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Florida condos are flooding the market due to new law

Florida condos are flooding the market due to new law
by Brad Cartier, posted in Newsletter

New data from Redfin shows that home sale prices have hit another record high, now at a median of $387,600, up 4% from a year earlier. High housing costs led to a 4.2% year-over-year decline in pending home sales, the largest drop in three months. Despite an 8% increase in new listings, inventory remains lower than usual spring levels, leading to rising prices despite declining sales.

Home prices rising

Source: Redfin (May 2024)

According to Lily Katz of Redfin, the data suggests that:

“Elevated mortgage rates and high home prices have cooled homebuyer demand, but prices continue to tick up because there aren’t enough homes for sale. New listings have increased in recent months, but remain roughly 20% below pre-pandemic levels. That’s largely because many homeowners don’t want to sell, as they feel “locked in” by the low mortgage rate they scored during the pandemic.”

CoreLogic housing data shows a similar trend, with prices increasing by 5.3% year over year in March 2024 and by 1.2% month over month compared to March 2023 and February 2024. CoreLogic expects home prices to stay in this general range for 12 months.

Gabrielle Olya of Yahoo! News reports on an interview with celebrity investor Barbara Corcoran, who says that housing prices “are going to go through the roof.” Corcoran believes that as soon as interest rates come down slightly, it will break the bottleneck of sellers not wanting to sell due to high rates.

“The minute those interest rates come down, all hell’s going to break loose and the prices are going to go through the roof…Right now sellers are] staying put. But they’re not going to stay put if interest rates go down by two points. It’s going to be a signal for everybody to come back out and buy like crazy, and the house prices [will likely] go up by 20%…We could have COVID [market] all over again.”

Khristopher J. Brooks of CBS News reports on the persistently high housing prices, noting that the two main reasons are continuously strong demand and a historical housing shortage. None of these issues will be solved in the short term, keeping upward pressure on housing prices. 

Rate cut and demand

Fergal McAlinden of MPA says the cooling inflation picture has led many to suggest that the Federal Reserve may be preparing rate cuts. That being said, this will likely spur further homebuying competition, leading to bidding wars as the housing supply is not keeping up with demand.

Indeed, we have seen a slight drop in rates over the past month, according to Orphe Divounguy of Zillow. Mortgage rates decreased this week, continuing a downward trend from a 2024 peak in late April. Inflation and retail sales data indicate a slowing consumer, with reports of easing wage growth and dwindling savings. Lower-than-expected retail sales data also indicates a slowing economy, suggesting inflation could continue moving in the right direction. As such, markets are predicting 1-2 rate cuts in 2024.

Pete Schroeder and Howard Schneider of Reuters report on commentary from Fed officials, highlighting that policymakers said last week that they would wait “several more months” to ensure inflation is back to its 2% target before looking at rate cuts. Fed Governor Christopher Waller is quoted as saying: 

“In the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy.” 

Nick Timiraos and Paul Kiernan of the Wall Street Journal report on this story, noting that, according to meeting minutes, Federal Reserve officials decided to keep interest rates at their current level for longer than expected due to disappointing inflation readings for the third consecutive month. They are uncertain about how much the rates will slow the economy and inflation and are waiting for further data to support rate cuts.

Florida condos

Deborah Acosta of the Wall Street Journal reports on the pain in the Florida condo market following legislative changes resulting from the Surfside condo collapse in 2021. Reportedly, a new state law requires older buildings to meet stringent structural safety standards, leading to significant special assessments being levied against current owners. 

In just one example, Acosta explains that the Miami-based Cricket condo board recently proposed a $30 million special assessment for repairs, amounting to $134,000 per unit owner. This has led to a flood of condos hitting the market.

Florida condo sale surge

Source: Wall Street Journal (May 2024)

“In a number of these buildings, prices are beginning to plummet. While units built less than 30 years ago are selling for about 38% more today than they did in 2020, units 30 years or older are now going for almost 12% less than they did back then, according to a data analysis by brokerage ISG World. Owners are struggling to find all-cash buyers because mortgage lenders are increasingly unwilling to take on the risk associated with these units.”

Linnie Supall of Channel 8 News reports on the issues facing condo owners, highlighting that the new law requires inspections for all three-story condominiums and structural integrity reserve studies. These expensive studies must be completed to see if there are any structural or foundation issues, which many are finding are leading to costly special assessments.

Similarly, Sabrina Maggiore of Yahoo! Finance reports that condo owners in Orlando are seeing special assessments and HOA fees triple due to these new requirements. “For years, condo boards could waive reserves covering deferred maintenance, but lawmakers changed that after the surfside condo collapse.” As a result, “many residents say they will now need to quickly sell their homes or could face foreclosure.”

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