The Florida insurance crisis threatens home ownership by pricing many buyers right out of the market.  Most people do not realize what has happened in the last year, and they are about to find out.  Current homeowners will be affected at policy renewal, or upon policy cancellation.

Already we have a home affordability crisis. The Florida insurance crisis threatens to make the affordability crisis even worse. Let’s break this down into two areas. Flood insurance and property insurance.

Flood Insurance

The National Flood Insurance Program upgraded their program to Flood 2.0 What this means is properties that were previously in flood zone x and other non-required flood insurance areas have been reclassified.  Flood insurance may now be required.  The other startling fact is most properties that were in X paid an even $677/yr.  We are now seeing X properties with premiums over $3,000.

We have seen some flood zone A policies more than $6,000/yr.  If you already have a NFIP policy, they cannot raise your rates more than 18% per year.  However, after six years you will be maxed out at the new rate.  I just looked up a property that was $677 last year and now it is $6,4000 this year.  That is $533/mo, just for flood insurance. Now we must add in homeowners’ insurance, and we haven’t even gotten to that yet.

We would suggest calling your insurance agent to see if your property has changed.  There are some private flood policies available, but when they fill up, they stop writing policies.  If you have a NFIP policy, do not cancel it without taking to your insurance agent first. It may make your home difficult to sell without it.

Property Insurance

7 insurance companies have recently filed bankruptcy and three others have stopped writing new policies altogether. If you have a tile roof over 20 years old, some are cancelling policies. Others are doing it at 30 years old. Shingle roofs are between 10-20 years. We are losing options. If you are selling a home, you may be required to replace a roof. Even if you’re not selling, you may have to replace your roof.  Insurance for older homes is increasing rapidly as well.

Insurance companies are looking for any reason to not cover the home, and any reason to charge a higher premium. They lost a lot of money, and insurance companies do not like losing money. Insurance companies are risk adverse going forward, so anything that looks like it could have an upcoming claim is being excluded.

They are checking age of water heaters, plumbing valves, air conditioners, roofs, truss tie downs, etc.  Some homeowners are seeing their rates doubling or tripling, while others are being canceled.

 

Triple Whammy

Home buyers are being hit with rising flood and property insurance along with rising rates. It is limiting how much they qualify for. In fact, some buyers on new construction are cancelling contracts because the interest rates are higher now than when they signed contract and they no longer qualify for the loan. Same with the flood insurance on some lots. Homeowners insurance on new homes is still affordable.

Typically rising interest rates curtails prices because it affects affordability. We still have strong demand and a low supply of homes on the market, although it is rising. Listing inventory today is at the highest it has been all year.

Future of Real Estate Prices?

The question is going to be, will the number of people moving to Florida offset or exceed the number of people priced out due to rising rates? The answer to that question will determine the future of real estate prices in Florida. Marketing to out of state markets will be crucial to getting top dollar for your home.

If you have real estate questions, call Sande or Brett Ellis 239-310-6500. Or you can get an instant and Free online home valuation at www.SWFLHomevalues.com Be informed. Rates are expected to climb rapidly in the coming months. The choices you make today could determine your future!

 

Should I buy Real Estate Now or Wait for Prices to Drop?

The natural law of economics tells us that supply and demand will determine the price, but there are limits as to what a buyer can afford. Home affordability dictates prices in the real estate market. Individually one buyer may pay out of the norm for an item or house, but in the macro the market determines the overall value.

On average about 20.3% of a homeowner’s income goes to cost (principal, interest, taxes, and insurance) of owning a home. In 2021 that number was down to 16 which tells us there is room for growth in prices.

Rising Headwinds

This is the point in the party where the music stops, or at least skips a beat. Three out of the four items that affect affordability are rising. Principal is going up because more people are paying more for housing, so they are borrowing more.  Interest is rising and expected to climb much higher. Insurance is rising too as many insurers are pulling out of Florida and they are raising rates. The only thing not going up today is tax rates, but then again property taxes go up as the value increases.

If 3 out of 4 factors go up, there is a limit to how far each one goes up before people stop buying because they cannot afford anymore.  I would argue that rising interest and insurance costs are one day going to zap the upward pricing pressure right out of the market.  The question is when?

Interest rates fell from 4.46% in 2018 down to 2.74% in January 2021.  Since January 2021 rates have stayed low until this January where we’ve seen rates march higher.  Today rates are back up over 4% and going higher.  We have seen a runup in prices since those rates began to decline.

Real Estate Price Driver

In October of 2018 the median price of a home was $246,995 and the average was $327,081. In February 2022 the median was $410,000 and the average was $569,697. That is a 66% increase in median prices 39 months, and a 74.18% in average price.  This was possible due to interest rates declining like they did.

Today is the opposite.  Rates are going up quickly, and on top of rising rates we have rampant inflation also eating away at buyers’ income. Add to that rising insurance costs and we’ve got a recipe for home affordability rising. Can the line go above 20.3%? Sure it can, and it has before.  Each time it has it was followed by pressure on prices. Home affordability dictates prices, so we keep an eye on that going forward.

There is a limit to what people can afford. We are graced here in Florida that more people are moving here.  This is helping with demand. What happens when rising rates affect their ability to sell their homes up North? Will they be flush with cash like they have been the past few years? You see, these same economic forces work up North too, and when they are affected, it can eventually affect us down here.

We Have a Great Market

Nobody is saying the sky is falling or prices are going to decline anytime soon. In fact, many experts predict a 9% rise in home prices in 2022.  Experts sometimes get it right, but they rarely get the timing exact.

If you are a seller and your home isn’t working for you like it once was, you might consider taking advantage of this opportunity.

The Ellis Team marketing is still generating multiple offers and Top Dollar.  We do things a bit differently than most Realtors and we’ll be glad to show you how we do it. It is more fun to sell when you have multiple offers to choose from. What if one day in the future you don’t? Remember the days when sellers would be glad to just get one offer?

If you are wondering what your equity position is, we should talk. It is wise to review your equity position and determine if this asset still works for you.  Brett or Sande will be glad to help. Call us at 239-310-6500  for or visit www.SWFLhomevalues.com for an instant and Free online home valuation.

Good luck, and we’ll keep an eye on the market for you!

Where are Real Estate Prices Headed?

See Last Week’s Article “Housing Market Priced Correctly in SW Florida?“

For the past year we have been talking about how rising interest rates harm buyers by eroding purchasing power. Today we would like to focus on how the housing market correction risk harms sellers more than buyers.

In this example we have posted before, we illustrate a $350,000 home that falls to $300,000 in a correction. That is a 14.29% correction. Also shown was a 1.25% rise in interest rates.  The net effect to the buyer was only a $2 savings per month in payment. The seller on the other hand suffered a $50,000 loss by waiting to sell.

Housing Market Correction Risk

This is one of those times where it can cost a home buyer to wait because interest rates are expected to increase in 2022.  A market correction can really cost a seller to wait. Both can be hurt, but in this example the seller is hurt the most.

Next week the Fed is expected to meet to begin their interest rate hikes. It is almost certain they will hike rates .25% and some believe it may be .5% Inflation is rampant and may only get worse as fuel prices spike. Inflation hurts the low to middle income earners the hardest, so the US government is determined to slow inflation, even if it means slowing the economy.

As rising rates, rising oil prices, and rising inflation eats into consumers pocketbooks it can eventually eat into people’s ability to afford a home. Home affordability is an essential ingredient for rising prices. As homes become less affordable there is less upward pressure on prices. Remember, a 1% rise in interest rates robs buyers of 11% purchasing power.  If you rob enough buyers, eventually it will hurt the market.

Florida in a Good Position

Florida is better insulated than many states at is tax friendly and a desirable place to live. More people are moving to Florida than leaving, so we are a net migration state. Other states, primarily high tax states, are losing residents to states like Florida.

Which force wins out is anybody’s guess. The point of this article is that if a buyer waits and prices go down, they are no better off.  But if a seller waits and prices go down, a seller is definitely worse off. Since nobody can tell for sure how the economy will go and where housing prices will go, waiting to sell could be at the seller’s own peril.

We are not making a market prediction.  We can see scenarios where prices could still rise, and others where they could correct a bit.  The point is, it is not our money, and sellers are asking the question. If your home is not working for you, give Brett or Sande Ellis a call 239-310-6500. We can talk about your circumstances and discuss if now may be right for you to sell.

Nobody is Predicting a Crash

Markets do not go up forever, and corrections are not a bad thing.  Crashes on the other hand are bad, and nobody I know is throwing around the crash word except for hopeful buyers wishing they had bought years ago.

To find out what your home may be worth instantly, go to www.SWFLhomevalues.com Not only will you get a pretty good idea of your home’s value, but you can also track it to see the direction of your home’s value.  Each month it will send you a new value and it is fun to see if your property is appreciating or declining and by how much.

Need a place to go. We can share some creative ideas other sellers are exploring that might be a way to cash out at today’s high prices. Give Sande or Brett a call.

See last week’s article “Inflation Home Affordability Perspective”

 

Home Seller Workshop

Register online at www.seller-seminar.com 

Home sale prices rose sharply in December climbing to a median price of $402,000 and an average price of $605,784.  Median prices rose 27.6% versus December 2020 while average prices rose 32.9% The number of homes closed dropped 13.2% from December 2020 primarily because there is less inventory.

Cash sales accounted for 37% of all single-family home sales in December. We did see a 3.5% rise in new listings in December, so some homeowners have decided to sell while the getting is good. There were only 5 foreclosure home sales in the county and only 1 short sale. For those so-called experts that were predicting distressed sales hitting the market in 2021, they were sadly mistaken.

Sellers Wondering When Market Will Top

Many homeowners are concerned about rising interest rates, as they should be.  Traditionally rising rates limits home sale prices. While many financial gurus have predicted 5-6 Fed rates hikes in 2022, we are not so sure. Many experts believe the Fed will have a difficult time raising rates as drastically amidst a rapidly falling stock market.  While we have seen stock market volatility, it remains to be seen how the market will fare throughout 2022.

The stock market, and the real estate market’s future may be tied to inflation and what the Fed must do to get it under control. Taming inflation through the Fed is the toughest way to go and takes the longest. Typically, there is a lag between rising rates and slowing down the economy to fight inflation.

The president has so many other tools he could use than just using the Fed, but we doubt he will go that route so here we are. Today the 10-year note stands at 1.784. Keep your eye on that number.  Some believe it could go to 2.5 or even 3. Thirty-year mortgages are pegged to this number, so the higher it goes, the higher mortgage rates will be.

Marketing Muscle Leads to Multiple Offers

Last weekend we sold 3 properties. Both homes sold over asking price.  We attracted buyers both locally and targeted buyers in high tax states. Many open house attendees were from those high tax states we advertised in.

We plan to do a future article on how to properly evaluate multiple offers and how to negotiate them. Most people believe it is as easy as picking the highest price. Agents are getting very creative in writing their contracts. Financed offers are disguised as cash in hopes of winning the bid. It takes a savvy agent with experience to sort out true facts of the buyer which are critical in selecting the best offer. It does no good to select the highest offer only to find out buyer is getting financing and does not have money to cover an appraisal deficiency.

Some agents are writing ridiculous offers only to win the bid and knock the price down later when they can’t perform.  If they can catch the seller days or weeks down the road, perhaps they will be in a position where they must take less.  While this tactic is less than honest, it pays to verify facts before accepting an offer.

Strong Listing Agents

Real estate agents can be very pushy trying to get their buyer’s offer accepted. You need a strong listing agent to stand up for you. One that knows the local customs and has relationships with local agents. Nobody is going to push our sellers around. An inexperienced agent with less confidence might buckle when the other agent is demanding answers on their time frame instead of yours or demanding to know how high they must go to win. They know this is unethical and yet we saw it happen many times this past weekend.

Rest assured, when you list with the Ellis Team at Keller Williams Realty, you are in good hands. We are not saying all agents operate this way, but a few hungry agents desperate to get a deal did this past weekend.

Please call Brett or Sande Ellis 239-310-6500 or visit www.SWFLhomevalues.com for an instant home value of your home.

Good luck and Happy Selling!

 

Market Update

New Listing-Open House Sunday 11-2

Mild inflation is a good thing because it means the economy is growing. Rapid inflation suppresses real estate and the economy and is not a good thing. The fed’s target for inflation has been around 2 percent the past several years.

Currently we are experiencing rapid inflation. Many US employees woke up to a 3% rise in wages on January 1^st, and they are excited about that.  The sad thing is, prices are rising at 7% overall, and some things are much worse than that. Inflation is like a hidden tax in that consumers just lost 7% purchasing power on their money.

Everything is going up in price, from food, gas, clothing, cars, construction, etc. If you have a rise in wages, you are further behind because of inflation. Seniors will be hit the hardest because they live off social security and investments. They are not even enjoying the 3% raise workers are.

If you own a house, you might think that’s good because rising home prices will help protect you.  That may seem true right now, but it’s what comes next that might alarm you.

To combat inflation the Fed must slow things down.  There are too many dollars chasing too few goods and services in the economy. The Fed will be forced to halt stimulus. In addition, the Fed is ending bond purchases to take money supply out of the market. When that is completed in March, they will begin the process of raising interest rates.

You may have noticed rates have already risen. This is because the Fed has already begun tapering of the bond purchases. Many are now expecting 4 rate hikes this year instead of 3, and the rate hikes might need to be bigger than .25% The last time we saw inflation at 7% was back in 1982. To combat inflation the Fed raised interest rates in chunks of .5% to1%

Mortgage rates are closely tied to the 10 Year Treasury Note. As of today’s writing, the 10-year treasury note stands at 1.716%. Lenders use this as a baseline and add a percentage to determine today’s 30-year mortgage rate.

Rising interest rates temper consumer spending. If there is less stimulus and borrowing costs rise, consumers must spend less. When consumers spend less, businesses make less, and consumers have less in their pockets. Taxes may rise to pay for last year’s spending spree by the government which will serve as a double whammy to consumer pocketbooks. We will have an increased tax bill plus the hidden inflation tax leaving you with less money to spend. This is exactly what the government wants. They need to slow down the too many dollars chasing too few products and services. The economy feels like it is doing well now, but the bad medicine is coming.

There are other ways to tackle inflation. This government has not done that, and they will not use those tools, so unfortunately monetary policy will be the only tool they will use, and only reluctantly. Had they enacted the other tools or acted sooner we would not be in this mess, but now here we are.

It will not do any good to complain or worry about it. The bad medicine is coming. The fed may try to sweeten the medicine with more stimulus, but that is like giving pain pills to an addict. It is what helped cause inflation in the first place.

For every 1% rise in interest rates buyers lose 11% purchasing power. As the economy slows you eventually run out of people who can afford to pay rising prices. Back in the 80’s we had over 18% interest rates, and selling real estate was tough. Back then, home sellers had to pay thousands of dollars in buyer’s points just so buyer could get a loan that was legal. The US has usury rates which were the maximum rates allowed by law a lender could charge.  Because market rates were higher than usury rates, buyers had to pay points to buy-down the rate.  Buyers did not always have the money to buy-down the rate, so sellers had to do it to unload their property.  It was simply a cost of doing business in inflationary times.

Rising rates and a slowing economy will eventually catch up with the housing market. Using monetary policy alone is the toughest way to fight inflation and takes the longest. Rising rates are a lagging component of slowing the economy.  Monetarily, the sooner the fed tapers the balance sheet and raises the rate the sooner we will slow the economy.  Doing it slowly can lead to a recession.

Of course, if the government did this the correct way we could have avoided much of the pain that will come from doing it only monetarily. This administration caused inflation, so asking them to correct and reverse course does not seem likely.

Some people believe the economy will slow in 2^nd half of 2022. Whatever happens, rates will rise, and the economy will slow for rates to be held in check.

To find out your home’s current value, go to www.SWFLhomevalues.com or call Brett or Sande Ellis 239-310-6500 We can help you sell at today’s high prices. If you are a buyer, call us at 239-489-4042. Let’s get you in before rates go up.