Florida Housing Update – September 22, 2022

Brad O’Connor directly addresses camera:

For most of 2022. The big story in Florida’s real estate market each month has been the nationwide pullback in housing demand brought about by this spring’s significant rise in mortgage rates. The arrival of Hurricane Ian in the last week of September now is the dominant news, though, at least for the time being. Ian made landfall in southwest Florida on Wednesday, September 28th and plowed its way northeast across the state, finally moving into the Atlantic off the coast of east central Florida the following day. But Ian’s impact on Florida’s housing market actually began at the end of the prior week on Friday, September 23rd, when Ian first became a tropical depression. The National Hurricane Center was already forecasting a potential major that is category three or higher. Hurricane landfall in Florida the following week. Up to that point, multiple listing service data collected for September had essentially been showing a continuation of the market trends we’ve experienced for the past several months.

But as successive forecasts continue to show a potential major hurricane landfall in Florida, there was a pronounced slowdown in real estate activity observed in the MLS data, even in areas deemed unlikely to be threatened by the worst impacts of the storm, which I think we can all agree makes sense. Why list your home for sale or put one under contract now when you know you’re likely to see at least some ill effects from an incoming hurricane. And that’s what we saw in the data, a drop in both new listings and new pending sales ahead of the storm. Many closings appear to have been delayed as well. So if we take into account weekends and the Labor Day holiday, roughly a quarter of September’s business days were seriously disrupted by the storm. And as a result, we were left with some pretty lackluster market statistics for September in the usually sunny Sunshine State. Close sales of single family homes fell by 29% year over year, the largest year over year percentage drop they’ve experienced so far in 2022, unseating July’s decline of 23%.

Closed sales of condos and townhouses also fell by 29% year over year, but notably they fell by close to 31% in July. So I guess technically we can call that a win if we really try hard to find a silver lining. It’s worth noting, though, that part of the reason September’s year over year declines in closed sales are so large is that during the pandemic years of 2020 and 2021, the Florida real estate market didn’t get the memo that the second half of the year is supposed to be our slow time for closed sales. This is plainly visible if you look at the monthly sales data for the past five years, total closed sales across all property types in 2020 and 2021 remained elevated throughout the second half of both years, whereas here in 2022 we are trending below, but largely in line with our sales totals from 2018 and 2019.

Over on the supply side, new listings of existing homes for sale, as I mentioned before, were one of the stats most adversely affected by Ian in September. New listings of single family homes were down by close to 17% year over year, compared to just 3% in August. Over in the condo and townhouse category. They fell by more than 21%, versus August’s more modest decline of about 11%. The result in terms of end of month inventory was basically a wash with the drop in new listings essentially being matched by the hurricane induced drop in new contracts and likely some other active listings pulled off the market temporarily. Single family inventory at the end of September was therefore only marginally higher than in July or August. And the same goes for condos and townhouses as well.

Among those property sales that did close in September, the median sale price for single family homes was just under $404,000 a year over year increase of nearly 14%. That’s still a very high rate of growth, but we’re clearly easing off the gas compared to, say, April and May, when the median price was up close to 22% year over year. Over in the condo and townhouse category. Meanwhile, growth in the median sale price remains stubbornly high at 20 and a half percent, rising to just over $307,000.

Because Hurricane Ian came through the last week of the month, it’s a virtual certainty that its impacts will spill over into October’s statewide statistics as well. But these post-storm impacts will be different than those we felt in September. As we discussed, the threat of the hurricane had the effect of dampening real estate activity in local markets all across the state because of the high uncertainty of the forecast track.

Additionally, when the hurricane passed through, most of the state outside of the panhandle experienced adverse weather conditions that prevented real estate activity from occurring. But there was significantly more variation across the state in terms of lingering physical impacts from the storm. Things like significant property damage and infrastructure damage, extended electrical outages and so on. We’ve all seen the worst of the devastation on TV. It’s the television media’s job to seek these scenes out and report on them. Attention needs to be drawn to the plight of the victims in these areas so that we can all work together to help address their needs. At the same time, though, live reports on TV from a handful of locations aren’t well suited for giving viewers a sense of just how much the rest of these communities and the rest of the state, for that matter, have fared. Florida is a massive state with 22 million residents, and the vast, vast majority of us usually come through these storms relatively unscathed, facing only a few minor to moderate inconveniences, if any.

This time is no different. My point here is that mainly, while Ian may have had a broad dampening effect in September across the state, we can probably expect Ian’s impact on October’s market statistics to vary much more widely across markets. Most of Florida’s local markets were fortunately spared from severe damage to properties and infrastructure, and in these areas, foregone new listings, new contracts and closings during the last week of September were likely just pushed back into October, so we could potentially see a boost in these statistics in many parts of the state. As for the harder hit areas, the recovery will take longer and market activity will remain slow for a while, but perhaps not as long as one might think. If past experience is any indication. Prior to Ian, Florida had experienced seven major hurricane landfalls so far this century, with five of the seven occurring during the highly unusual 2004 and 2005 hurricane seasons. More recently, though, Florida was struck by Hurricane Irma in 2017 and Hurricane Michael in 2018.

Let’s start by looking at how Florida’s housing market responded to these two hurricanes. On the morning of Sunday, September 10th, 2017, Hurricane Irma became the first major hurricane to make landfall in Florida since Wilma in late 2005. Yet, while Irma certainly caused significant structural damage in a few Florida communities like one would expect from a hurricane of its magnitude, what really set it apart from other Florida hurricanes of recent memory was just how widespread its overall impact was. Although it struck the lower keys as a Category four and came ashore on the mainland as a Category three for much of its life, Irma was a Category five monster. Among the strongest Atlantic hurricanes ever recorded. So even though its last minute interaction with land in Cuba took its top winds down a notch, it still retained much of its size and energy as it approached Florida. This, in combination with its unusual path up the middle of the entire length of the Florida Peninsula, resulted in the exposure of every part of the state save the panhandle to damaging winds. It also brought about inland flooding in central and northeast Florida and subjected much of the Atlantic coast to storm surge. Not entirely unlike Ian. As was the case with Ian Floridians were given fair warning to expect a major hurricane landfall several days in advance. The forecasted path of the hurricane remained fairly consistent over time and involved Irma moving west and then taking a turn north toward Florida. This made it very difficult to determine which part of Florida would bear the brunt of the fierce eye of the storm. In one scenario, the storm would turn north early and the eye would strike south Florida. But just a slight deviation to the west would bring the storm up the state’s west coast instead, where it would surely pass over the keys and then make a potential landfall anywhere from the Everglades all the way up to the Big Bend. The latter scenario turned out to be what occurred, but it was not really certain it would go down this way until a day or two before landfall.

Because Irma hit Florida in the middle of the month. The market statistics for September 2017 were impacted both by the widespread freezing of real estate activity ahead of the storm, as well as the fallout from the destruction it brought. The impact on the statewide level of closed sales that month is plainly visible in this chart, with sales dropping well below the previous year’s level. What’s also visible, however, is that sales bounced back above the prior year’s levels. The very next month, essentially where they had been most of the year.

Now, whenever a major hurricane impacts Florida, much of the public discourse tends to focus on whether Florida will become stigmatized. With Florida’s housing market collapsing because the destruction seen on national television will severely curtail in-migration and the purchase of vacation homes.Such speculation certainly made the rounds after Irma tore through the state. But if demand for Florida housing was hampered due to a hurricane stigma, then how and why did closed sales rebound so quickly after Irma? Perhaps the rest of the country had a surge in sales after Irma, while Florida was just merely back to normal. Well, let’s add another panel to this chart to show how sales performed nationwide over the same time period.

The answer to our question is clearly no, apart from September of 2017. The sales pattern is similar at both the national and state level. In fact, relative to 2016, the Florida market did slightly better over the remainder of 2017 than the nationwide market. What about sale prices, though? Were Florida sales counts only able to rebound after Irma due to steep price cuts. The answer here is no as well. Statewide median sale prices barely budged at all during and after September 2017, and they maintained a higher annual rate of growth than the U.S. overall as well. Hurricane Irma shared a lot of similarities with Ian. It was a large storm with a wide wind field, that made landfall in the southwestern part of the state and moved up the peninsula, affecting a broad portion of the state’s population and property. It also froze real estate and other business activity across most of the state several days ahead of its arrival. There is one big difference, though, in that Category four, Ian made landfall in a much more populated and developed area than Category four Irma did when it struck the Florida Keys. But all of us recall the devastation that befell the Keys. The lone highway through the islands was covered in many places with trees and debris, and a significant storm surge impacted several of the lower keys.

So how did the real estate market in the Keys fare after Irma? Let’s go back to our sales chart and replace the U.S. data in the top panel with the data for Monroe County, Florida. The populated part of which encompasses the Florida Keys from Key West all the way up to Key Largo. Looking here at the data on closed sales in Monroe County. Notice that they rebounded remarkably in October of 2017 after a very rough September. By December, in fact, they were back close to 2016 levels, essentially where they had been all year prior to the storm. As for sale prices, there was a one month drop in November, but no real significant change from earlier in 2017 before the hurricane. Now let’s move on and analyze another powerful storm, Hurricane Michael. The only Category five hurricane to make landfall in Florida since Andrew in 1992. Michael differed from Irma and Ian in a few important ways. The forecasts for its track were very consistent and accurate, and they continually pointed, Michael, toward the Panhandle, away from the major population centers of peninsular Florida. Where the forecasts underperformed, however, was in predicting Michael’s intensity at landfall on October six, 2018. Four days prior to landfall, Michael was expected to arrive on the Gulf Coast as a mere tropical storm. Instead, it rapidly intensified and two days later, it was now expected to hit the coast as a major hurricane. Both of these factors, the late realization the storm would be significant as well as it’s forecast to track well to the west of the state’s largest, most densely populated markets meant that real estate activity in Florida continued as usual in most of the state prior to Michael’s landfall. And when Michael actually made landfall near Panama City. Most of the rest of the state was located too far to the east to really feel the storm’s actual impact. This lack of a statewide impact shows up in the closed sales data for 2017 and 2018. Note that Florida sales actually were up year over year in October 2018 when Michael came ashore.

Sales underperformed a couple of months later in December, but the same was true for the U.S. as a whole. So it wasn’t a function of the hurricane. Remember that in late 2018, mortgage rates had recently climbed above 5%, which seemed really high at the time. Plus, the stock market was undergoing some turbulence, disrupting our luxury markets. And we were also entering into the longest ever federal government shutdown in the country’s history. As for sale prices, they remained stable during the entire fourth quarter of 2018, showing no ill effects from the hurricane at a statewide level. The fact that most of the state was spared impacts from Hurricane Michael was of no consolation, of course, to the residents of Bay County who took its full force squarely on the chin. We all remember the shocking scene from the small seaside town of Mexico Beach. But there was also very significant wind damage throughout much of Panama City and the surrounding area, as well as northward into Georgia. And here in the charts, it’s evident the most significant local impact on sales that we’ve seen so far. And yet sales did make up some significant ground by December. And if we add in 2019 sales, you can see that they were up on a year over year basis in January and remained that way for most of the rest of the year. Bay County took more or less a direct hit from a Category five hurricane, and only three months later, sales were back to pre-storm levels. Home sale prices, meanwhile, remained stable throughout. Apart from a temporary one month blip in December 2018, an echo effect of closings that went under contract a month or two prior in the wake of the storm. The decline probably had more to do with the type of housing that went under contract at that time rather than a broad temporary depreciation. If we were to go back and review the hurricane seasons of 2004 and 2005, we’d find a similar story as we would if we went even further back and analyzed the two major hurricanes from the 1990s, Andrew and Opal. All of these examples are strong evidence that Florida real estate has historically had willing buyers after hurricanes in places where the lights are on and infrastructure is back in place. That doesn’t guarantee that that will be the same for Ian, but it is encouraging nonetheless. Today, in the majority of the state where we have been able to get back to business as usual over the past couple of weeks, we will likely see a similar rebound in the October numbers. The internal data we’ve collected so far for October seem to verify this.

The difficulty is that we are rebounding back to a market still heavily weakened by high mortgage rates and low affordability. That will remain the single greatest obstacle to the statewide market going forward into 2023. Wondering how your local market fared in September? Will it rebound in October?