The average price of real estate in Orlando reached the value of US$325,000 in October 2021, which means an appreciation of more than 20% compared to October 2020 (US$269 thousand), according to data released by the Orlando National Association of Realtors. The numbers consolidate Orlando’s real estate market as one of the most promising in the world for real estate investment. And prices show no downward trend. On the contrary, several factors suggest that prices will remain on the rise, not just for the Orlando region, but for the state of Florida as a whole. In this article I explain the main reasons!
If you are considering investing in Florida, be sure to read this article and learn about the main factors that continue to put pressure on Florida property prices.
1 – Very High Demand
The Florida real estate market is experiencing unusual demand. This unprecedented behavior can be explained, in part, by the pandemic. The past two years have seen a growing influx of people from other US states seeking housing in Florida.
Florida was already a popular region for North Americans, where winter is very harsh. The trend has been around for decades. The state is perceived by Americans as one of the best places to retire, as it offers a pleasant climate all year round and an excellent quality of life. Not only retirees, but Americans in general, see Florida as a happier state, with beautiful beaches, tropical climate, sun most of the year and lots of hype. No wonder Florida is also known as the “Sunshine State”.
The trend, however, was not as significant as it showed during the pandemic times. Many Americans, despite wanting to live in Florida, were stuck in their home states for work. For this reason, the dream of change for these people was something, most of the time, conditioned to retirement.
With the onset of the pandemic and the intensification of remote work, these people decided to spend long periods in Florida, as they could work as a home office. Spending a season in Florida was not only a way to enjoy the beaches and tropical climate of the “Sunshine Estate”, but also a strategy to escape the large and congested urban centers in the north, where contamination rates were extremely high, especially in the lower phases. of the pandemic.
Florida’s warm climate, in this sense, allows for outdoor activities. In addition, the state also offers several regions with low population density (lower risk of contamination).
As a result, Florida experienced a veritable invasion of new residents, receiving more than 1,000 new residents a day. The flow remains expressive even today, which considerably impacts the demand for residential homes in the state.
2 – Companies start to accompany their employees
The long period of “forced” remote work has turned out to show that this activity format works and, in many cases, works even better than face-to-face work. The corporate world started to study hybrid models. The fact is that the pandemic has altered the corporate dynamic, triggering a new way of working.
With a large number of people already working remotely in Florida, a large number of companies in the US have decided to accompany their employees and migrate, in whole or in part, their activities to the state.
Migrating operations to Florida is also part of the strategy of many American corporations, as the state is perceived as “Business Friendly”. Florida, in addition to offering a tax-friendly environment (there is no income tax at the state level), is also seen as a destination where entrepreneurship is motivated. There is not as much bureaucracy and taxes as in New York or California.
Large corporations such as Goldman Sachs, Disney Group (California), KPMG and others have already migrated or are migrating their divisions to regions around Miami and Orlando.
This movement places a great weight on the demand side for residential and commercial properties in the region. There are no signs that demand for Florida real estate will reverse the uptrend.
3 – Low interest
Still on the demand side, the historically low interest rates in the US (lowest rate since 1970), contribute to people taking the opportunity to buy new properties.
4 – Buyers from other states tend to pay more
Buyers in states like California and New York are used to average prices in the $1 million range above, well above the average price in central Florida today, which is $325,000.
This disparity between one reality and another motivates an auction for properties in an already extremely heated market, where “those who give more, get”. New Yorkers aren’t too concerned about raising $50,000 or $100,000 in real estate to fulfill their dream of living in a true “Florida mansion” in the eyes of those who live in a cramped Manhattan apartment.
5 – Low Inventory
If, on the one hand, demand remains high, on the other hand, inventory helps to increase the imbalance. Florida is experiencing historically low levels of inventory, particularly in the single-family homes segment.
Someone might say. “Okay, but it’s a one-off moment because of the pandemic.” The chart below shows no. Central Florida real estate inventory has been declining for 10 years.
During the pandemic this trend only intensified, but it already existed, suggesting that there will be no change in this supply-demand imbalance any time soon. The average price of real estate in the region, therefore, tends to continue to appreciate.
6 – Builders will take time to deliver new units
Regardless of the new factors brought about by the pandemic, what partially explains the decreasing curve in the Florida inventory for more than 10 years is the pace of new construction falling short of population growth.
Since the sub-prime crisis in 2008 builders were unable to keep up with demand. At that time, builders paused or halted their projects as the real estate sector collapsed. It cannot be said that the recent pandemic crisis had the same effect, as the factors and proportions are completely different, but the behavior is similar. At the beginning of the pandemic, construction companies also reduced activities, uncertain of what was to come.
Unlike the 2008 crisis, whose effects lasted for several years, the pandemic had the opposite effect. It didn’t take long for the real estate market to start “moving”, changing hands. This movement ended up greatly impacting the demand for new properties, as explained above.
Florida construction companies have realized the expressive need for new homes and are running out of time. However, projects need time to be approved and built. Everything indicates that, in the coming years, there will not be enough new homes to meet the growing demand, which would keep inventory levels low and pressure on Florida property prices.
7 – Lack of material for new constructions
In addition to the natural delay for approval and construction of new homes, builders face another problem: the lack of material. This is not unique to the real estate market. Today, the whole world experiences a lack of material (inputs and raw materials), in the most diverse sectors.
The industry slowed production during the pandemic. At the same time, there is a repressed demand that shows all its strength in this phase of reopening and reducing restrictions. The little that is produced is readily consumed, creating “gaps” in the production chain.
It will still take time for processes to adjust.
8 – Current homeowners with no incentive to sell
In the single-family home segment, which is most in demand in Florida today, current homeowners have no incentive to list their homes for sale. The reason is simple: they know that if they sell, they will have a hard time finding another one.
With the interest rate at historically low levels, it becomes more attractive to refinance the property with smaller installments than to sell it and run the risk of not finding another one at reasonable prices and conditions. It’s better to refinance and wait, after all, prices will only increase.
This behavior helps keep Florida property inventory at low levels.
Conclusion – prices will continue to rise for quite some time
The reasons listed above, which led to the significant valuation of real estate in Orlando, are not likely to disappear after the pandemic. Many of them are trends of more than ten years that have only intensified now. Most importantly, the factors brought about by the pandemic tend to consolidate in the market, such as telecommuting and the migration of companies to Florida.
Our understanding is that Florida will remain in an imbalance between supply and demand for quite some time. Investing in Florida real estate is currently one of the best applications in the global context.
The Brazilian investor can take advantage of the low US interest rates to buy (30 years to pay), just prove income in Brazil. For Brazilian investors, buying a property in Florida means not only making an investment with a high expected return, but also pegging part of their assets to a strong currency, far from the Brazilian political and economic instability.
About AMG International Realty
AMG International Realty is a global real estate company specializing in Florida. To learn more about the Miami and Orlando real estate market and take advantage of opportunities in the region, contact me right now and chat with me on WhatsApp: +1 305 318 6968 (Heloisa).