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Interest rates and inflation had a major effect on the Florida housing market after the unprecedented strength and record-setting activity of 2020-2021. By the end of 2022, Florida’s real estate market was comparable to its pre-pandemic state in terms of the annual number of closed sales.
Total closed statewide sales for 2022 totalled up to 287,352 existing single-family homes and 125,494 condo/townhome units – down 18 and 21.7 percent year-over-year respectively.
Florida Realtors chief economist Dr. Brad O’Connor described Florida’s housing market in 2020 and 2021 as being ‘on a sugar high,’ and expects the 2023 market to continue its trend back to balance.
As sales activity returns to pre-pandemic levels, one major question on everyone’s minds is whether we can expect a price correction in 2023.
The statewide median sales price for a single-family existing home by the end of 2022 was $402,500 – up 15.7% year-over-year. Condo-townhouse prices rose by 21.6 percent as well, selling for an average price of $306,500.
According to O’Connor, predicting price corrections is a little more complicated than previous years thanks to interest rate uncertainty, inflation and a slower construction pipeline.
“Prices are determined by both demand and supply,” O’Connor said. “Falling demand is only one ingredient needed for a large correction; we also need a flood of supply – in the last housing cycle, this came from overbuilding and foreclosures. And it’s unlikely that we’re going to see a flood of newly built homes on the market for several reasons.”
“First, fewer home builders currently exist than in years past,” he said. “Builders are more conservative when it comes to taking on new builds, and home builds are taking longer to complete. Supply is also being affected by homeowners who don’t want to list their house and buy a different one because they’re likely to have to pay more on the next home due to higher mortgage interest rates.”
Interest rates and inflation created a whirlwind of economic uncertainty that caused both buyers and sellers to pull back from the market almost purely because of higher financing costs.
Recent economic news shows the Federal Reserve’s action to fight inflation is having a positive effect, but whether interest rates will start inching back up to 7 percent in 2023 is still up in the air. According to Dr. John Leer, chief economist for Morning Consult, economic changes over the last year have eroded consumer confidence as well as their savings accounts.
“In 2023, consumer confidence is starting to rise across most of the U.S. but remains far off from where it was a year ago,” he said. “While we’re seeing in the news that inflation is starting to cool, inflation is still impacting consumers. They still feel and see that inflation is costing them more. Consumers have exhausted their sources of spending.”
But despite what feels like a constant cycle of bad news for American consumers, homeownership remains a priority for many – meaning demand will continue to trend high throughout 2023.
“Buyers are still waiting in the wings, interested in purchasing a home as soon as they’re able to do so financially,” he said. “We continue to see that homeownership remains a strong goal for consumers, particularly for young adults looking to start and family and who feel secure in their jobs and ready for that next transition.”
