by: Jonathan Simmons and Jarleene Almenas
Across the residential building and real estate industries, professionals repeatedly use one word to describe current market conditions: “crazy.”
“Buying a home right now is extremely competitive. It’s really like going on your first date and asking the prom queen for a date."
— BILL NAVARRA
“There are so many metrics today that are out of phase with anything we’ve seen before,” said Flagler County real estate expert Toby Tobin, publisher of www.gotoby.com and host of “Real Estate Matters” on Flagler Broadcasting.
In Flagler County, for every one home listed on the MLS system, there are three more homes that are under contract, he said.
“And that’s just upside down,” Tobin said. “Normally the homes listed is at least two times, maybe three times, the homes that are under contract.”
There are about 150 existing homes for sale on the MLS in Flagler, he said, while perhaps another 50 are under construction.
“If you divide 150 by the 46,000 homes, roughly, that exist, it’s like 3/10 of one percent of our housing stock is available for sale,” Tobin said. “This is just crazy numbers.”
The same pattern is occurring in Volusia County.
How low is inventory?
Bill Navarra, owner and broker of Realty Pros Assured, said it’s at the lowest level he’s seen it in his 23 years of experience.
As of Tuesday, March 1, there were 282 homes for sale on the MLS in Volusia County.
“Buying a home right now is extremely competitive,” Navarra said. “It’s really like going on your first date and asking the prom queen for a date. You need to make your offers as strong as possible. You need to make them very limited on contingencies. … A lot of our offers have been cash, which has made it really hard for our buyers in this market, especially the affordability.”
Over the last 15 years, Ryan Adams, real estate agent with Adams Cameron and Co Realtors, typically could count on having about 50 listings in his personal inventory. Now, at any given time, he usually has about five.
“There was a time not too long ago when there were plenty of listings and everyone in my business was searching for a buyer, and buyers were golden,” Adams said. “And now, buyers are plentiful and listings are golden.”
Why is inventory low?
Investors largely aren’t responsible for local increases in home prices and a shortage of inventory, Tobin said.
These homes are being bought by end users, either as primary residences or as second homes, or sometimes to rent out.
Nor, unlike 15 or 17 years ago, is rampant speculation and easy credit responsible for large numbers of people seeking to buy homes. In fact, Tobin said, underwriting standards are relatively strict.
“Today, you’ve got to actually show documented proof that you’re able to repay the loan and there are higher downpayment requirements,” Tobin said.
Navarra said the lack of inventory is a result of “extreme demand” due to a variety of factors, such as people moving to Florida from other states in search of better weather and more open space as compared to bigger cities and metropolitan areas, a trend that emerged from the COVID-19 pandemic.
“For years, Florida has drawn people because of the low taxes and sunshine,” he said. “But now add to that the fact that Florida is becoming known even outside the state as a ‘free state’ … From an economic standpoint, taxes are low; from a personal safety standpoint, we have not had riots and we have a relatively low crime rate, particularly in Flagler County.”
How does low inventory impact buyers and sellers?
When a new property hits the market, the race is on for real estate agents and buyers. Adams said it’s typical to arrive at a new listing and already see one or two other agents with their clients waiting in line to see the property. Then, it’s all about making a competitive bid.
“I think the toughest part is for [buyers] to be completely poised and ready to jump when they see what they want,” he said.
And the current home market looks quite different depending on which side of the negotiating table you’re on, Tobin said.
“A seller may be delighted when they’re on the seller side … and within a couple of days, they may have competing offers, some above asking price,” he said.
But the best offer may be a cash offer from someone who wants to close in two weeks.
“Now suddenly, without planning for it, you’re now on the other side of the table — the buyer side,” Tobin said. “It takes time to get approval for a loan, so if you’re not pre-approved, you are at an extreme disadvantage.
Perhaps you decide you’d like to build a new home, rather than buying an existing one. But instead of the six months that may have taken in previous years, that may now mean a wait of nine or even 12 months.
“Where do you live in the meantime?” Tobin said. “You probably have to rent something. Well, the rental market is just as crazy as the existing home market and the new [home] market.”
“There are shortages in pretty much everything, from start to finish.”
— ERIC PHILLIPS
Adams is seeing more cash offers in the last couple of years than he’s seen in his entire career. That gives him a lot of confidence in the future of the market.
“I don’t feel like we’re going to see the crisis that we saw 15 years ago in 2007, when we basically had a foreclosure crisis,” he said. “While there’s a portion of the market that could have that vulnerability, most people — even the people that are doing the financing — for the most part have 20% of skin in the game or much more.”
Adams attributes the rise in cash offers to the people who are migrating to Florida from other states or other countries, which in turn pushes locals to also do the same to remain competitive, as sellers will typically ignore financing offers if cash is on the table.
Many buyers have missed opportunities at lower prices, or have already experienced a competitive bid atmosphere, so they’re getting aggressive at this point to make sure they get the home they want, particularly those from out of town.
“When they get here, they’re ready to roll up their sleeves and battle for a property, and often it drives the price up considerably,” Adams said.
How are prices calculated?
With the statewide median sales price for single-family homes in the state up 23% in January 2022 from the previous year, according to data from Florida Realtors Research Department, the market is improving in value very quickly.
"So we’ve started a migration (to Florida) that’s going to continue to pick up and become very long lasting. So, get used to it."
— TOBY TOBIN
Navarra said real estate agents list homes based on recent sales, so that, coupled with the increased demand, drives the offer prices up.
Agents are also seeing many offers with an “acceleration clause,” which can make a buyer’s offer more attractive to a seller by offering to beat other offers up to a certain limit.
People interested in buying a home should prepare by saving as much money as possible, and enter the market before interest rates increase, Navarra said, since mortgages are still more affordable than rental rates today.
“We’re still at the most historically low [mortgage] rates that we’ve been that I can ever remember in my career,” Navarra said. “So don’t be scared to step into the market.”
According to Rentdata.org, the fair market rental price for a two-bedroom apartment in the Deltona-Daytona Beach-Ormond Beach metro area is $1,135 per month; the median price is $1,212.
In the Palm Coast metro area, fair market rent for a two-bedroom apartment is $1,193 per month, while the median is $1,303.
How does low inventory impact real estate agents?
Navigating a competitive bid situation takes concentration, and a willingness to be hand-on with your clients, Adams said. That means making sure your buyers have all your attention, because homes are selling very quickly.
In the past, when at a listing appointment with a potential seller, Adam would have walked through the house with a pad and pen in hand and made a long list of recommendations for the seller to address before listing the home to make it more marketable. With how fast homes are selling, this is no longer the case.
“Let’s put it on the market and let’s price it aggressively enough to where we can tap into the synergy of the market, and it very likely will sell at or above the asking price,” Adams said.
A major part of winning bids in this market is also ensuring buyers have seen the property in person. Listing agents want to make sure this has taken place to prevent sales falling through during the inspection period.
“I actually have had buyers that I’ve worked with over the years that I’ve encouraged now to come to town from out of state, and they’ve come down and stayed and waited so that they were ready to see something in person,” he said.
How does low inventory impact builders?
As the owner of Coastal Windows of Flagler and Phillips Coastal Construction, Eric Phillips last week got a phone call from an impact-resistant window supplier. It was a warning.
“They said, ‘OK, we're going to have to raise our prices by 22-and-a-half percent,’” Phillips said.
Phillips had a week to get orders in before the new price took effect.
“And that's a big jump,” Phillips said.
Long lead times for windows have stymied many builders.
Builders used to be able to order them and then get them four or six weeks later.
“They order the windows when they apply for a permit, because it's taking 5 months to get windows — especially the impact windows,” Phillips said. “The window industry has definitely gone crazy.”
Phillips cited labor shortages, transportation problems and factory shutdowns due to COVID-19 as reasons for the rising time frame between order to delivery.
Similarly, builders are contending with precipitous rises in prices for basic supplies like lumber.
Not so many years ago, Phillips said, a 4-foot-by-8-foot, half-inch thick sheet of plywood may have been $15.
Now it’s closer to $50.
Builders are struggling to price homes at a time when material and labor costs could increase exponentially by the time the home is under contract and completed.
“There are shortages in pretty much everything, from start to finish,” Phillips said. “It's very difficult now to get subcontractors, trade contractors lined up, because they're so busy.”
Phillips is largely in the window business these days, but he’s also building one house for a client.
Concrete blocks have become tough to source, he said. Major suppliers, overwhelmed, have been reluctant to take on new contracts, leaving smaller builders to head to Lowes or Home Depot for supplies.
“And good luck finding specialty block. That's impossible,” he said.
There are also other, unexpected complications.
“It's the crazy things you'd never think about,” he said.
Dumpsters, for instance: With home construction taking longer, they’re sitting on build sites longer, and there are fewer available.
Builders are facing the same problem with portable toilets.
Particular brands and types of paint suddenly become unavailable.
“You go to Sherwin Williams and say, ‘I always like buying this paint here.’ Well, you have to buy this upgraded paint, because there's none of that other paint in the state of Florida,” Phillip said. “Pretty much every area you look at, you're having problems like that.”
As executive officer of the Flagler Home Builders Association, Annamaria Long has seen a new trend: Builders are increasingly using “escalation clauses” that allow them to pass off rising building supply prices to buyers.
Builders have long had them. But actually using one was uncommon.
“I’ve had builders who've been building here in Flagler for anywhere from 20 to 40 years come into my office, distraught because they had to enact the escalation clause for the first time in all of their business,” Long said.
She added, “Has the cost of materials ever gone up before? Absolutely. Enough to where a builder would use that clause? No way. It’s the last thing they want to do. … They just feel really badly about doing it, because builders are known by their quality, and by their word.”
What's the future?
Tobin expected high demand to continue.
“It’s not a temporary condition,” he said. “ … When you think about financial stability, personal health and personal safety, you’re talking about very primitive motivations. They’re’ visceral. So we’ve started a migration that’s going to continue to pick up and become very long lasting. So, get used to it — we are going to have growth.”
In Palm Coast and Flagler County, he said, the relatively undeveloped regions to the west president an opportunity for more new construction.
“It’s basically agricultural or timber land,” he said, “and from a planning standpoint, it’s like a blank canvas. And we have an opportunity to get it right or to get it wrong.”
The area needs multifamily housing, he said, and the western region could be a place to add them.
“We need more townhomes, we need more multifamily, we need more what they call middle-market,” he said, referring to duplexes, triplexes and four-plexes. “Maybe even things like micro-houses, smaller housing types, homes that have a one-car garage instead of a required two-car garage. And we need to do a better job of mixing the housing types together.”
Navarra has been in the real estate industry long enough to have seen the market “roller coaster” many times, with its escalations and drops. The current demand is stronger than he ever expected. Two years ago, he thought the market was going to slow down, but no one could have predicted the effects of the pandemic.
But he expects inventory levels will increase and demand will decrease once interest rates are raised, which he said is a “bad thing overall” because the affordability in the market begins to disappear. Pricing of homes may concern buyers now, but Navarra advices people to think of the long-term interest rates.
“Even if today if you pay extra money for a home, you’re not paying that extra money over 30 years,” Navarra said. “As the interest rates increase, yes you might be getting a home at a certain value, but you’re not paying extra for that certain value over a 30-year term. There’s nothing worse than compounding interest.”
Adams doesn’t see a lot of change in the market coming soon, but he also isn’t as confident now of what to expect as he might have been a few years ago.
“If you would have told me that we would be at this position in the market today two years ago, I probably would have argued with you — didn’t think it would have performed this well,” he said. “So I really don’t know exactly what to expect, but every indicator appears that this market is going to continue to run up.”