Real Estate Market Update… Is The Party Over?

I think the real estate market is a lot like frat parties in my college days.  What do I mean by that?  Remember back in your college days, were there frat parties?  

The Build Up

I remember frats would throw these epic parties on the weekends, usually on Saturday nights. The basements of a frat house would be packed with people. There was loud music, booze, and beer everywhere. The room was dark, with almost nonexistent lighting, save for some neon signs promoting Bud, Miller, or Busch beer. People would be dancing, laughing, and just living in the moment, grateful to be part of the experience. It was awesome.

As I study real estate markets, I think they build up in much the same way.

The Party

On the day of the party, some folks would arrive early because they knew it was going to be chaos later. Sure enough, as more and more people showed up, the party got louder, it became harder to get drinks, and just moving around was a challenge. But man, it was fun. Of course, there were always those who showed up too late, missing out entirely and having to hear about it all the next week.

Doesn’t this sound like what happens in a real estate market? The buyers who get in early, when prices are low and there are plenty of properties to choose from, win big. Then comes the “rush,” where everyone is buying, pushing prices up as the selection of “good” properties quickly evaporates.

The Party is Over –  Now the Clean-Up

As with all parties, they eventually get too crowded, too out of control, too everything, and have to be shut down. The lights come on, the music gets turned off, and the frat guys start herding everyone out of the house. It’s like that song “Closing Time,” where the singer says, “You don’t have to go home, but you can’t stay here.”

In the real estate market, the Fed acts as the frat guys who turn on the lights, turn off the music, and tell everyone the party is over. They do this by making money (through higher interest rates) harder to get or more expensive. These high rates typically cause buyers to stop buying, which forces sellers to lower prices to attract new buyers. In other words, a prices crash.

Back to Normal

Recognizing that the party is over and that they have schoolwork, homework, and responsibilities to tackle tomorrow or later in the week, people begin to return to their normal routines, leaving the mess from the party to be cleaned up by someone else.

The real estate version of this is the “normal” market, where prices increase gradually over time, rather than the steep jumps that occur during the “build-up” before the next party.

There’s Always Another Party

Whether it’s college kids looking for a party or folks looking for places at the beach, there’s always another party coming. In real estate, we may not be able to see them coming as easily as we could with frat parties in college, but they’re on their way.

Something will happen—a rate drop, a shift in demand, or an unexpected opportunity—and some folks will see it early and jump in. The buzz will grow, more people will follow, and the next real estate version of a party will be in full swing.

What does this have to do with our real estate market?

Since 2019, our real estate market here at the beach has progressed a lot like a college frat party. Why do I say that?  

The Real Estate Party

 Early on in the Covid Era, when people were forced to work from home, rumors started circulating about how you could buy a place at the beach, stay there, and work from the beach. Then, when you went back to work, you could rent your house or condo out for big money. Just like those parties back in college, some folks jumped in early when there were plenty of properties to choose from, property prices were low, mortgage rates were low, and rents were high. These were good times. Word got out, and people began clamoring to buy vacation properties at the beach. This caused prices to double almost overnight. Some early sellers were mad they sold too soon, while some late buyers were mad they didn’t buy sooner. The party was in full swing. Multiple offers on properties became common. Buyers were signing contracts with no contingencies for inspections, appraisals, or anything. The sentiment was, “Just get me the property.”

The Real Estate Party Ends

At the end of the first quarter of 2022 the party ended.  The music was turned off, the lights turned on and people were told to go home. In this case, it was the Fed, raising interest rates 11 times from March 2022 to July 2023, that effectively shut down the real estate party.

The Clean-up

Now, we find ourselves in clean-up mode. The folks who bought in early at low prices and low mortgage rates are looking around quite happily, having been to the party and having the T-shirt—and a great investment—to prove it. It may not be as great right now because the costs of ownership have jumped, but it’s still pretty good, and the next party will come around again at some point.

On the other hand, those who bought late, at the top of the market, and who need top rental dollars to make their investment work, are going to find themselves in a tough spot. The challenge for them will be to hold on until the next party starts, when people are once again willing to pay whatever price is necessary to get in.

When Happens Next?

The honest answer? Who knows. However, we can look back at the previous big real estate party—the Great Recession era—for guidance. Back then, we saw prices jump during the “build-up,” crash during the “clean-up,” and then slowly rise again in the “normal” market, before jumping once more during the Covid-era build-up.

Let’s compare the Great Recession era with our current Covid era to see if we can get an idea of what to expect going forward.

Destin Area (Destin, Miramar Beach and Fort Walton Beach) Condos

Destin Area Condos: The Great Recession Era Build Up 

In the Destin area, we saw condo prices jump in 2000 as the party was getting started, rising from a median sales price of $215,000 to $520,000 in 2005 when the party peaked. Then the music was turned off, the lights came on, and the party was over. In this case, it was the Fed making it difficult for banks to lend on residential real estate, coupled with the overall economic downturn.

The Clean-Up

The clean-up cycle started in 2005 when Destin area condo prices began to slide and ended six years later in 2011, when they bottomed out at a median sales price of $210,000—significantly less than the high of $520,000 in 2005.

Back to the Day-to-Day Grind

In 2012, a “normal” market emerged, and we saw a steady climb in condo prices, rising from a median sales price of $220,000 in 2012 to $330,000 in 2019. This “normal” market lasted seven years before the Covid Era build-up began.

The Covid Era Build Up 

In 2020, thanks to cheap money, work-from-home policies, and stimulus checks, a new party started, and condo prices in the Destin area began to jump. The median sales price in 2019 was $330,000, but as word got out, it rose to $420,000 by 2021. From there, it was party time. Median sales prices for Destin area condos shot up to $561,000 in 2023. In other words, prices ballooned by $231,000, or 41.2%, in just five years.

Is The Party Over? What about Clean Up and Normal Market? 

Like all parties, they eventually have to end. In 2022, the Fed stepped in and started raising interest rates at a record pace. This action caused the average 30-year mortgage rate to skyrocket from 3.22% in January 2022 to 7.08% by the end of October—a 4% increase in just 10 months. The party was over.

Here’s the interesting thing about this clean-up: while the number of transactions fell off a cliff, prices continued to climb until recently, when they flattened. This year’s median sales price is almost identical to last year’s, with only a $1,000 difference year-to-date.

As the supply of condos listed for sale grows, the cost of owning them continues to climb, and the high summer rental season winds down, I expect we will see a further softening of prices this fall and into the beginning of next year. How far they fall remains to be seen, but there are significant headwinds facing condo owners: recession fears, softening rents, high mortgage rates, high insurance costs, milestone inspection issues, and reserve study requirements—all of which will impact prices as the clean-up after the party runs its course.

Before we discuss where Destin, 30A, and Panama City Beach condo and home prices are headed, let’s first take a look at Destin home prices.

Destin Area Homes (Destin | Miramar Beach)

Destin Area Home Prices (Destin | Miramar Beach): The Great Recession Era

Build Up and Clean Up 

Looking at the median sales prices for Destin area homes, you can see the same “party’s on” (build-up) that we saw with condos back in the early 2000s. Median sales prices jumped from $190,500 in 2000 to $540,000 just five years later in 2005. That run-up was followed by a steep drop-off (clean-up), where home values fell from the $540,000 high in 2005 down to $318,000 just three years later in 2008.

The Grind of a Normal Market

After the market fell and moderated we saw what I would call “normal” appreciation from 2008 until 2019 where prices increased on a steady trajectory over eleven years going from $318,000 in 2008 to $534,500 in 2019 when the new party started with the Covid area.  

Destin Home Prices: The Covid Era

Build Up

In 2020 we saw prices blow up jumping to $534,500 a year earlier in 2019 to $1,050,000 in 2022. That was a 49% increase in a short three year period.    

The Clean Up and Grind of a Normal Market

So far, the clean-up appears to be a 6.9% drop from 2022 to 2023, with prices falling from a high of $1,050,000 to $981,000—a $69,000 (6.6%) year-over-year decrease. However, year-to-date 2024 median sales prices for homes in the Destin area are only $3,000 lower than last year’s price. Whether this signals that the clean-up is over and we are now entering a “normal” cycle remains to be seen.

What About 30A Condo Prices?

30A Condo Prices: The Great Recession Era

The Build Up

30A Condo prices spiked in the (build up) before the great recession growing from $173,000 to $600,000, a massive 71.2% increase.  It was party time.  

The Clean Up

From 2005, when the Great Recession started to kick in, until 2011, we saw short sales and foreclosures dominate the market, causing 30A condo prices to drop by 53% (clean-up), giving back a significant portion of the gains made during the build-up.

The Grind of a Normal Market

In 2011, condos on 30A entered what I call the “normal” market, where prices increased, but they took the stairs, not the elevator. The price increases were slower and more methodical as you would expect, until the Covid Era build up started the whole cycle over again.

30a Condo Prices: The Covid Era

The Build Up

From 2019 into 2020, as Covid reared its head, the prices for 30A condos jumped on the price elevator and went up (build-up). The median sales price for a condo on 30A increased from $522,500 in 2019 to $1,000,000, where it sits today.

The Clean Up and Grind of a Normal Market

To say there is a clean-up happening right now would be a stretch—prices are still going up, but only slightly. Looking at 2024 year-to-date compared to 2023, I can tell you 30A condo prices are up by ½ of 1%.

I think we are on the edge of a softening for 30A condo prices, which I will discuss in more detail later in this post.

But first, let’s take a look at 30A homes and Panama City Beach condos and homes.

30A Home Sales Prices

30A Homes Prices: The Great Recession Era

The Build-Up

In the lead-up to the Great Recession, money was incredibly easy to obtain. Banks were offering stated income and no-document loans, many of which were structured for borrowers to pay only the interest. It was an amazing time, and many people took advantage of the easy financing to buy real estate here on the Emerald Coast.

Houses on 30A saw the median sales price increase from less than $300,000 in 2000 to more than $950,000 by 2007. Then the market collapsed, and prices plummeted.

The Clean-Up

As the economy shifted into recession and banks were flooded with foreclosures and short sales, home prices on 30A plummeted from $952,500 in 2007 to $492,500 in 2011 (the clean-up). These distressed sales fueled a 48.3% reduction in prices, leaving many people upside down on their mortgages. One thing to note as you review this data is how long the clean-up lasted—four years in this case.

The Grind of a “Normal” Market

The cycle held, and the median sales prices for homes on 30A began an extended period of “normal” appreciation. Prices climbed steadily from $492,500 in 2011 to $789,480 in 2019—a solid run, for sure. Then it was go time again as the Covid Era began.

30A Homes Prices: The Covid Era

The Build-Up

In 2019, with low interest rates, the rise of remote work, and relatively low real estate prices, median sales prices for homes on 30A took off, as if riding an elevator, rising from $789,480 in 2019 to $1,650,000 today (the build-up).

What About a Clean-Up?

The closest 30A home prices have come to a clean-up is a modest 1.8% increase compared to last year. Is a drop-off coming? Maybe. It seems counterintuitive to think otherwise, but the numbers haven’t borne it out yet. My expectation is that prices will soften in the coming months. I will address this further later in this newsletter.

Panama City Beach Condos

Panama City Beach Condo Prices: The Great Recession Era

The Build Up

In 2000, the median sales price for a condo in Panama City Beach was $118,250. By 2005, cheap, easy money had helped it climb to $385,000 (the build-up). The Panama City Beach condo market party was in full swing.

The Clean-Up

However, the party crashed in 2006 when the Great Recession hit. Foreclosures and short sales dominated the market, and Panama City Beach saw condo prices drop from $385,000 to less than half, bottoming out at $175,000 in 2011. It’s important to note that it took five years for the market to bottom out (clean-up).

The Grind of a Normal Market

From 2011 to 2019, Panama City Beach condo prices enjoyed a steady increase (normal market), rising from the bottom at $175,000 to $250,000 by 2019, just as the Covid-era build-up was forming. Note: it took fifteen years to return to peak prices.

Panama City Beach Condo Prices: The Covid Era

Build-Up  

In 2020, a new party started, and we were off and running again. During the Covid Era, when mortgage rates dropped as low as 2.65% for a 30-year fixed-rate mortgage, this cheap money caused median sales prices to climb from $250,000 in 2019 to $435,000 in 2023. A new build-up was off to the races.

The Clean-Up

By 2024, the Panama City Beach condo party was over, and the clean-up is now underway. Condo prices topped out at $435,000 last year, and now—year to date—they’ve dropped to $390,000. That’s a 10.3% decline so far; how much further they will fall remains to be seen. If the Great Recession era is any indicator, it could take a while, but I don’t think it will. I’ll address this more after we look at Panama City Beach home prices.

Panama City Beach Homes

Panama City Beach Home Prices: The Great Recession Era

Build-Up

For homes in the Panama City Beach area, the Great Recession party started in 2002 when the median sales price for a home in Panama City Beach was $141,000. During the “party” years, prices jumped to $301,621 in 2005 before falling back once the recession began.

The Clean-Up

2006 saw prices linger and in 2007, Panama City Beach home prices began to fall in earnest (the clean-up), dropping from a high of $301,621 to $180,705 by 2011. Over a four-year period, median home prices in Panama City Beach fell by $120,916. That was tough on many owners, especially those who bought in late at high prices.

The Grind of a Normal Market

From 2011 through 2020, the Panama City Beach home market experienced steady and impressive annual appreciation (a normal market), with prices rising from $180,705 in 2011 to $319,125 in 2019. It took 14 years for the highs of 2005 to be realized again.

Panama City Beach Home Prices: The Covid Era

Build-Up 

From 2019 to 2023, with cheap mortgage rates and sellers eager to accept high offers, Panama City Beach home prices skyrocketed from $319,125 in 2019 to $522,735 in 2023 (build-up) —a 39% increase in just a few short years.

The Clean-Up

Prices are now falling for Panama City Beach homes, with year-over-year prices dropping from $522,735 last year to $499,900 this year (clean-up). How far they will drop and how long the grind of a normal market will last remains to be seen.

What’s Next for Our Real Estate Prices?

Is The Next Party or Clean Up Period (Crash) Coming?

Many folks own properties with low buy-in costs and low mortgage rates (if they even have a mortgage) attached to their properties, avoiding a market rife with foreclosures and short sales like we saw after the Great Recession. During that time, many people were upside down with little to no equity in their properties and chose to simply give their properties back to the bank. The banks were forced to sell these properties cheaply, which exacerbated the downward pressure on prices and caused the market crash.

This Is Different – Affordability is the New Problem

While there will be some foreclosures, a mass foreclosure situation doesn’t exist this time around. The biggest issue we face now is simple affordability. If people can’t afford our condos and houses, they won’t buy them. If the “numbers” don’t work, investors won’t invest. If rents get too high, renters won’t rent. Because of this, I expect we will see a period of flat prices with a limited number of transactions as buyers, owners, sellers, and renters wait for the market to adjust to a point where it makes sense to buy, sell, or rent again.

What Indicators are We Watching?

I believe it’s a supply and demand issue that will ultimately reflect the affordability of homes here at the beach.

We know that real estate values are directly determined by supply and demand: when demand exceeds supply, prices go up, and when demand drops below supply, prices go down. It’s that simple.

Supply:

Right now, we have a growing supply of properties for sale, but it’s not enough to cause an imbalance in the overall market—at least not yet. Will it grow dramatically? For that to happen, we’d need new developments to come online, and there simply aren’t enough in the works to impact supply significantly. Looking at the existing condo developments and the people who own them, many have low or no mortgage rates, effectively locking them in place. I don’t foresee enough of these owners choosing to sell at reduced prices unless they have a better place to move their money. I expect supply to remain low for several years.

Demand:

Due to affordability issues, demand is currently low. What will cause that to change? I see four primary factors likely to drive prices up in the coming years:

Baby Boomers: The U.S. Census Bureau reports that there are 76.4 million baby boomers, and they have substantial wealth to invest. As of the fourth quarter of 2023, they owned 51.8% of the country’s total wealth, worth $76 trillion. These folks can afford to buy condos at the beach, and I expect they will continue to do so as they retire and seek quality time by the water.

Population Shifts: In 2023, the South was the fastest-growing region in the United States, with South Carolina, Florida, and Texas leading the way. This population growth will bring increased demand to the beach.

Immigration: Regardless of where you get your information, the number of people immigrating to the U.S. is significant. According to USA FACTS, nearly 2.6 million people—almost the population of Chicago—legally immigrated to the U.S. in 2022. This doesn’t include those coming illegally. Either way, it’s a lot of people who will either want to own or vacation at the beach.

Inflation & Appreciation: We have a saying: “Prices don’t always go up, but they do go up over time.” I believe that deeply, and the statistics bear it out over time.

The WILD CARD

Remember, there’s always a next party. No one could have predicted a worldwide pandemic, and when it hit, it caused prices to double almost overnight. Going back further, few saw the Great Recession coming, yet it did, and prices skyrocketed and then plummeted just as quickly. There’s always another party coming.

What Does The Future Hold For Florida Real Estate?

Committed to your success,

John Moran – CEO

The Smart Beach Investor | Keller Williams Realty AT THE BEACH TEAM

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