The U.S. housing market is undergoing a seasonal shift. The spring boom marked by rapid home price increases has passed, replaced by a traditional period of weakness. Historically, housing markets in areas on the brink of a correction tend to stagnate during the spring boom and then experience price declines later in the year.
A recent report from real estate data and analytics company Parcl Labs identified 15 housing markets that are most susceptible to price corrections over the coming fall and winter. While a price correction is not guaranteed, these markets are showing signs of softening and could have a greater impact on buyers than in recent years.
Interestingly, 13 of the 15 at-risk markets are located in Florida. Let's dig deeper into the data and explore the reasons behind this trend.
The Challenges of Rising Inventory and Rising Prices in Florida
It's no coincidence that Florida tops Parkle Labs' “at risk” list. The state has seen a significant increase in active inventory over the past year. This surge is due to a number of factors.
One factor is Hurricane Ian, which devastated parts of Southwest Florida in September 2022. The effects of that storm are still being felt, and the lingering effects have further softened the region's housing market.
Another factor impacting home affordability is the steep increase in home insurance premiums. Florida homeowners are struggling with these rising costs, further reducing their ability to purchase a home.
Additionally, the values of many older condominiums along Florida's coast have declined due to stricter regulations put into place after the Surfside Mansion collapse in 2021. While these regulations are intended to improve the safety of buildings, they may also make these properties less attractive to potential buyers.
The combined effects of rising inventory, rising insurance costs and tougher regulations have created a complicated situation in Florida's housing market.
Parcl Labs has identified the following 15 housing markets as ones with a confluence of factors that may lead to a price correction.
Supply Outpaces Demand: The most noticeable trend is the widening gap between supply and demand. Cities such as Pensacola and Northport are seeing more than a 50% increase in active inventory compared to last year. This significant increase coincides with a notable decrease in buyer activity, with demand down as much as 28% in some areas.
Price Reductions on the Rise: Price reductions are becoming more common as sellers struggle with changing market dynamics. Northport leads the way with more than half of listings undergoing price adjustments. Other major Florida markets, including Tampa, Naples and Palm Bay, have also seen significant price reductions, signaling a possible decline in home prices.
Early signs of price declines: This imbalance in supply and demand has resulted in initial price declines in 11 of the 15 markets analyzed. Lakeland, for example, has experienced a price decline of over 4.6% compared to its peak. While not all markets are yet showing a downward trend, these early signs suggest a price correction may be coming in the near future.
Markets bucking the trend: Interestingly, four markets, including Palm Bay and Naples, appear to be bucking the trend so far. These locations have been able to maintain price gains from their peaks and have not seen any declines. This suggests that certain market factors, such as desirable locations and strong local economies, may be mitigating the overall softening.
Of the 15 housing markets at risk of price correction, 13 are in Florida.
Florida:
Crestview-Fort Walton Beach-Destin Deltona-Daytona Beach-Ormond Beach Gainesville Homosassa Springs Lakeland-Winter Haven Miami-Fort Lauderdale-Pompano Beach Naples-Marco Island Ocala Orlando-Kissimmee-Sanford Palm Bay-Melbourne-Titusville Port St. Lucie Sebastian-Vero Beach Tampa-St. Petersburg-Clearwater
South Carolina:
Myrtle Beach – Conway – North Myrtle Beach
Alabama:
Parcl Labs Analysis Methodology
Parcl Labs' methodology provides valuable insight into how it identified these potentially vulnerable housing markets. Here are the details of its approach:
Data Collection: Parcl Labs leveraged application programming interfaces (APIs) to gather information on the 1,000 largest housing markets in the United States. Smaller markets with less activity were excluded, focusing only on markets with more than 500 home sales and 500 active listings per year. Demand and Supply Trends: To identify markets with weakening demand, Parcl Labs looked for a three-month year-over-year decline in home sales of more than 10%. Conversely, for supply, they looked for markets with a three-month spike in active inventory and a year-over-year increase of more than 20%. Measuring Market Distress: Signs of distress in the property market were also taken into account. Markets where more than 35% of active listings were discounted were considered distressed. Price Increase Threshold: The analysis focused on markets that had seen significant price increases since March 2020, with a minimum threshold of a 50% increase. This was to ensure we were not capturing markets that were already experiencing a correction. Excluding existing corrections: To avoid redundancy, Parcl Labs excluded markets where home prices had already fallen more than 5% from their peak. This approach was intended to identify markets that were on the brink of a potential correction, rather than markets that were already in progress.
15 Risks with Potential Market Impact
While Parcl Labs' analysis identifies potential risks, it is important to remember that a price correction is not guaranteed, but the confluence of softening demand, rising inventory and affordability challenges makes these markets worth scrutinizing more closely.
Here's what potential buyers and sellers in these markets may encounter:
Buyers: Increased inventory may give buyers more negotiating power. They may be able to negotiate better terms or wait for further price reductions. However, rising interest rates may still affect affordability, so careful financial planning remains key. Sellers: A softening market may require adjustments to pricing strategies. Sellers may need to be more realistic with their expectations and even consider accepting offers lower than their original asking price. Properties may also take longer to sell.
For both buyers and sellers, staying up to date on local market trends and consulting with a qualified real estate professional is essential to making an informed decision.
It's also worth noting that not all 13 Florida markets will be affected in the same way. The severity of a potential adjustment may vary depending on each region's specific circumstances. Local economic factors, employment trends, and the overall attractiveness of the region will all play a role.
Florida Housing Market – Outlook
Florida's housing market is at a crossroads. A combination of rising inventory, rising home prices and increasing regulations is creating uncertainty. Parcl Labs analysis highlights areas that are particularly vulnerable to price corrections this fall and winter.
But it's important to keep perspective: A price correction doesn't necessarily mean a housing market crash. It may simply signal a slowdown in price growth after a period of strong gains and a return to a more balanced market.
For potential buyers, this may be an opportunity to find bargains that they may have missed during the peak frenzy. But remember that affordability remains a key consideration. Rising interest rates can have a significant impact on purchasing power, so careful budgeting and a realistic assessment of your financial capabilities are essential.
Sellers, on the other hand, may need to adjust their strategy: This changing situation may require them to sell their property at a competitive price and be open to negotiations.
The long-term outlook for Florida's housing market depends on a variety of factors, including the national economy and interest rate trends. Some softening is possible, but Florida's underlying strengths, such as its sunny climate and diverse economy, should not be underestimated.
See also: