Is renting a property better than buying? Most of the time not, especially in the US, where interest rates to finance a home purchase are at their lowest level since 1970. However, rising home prices in Orlando and Central Florida have become inaccessible to many, which made the preference for rent to increase. This influx of buyers moving from buying to renting is one more factor that could contribute to the Florida real estate market coming to more balanced levels in 2022.
Will prices remain high?
Over the past two years, Florida has seen an explosion in property prices, particularly in the segment of single-family homes. In 2021 alone, property valuation in the Orlando metropolitan region was 20%, between January and November, a historic record that will probably not be repeated in 2022. More conservative specialists project a valuation of around 5% for this year. However, several factors contribute to the maintenance of a super heated market.
With prices skyrocketing, home ownership in central Florida has become prohibitive for many. With the inventory of homes extremely low and demand growing, it became increasingly difficult to find the ideal home or to compete for one. Some properties even have 5 purchase proposals at the same time. It is called the “Bidding-War”, which has made life for first-time homebuyers considerably complicated. The situation becomes even more critical when other players enter the dispute, such as large investment groups, which are able to pay in cash and are willing to make proposals above market prices.
Rise in rent pushes prices down
In any market, when the average price rises a lot and the property enters a value range that becomes inaccessible to a large portion of the public, the tendency is for the option to rent to increase.
This change in the behavior of residents is natural and understandable, since the demand for housing continues to exist, but many cannot afford to pay for the new house. Rent thus becomes the most viable option.
The immediate consequence of this change in behavior is the drop in demand from buyers, pushing prices down. This movement is cyclical and healthy, as it brings the market to more balanced levels.
Florida, however, has shown itself to be a case in point. What’s happening in the “Sunshine Estate” real estate market today is unlike anything we’ve seen before. The pandemic has disrupted market forces in such a way that the imbalance between supply and demand shows no signs that it will enter normal ranges anytime soon.
The increased demand for rentals is certainly a factor influencing prices, but other important factors remain. In addition to the low inventory, developers today face enormous difficulties in getting new homes in time. Demand, on the other hand, remains high and growing. New residents from northeastern US states as well as California arrive in Florida by the thousands every week.
Another factor keeping inventory low is the lack of motivation on the part of current homeowners to put their properties up for sale. With strong expectations of appreciation and a worrying inflationary context in the US and worldwide, it is better to keep the property than to sell it.
Opportunity for investors
With the expectation of appreciation, new investors and players enter the market all the time, looking for capital gains in the Florida real estate market. Below is a graph showing the evolution of the average property price in the Orlando region since 2017. The graph does not show data for November, which shows the new record of US$ 330,000.
About AMG International Realty
AMG International Realty is a global real estate company specialized in Florida. If you want to learn more about opportunities in real estate in Florida, contact me right now and chat with me on WhatsApp: +1 305 318 6968 (Heloisa Arazi).