Understanding the Cost of Money and Real Estate Trends on Florida’s Emerald Coast

When evaluating the real estate market on Florida’s Emerald Coast, it’s crucial to consider the cost of money, influenced by mortgage rates and Treasury Bills (T-Bills). This analysis provides insights into the current state of the market and predictions for 2024.

Impact of Mortgage Rates on Property Prices

Mortgage Rates

What can I make work on a monthly basis? This is the reality for most buyers as they often base their property purchase decisions on monthly affordability rather than the property’s total cost. What does this mean? It means that when mortgage rates were low, buyers were comfortable paying high sales prices because they still “worked” as a monthly payment. However, when mortgage rates started jumping, and affordability started dropping, buyers could no longer make the monthly payments work. The result? Buyers left the market, and we saw the number of transactions crater. For comparison, in December 2021, the average mortgage rate was 3.10%, contrasting with the current 7.22%.

Property Prices

Mortgage rates and property prices combine to determine the majority of what it costs to own a property on a monthly basis. If mortgage rates are high, then property prices need to come down for buyers to make the monthly payment work. As you can see, property prices are significantly higher today than they were just two years ago.

Treasury Bills and Real Estate Investment

Treasury Bills (T-Bills)

Most investors base their purchase price of a property on the potential Return On Investment (ROI). They compare the return to other options and, in the end, place their money “where it’s treated best.” Right now, T-Bills, offering a 5.25% return with low risk and high liquidity, are an attractive alternative compared to investment real estate, where there is a ton of risk, high property prices, high cost of money prices, high costs to own, and very little liquidity. The result? Investors are choosing to “park” their money in T-Bills rather than invest in real estate. As a reference, in December 2021, T-Bills were paying 0.05%, and real estate prices were almost 40% less, with the cost to own not as high as it is now.

Real Estate Market Forecast for 2024

Unless something changes, this data tells us that the number of real estate transactions will likely stay low in 2024. It also suggests that prices will probably not continue to increase across the board. In fact, there is a significant probability that they will start to come down as supply increases.  Take a look at what is happening with supply over the last several months.

Supply and Demand Trends

The supply of real estate for sale is showing noteworthy changes:

  • Destin/Miramar Beach:
    • Houses: Increased inventory three out of the last four months.
    • Condos: Increased inventory two out of the last three months, with a 38.1% jump in October.
  • 30A:
    • Houses: Inventory increased in seven out of the first eleven months.
    • Condos: Inventory increased three out of the last four months, with a 44% jump in November.
  • Panama City Beach:
    • Houses: Increased inventory each of the last three months.
    • Condos: Increased inventory each of the last four months, with a 65.4% increase in November.

What’s it all mean? 

As we step into 2024, the real estate market is poised to remain tight initially, but a shift is expected as inventory levels rise, potentially softening prices. With the market showing signs of correction, the importance of liquidity becomes paramount. In the event of a decline in prices, reduced rental income, and persistent high ownership costs, some folks may find themselves struggling with the challenge of managing a negatively cash-flowing property without the checkbook to carry it. This circumstance might force them to sell into a declining market. If you lack the financial flexibility or prefer to avoid having to navigate a declining market, consider selling now while we know what the prices are going to be.  

What Should You Do?

If you are a long term holder, you are sitting great.  I believe there are a ton of reasons to believe in a long and profitable future: Increasing demand for Florida real estate in general and our vacation rental properties specifically.   I also believe that in the short term there are many indicators that indicate that we are in for a potentially bumpy ride over the next several years.  

If you are a short time holder (five to seven years) our advice is to sell now and mitigate the very real risk of steep price drops.  My experience has been, after steep increase in price over a short period of time like we just had, there is a steep decrease in prices as the market “corrects”.  

When that happens buyers will likely stop buying (we are seeing this now) and wait to see how low prices will go. So far we have not seen prices drop… but.  As part of the cycle, sellers who are vulnerable inevitably succumb to the pressure and sell lower than they would like.  All of this serves to push prices down further and for longer.

If you are buying to flip and grab quick cash… be very careful.

Bottom Line 

We are wealth builders, so our goal (whether you are buying or selling) is to build or protect your wealth – based on your financial goals and the current market conditions. Call us today and let’s talk about how you can max out your position as a buyer, a seller or as an owner to continue building your family’s wealth well into the future.

Committed to your success,

John Moran – CEO

The Smart Beach Investor | Keller Williams Realty AT THE BEACH TEAM We Make Real Estate Easy.

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