Knowing the market trends can help you plan your business. Top economists and real estate professionals share their predictions for 2022.
With continuing population growth, 2022 looks like another strong year for Florida’s residential markets.
Low mortgage rates will help buyers, despite rising home prices. Although builders are increasing production, the supply of new and existing homes will remain below the level of demand.
That’s a summary of the key trends likely to shape the market in the new year, according to experienced economists and real estate professionals.
“I think COVID-19 brought a new focus to many Americans,” says Ed Forman, president of Watson Realty in Jacksonville. “When they ask themselves, ‘Where do I want to live, work and enjoy life?’ the answer often turns out to be Florida.”
Since the pandemic hit in March 2020, there has been a huge imbalance between housing supply and demand in Florida, says Ken H. Johnson, Ph.D., a real estate economist at Florida Atlantic University’s College of Business in Boca Raton. “Along with strong in-migration, we have an ongoing shortage of inventory. For the last 15 years, the supply of new homes has not kept up with population growth.”
That wide gap between supply and demand created a red-hot market in the first half of 2021, especially in luxury homes and condominiums, according to Brad O’Connor, Ph.D., chief economist at Florida Realtors® in Orlando.
“We saw an unprecedented influx of affluent buyers from the Northeast and California,” he says. “While the luxury segment was the strongest part of our market this year, demand may be shifting to more affordable homes in 2022.”
Ron Shuffield, president and CEO of Berkshire Hathaway HomeServices EWM Realty in Coral Gables, agrees. “We expect pricing and sales in South Florida’s luxury market to level off, after many months of steep increases. At midyear, for instance, one in every five sales in Miami-Dade was for $1 million or more, compared with one in 13 sales a few years ago. But that pace may not continue.
From a statewide perspective, a shortage of inventory and higher prices in the second half of the year point to a slower sales pace in 2022. But that could be a positive factor for the long-term health of the market, according to Natalie Arrowsmith, president, NextHome Arrowsmith Realty in Apopka and president of Orlando Regional Realtor® Association (ORRA).
“The market has shifted a bit, and a seller with an attractive home might get four or five offers rather than 15 to 20 bids,” she says. “That’s a friendly situation for both buyers and sellers. It also makes owners more comfortable about their ability to find a new home and could lead to more listings in the next year.”
U.S. Census statistics show Florida’s population reached 21.5 million in 2020, up 14.6% in the past decade, with the largest growth in Jacksonville and Central Florida, including Lake, Sumter and Marion counties. The COVID-19 work-from-anywhere trend accelerated in-migration, which is expected to remain strong in the next year–especially in Florida’s lower-cost markets.
“I believe the story for 2022 will be about the state’s west coast,” says Michael Saunders, founder and CEO, Michael Saunders & Company in Sarasota, citing a recent CoreLogic report (see sidebar). “People will still want to move from major cities from the Northeast, Midwest and California in search of space and a slower-paced lifestyle.”
Johnson agrees, noting that smaller markets like Fort Myers, the Panhandle, Lakeland and Melbourne have a pricing advantage over the state’s larger metros.
Along with in-migration, Saunders says the pandemic increased demand from millennial buyers. “Several years ago, we were talking about how millennials would be constant renters,” she says. “Now, they are streaming out of cities and buying homes where their dollars go farther. Many are feeling more secure about their jobs and are starting families as well.”
Saunders adds that another demographic trend to watch is the growing number of women professionals and divorcees buying homes on their own. “Women are making their own business decisions, creating opportunities for agents interested in serving this market,” she says.
Other drivers of demand
When looking at demand, another positive trend is the potential return of international buyers, who have largely stayed on the sidelines due to pandemic travel restrictions. “Our No. 1 international market is Canada, followed by the UK, Germany and France,” says Saunders. “Some buyers who know the area have purchased homes and condos after video tours. But we’re seeing more interest from prospects who are waiting to travel again to Florida.”
In South Florida, the Latin American market has also been slow for the past five years, according to Shuffield. The causes include the strong dollar, U.S. immigration requirements and economic instabilities in some South American countries. “However, affluent buyers are still interested in purchasing in Florida, and we expect that trend will continue in the next year,” he says.
O’Connor and Johnson note that institutional buyers will continue to invest in the single-family-home rental market. However, individuals and families will continue to be the largest source of demand for purchasing investment properties.
But high demand isn’t the only factor that will drive the market in 2022, according to O’Connor. “Interest rates will be a major factor next year,” he says. “The historically low mortgage rates this year have made homes more affordable for buyers who don’t want to pass up the opportunity. While rates may go up slightly next year, most forecasts indicate they will still be in the 3 to 3.5% range.”
Along with low rates, the statewide appreciation in home values will support move-up buyers who can tap their increased equity when making purchases, adds O’Connor.
“Property appreciation is a Goldilocks zone,” says Johnson. “Too little and fewer people want to own, but too much can trigger a dramatic fall in the market. For long-term stability in the next few years, we need to see appreciation rates slow down.” But rising prices pose a significant challenge to first-time buyers, says Arrowsmith. “While Central Florida is known for affordable housing, our municipalities and state need to find creative ways to help first-time buyers,” she says.
The supply side
Throughout Florida, builders are ramping up the production of new single-family homes and condominiums. But shortages of construction supplies and labor are hampering their ability to add to the housing supply, says Arrowsmith. “New developments are taking longer to complete, as are renovations of existing properties,” she says. “As a result, they simply can’t keep up with demand.”
Saunders cites the example of a luxury condominium development on Longboat Key that was 80% presold before groundbreaking. Now the developer is pulling the remaining residences off the market, assuming that prices will rise significantly prior to completion.
Shuffield says the tragic collapse of the Champlain Towers condominium in Surfside in June has made both owners and association managers more aware of construction issues and the need for financial reserves. However, he doesn’t expect this isolated occurrence to affect overall demand in 2022. “I think we will see higher fees as associations prepare for the future, but the vast majority of condominiums are in excellent shape.”
Advice for sales associates
With tight inventories and high demand, Florida sales associates should stay in close touch with past clients and spheres of influence, says Arrowsmith. “You need to cultivate those relationships, so you will be top of mind when owners decide to list,” she says.
Considering the rapid twists and turns of the past two years, keeping up with local market conditions is a prerequisite for serving buyers, sellers and investors in 2022, according to Saunders. “The market is moving so quickly that you need to be a full-time knowledge broker,” she says. “You should also hone your communication and negotiation skills, especially when dealing with multiple offer situations.”
Forman says being flexible in terms of marketing and showing homes will also be important in 2022, as the pandemic will have a lingering impact on real estate. “Every sales associate and broker needs to track the data and be ready, willing and able to make any necessary changes. Certainly, Florida has benefitted from the work-from-home trend, but we don’t know how COVID-19 will play out.” #