. And so it was very different dynamics going on in Wisconsin. In Florida. So what’s going on in Wisconsin right now, it’s actually a tight sellers market still prices in Wisconsin went up 8% last year. They’re still up year over year, and most of the forecasts think that although on a national basis we’ll see prices decline, Wisconsin might actually be insulated from that and not experience some of the declines that we see elsewhere in the country. So again, we need to ask ourselves why this divergence. Well, unlike Florida, the Midwest has been very stable. The demand that exists in Wisconsin, largely speaking is mostly from in-state populace and natural growth, some inbound migration, some just birth rates, natural household formation. And when this happens, it can lead to slower growth during boom times, but it also means that there isn’t this just accelerated construction that happens during these boom markets like Florida.
In Florida, everyone started building like crazy when you saw these domestic migration numbers because they wanted a piece of it in Wisconsin, nothing really changed all that much, so they didn’t start building multifamily like crazy. And as a result, when you fast forward a couple of years, you see the market just continue to be stable because the market is strong. There’s job growth in Wisconsin, there’s population growth, but there isn’t this supply shock that we are seeing in both Florida and Texas that has helped putting downward pressure on prices. The second thing is that Wisconsin homeowners really aren’t facing these kinds of insurance or tax shock. I mean, they’re going to still have the same thing. Prices even in this more muted market still have gone up like crazy. And so they’re still going to be paying higher taxes in some respect, even if the tax rate has the same, but they’re not going to have the same level of insurance and tax impact that’s impacting the overall cost of homeownership that we’re seeing in Florida, Texas, and frankly a lot of the other Sunbelt states.
So as you can see, the Florida market is not a perfect representation of what’s going on in every state. It’s similar to what’s going on in Texas, but it’s a little more dramatic than in Texas, but it’s pretty different from what’s going on in Wisconsin. We do need to take one more break, but when we come back, I’m going to compare what’s going on in Florida to the dynamics that we see in the national markets. So you can extrapolate some of what we’re talking about here today to your local market. If you don’t invest in any of the three states that we’ve talked about today, and I’ll help you understand the outlook for investors and what the risks are that the situation in Florida does spread to a market like yours, we’ll be right back.
Welcome back to On the Market. I’m Dave Meyer talking about whether or not the correction that’s going on in Florida is a warning sign for the rest of the country, or if it’s just sort of a one-off case. As we talked about before the break, Texas is seeing a correction as well, but not to the extent that Florida is. Meanwhile, states like Wisconsin aren’t really feeling the same sort of market pressures and dynamics. Let’s now turn to the national housing market and just talk about some of the broader trends that we’re seeing and with or not any of them correlate to the situation that we’re seeing in Florida. Well, nationally, the housing market over the last year or so has been somewhat of a mixed bag. Some regions are up, some are down, but on average, US home prices have been somewhat flat to up.
Of course, these Sunbelt markets, Florida, Austin, we see places in Louisiana, some places in Arizona have cooled, but there are a lot of other markets that are seeing relative strength, and I think we need to sort of split out the different variables that are happening in Florida and apply them and see if they actually fit with the national housing market. So the first thing we talked about was migration trends that has been slowing down, and I think that makes sense given where we are. Just the pandemic’s been over for a couple of years, remote work, a lot of that is being reversed. And so I do think a lot of the states that have seen the benefits or did see the benefits of those migration surges, that is going to slow down. And those are also the markets that we saw a lot of building.
And so yeah, I’m trying to talk about the national market, but I’m inevitably just going to go into regional differences. But these Sunbelt markets, I do think they are at risk of further declines. We see inventory rising in these markets, and you should look at this data for yourself in your market because even within a state, like I said, there are some markets in Florida and Texas that are still growing, so you need to look at this, but I think the broad trend in these boom regions is that they’re going to see weakness. Of course, that does not mean they’re going to get anywhere close to where they were before the pandemic. So people who have owned in these markets for any long period of time are still coming out ahead. But if you’re trying to plan your acquisitions in these markets, which you should, I should say, I don’t think you can’t buy in these markets, you should take these things into account that there are risks of further price declines.
Meanwhile, when you look at most of the rest of the country outside sort of the Gulf area, right, the Gulf Coast area, these insurance costs are not really going to be hitting a lot of markets except maybe in California. That’s definitely happening in Colorado where I invest a lot. You definitely see this going up, but for a lot of the Midwest, the northeast, you’re not going to have the same level of insurance premiums going up. You’re probably going to see a slow down in tax increases over the next couple of months. So hopefully in most markets in the US the cost of home ownership is not going to continue to accelerate. Home prices are probably going to be somewhere around flat plus or minus a couple percentage points, and you’re given market, but they’re going to be somewhere close to flat. Mortgage rates have really stabilized, so that’s going to be close to flat.
Hopefully property insurance is close to flat, and so we’re not going to see this ever escalating cost of home ownership going up. I actually think there’s a chance we start to see some of it go down, whether from price corrections or mortgage rates decline, and I think that will stabilize most markets. I’ve said before though, I think that there is a good chance that nationally we do see prices decline year over year by a couple percentage points. Nothing crazy, but I do think people should be prepared to at least see those headlines, right? It’s going to be in the media if that happens. And so you should be preparing for yourself. That said, to answer our big question, Florida’s, in a real correction, there are one or two markets there that you would call a crash to answer this question. Is this a warning sign for the rest of the country?
I would say no. I don’t personally see a lot of signs that we’re going to see double digit declines on a national basis. I don’t even think most states or really any states will even see double digit declines even in the next year. I think the chances of a continued correction or a plateau is pretty likely, right? I think they’re going to continue in Florida and the Gulf Coast and a lot of these boom markets for the foreseeable future, but that does not mean that they’re going to spread everywhere in the country. As we talk about on the show for that true cross the board crash to happen, what we need to see is more delinquencies on mortgages, people getting underwater on their mortgage, not paying that mortgage. There’s not really signs that that’s happening right now. What we’re seeing in these markets is it got too hot, people got too enthusiastic, they built too much.
The cost of home ownership is going up too much, and so there needs to be a correction to mitigate what was overgrowth during that time. A lot of the country doesn’t have that. Dynamics on national averages. Delinquencies are still low, so that risk of crash is relatively low. I will say there is a chance that this correction in Florida does accelerate. I think especially in the condo market, I do see still some downside risk there, particularly in Florida, but I think that’s maybe an isolated case, at least for now. Of course, things can change, but the data that we’re looking at every single day suggests that that might be an isolated case and it’s unlikely to spread into other markets. So that’s what we got for you guys today on this episode of On the Market, big Picture, Florida has experienced a correction. Other markets are going to see these kinds of correction, but the risk of a crash is still relatively low on a national basis, and there are going to be a lot of markets, a lot of states, a lot of individual metros that continue to grow even while you see some markets see declines.
And by the way, that’s normal during normal times in the housing market. Some grow, some correct. That’s just what normal market conditions are. We just saw this period of time for a while there where everything was growing, but that is not normal. That is not what we should be expecting. And so just all the more reason for people to understand the local market conditions, listen to shows like this, to make sure that they’re up on national trends, because that does tell you a lot of the broad biggest strokes, but then also helps you understand what metrics you should be following to dig into your own market and formulate your own strategies. For BiggerPockets. I’m Dave Meyer. This is on the market. We’ll see you next time.