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Tuesday, March 29, 2022
By Alexandria Mansfield
Many buyers in Florida and across the U.S. are feeling the impact of a lack of inventory, competition from investors and rising prices during their home search.
JACKSONVILLE, Fla. – The process of buying a house can put your life on pause.
There are so many things you can’t do when going through the process of buying a new home. Free time can be absorbed by scrolling through Zillow listings or touring places with real estate agents.
If you are relying on financing, you are advised not to make any other big purchases – like a car or furniture – during the buying process or open a new line of credit because it may affect your credit score.
For Abby Denmark, she found herself wary of making any major changes while house hunting. She even postponed planning her wedding to her partner of four years, Ryan Norton, in order to focus their energy and financing on securing a place to live.
That was a year ago.
Denmark’s story is similar to many in the country, but particularly those looking to buy homes in the Jacksonville area.
Part of this trend is a lack of inventory on the market, according to Florida Housing Coalition CEO Jaimie Ross. Between labor shortage and supply chain issues, homes aren’t being built as fast as they were in 2019 or 2020.
Another part of the equation, however, is the record-setting rates at which investors and investment companies are buying homes.
Last year, investors bought nearly one in seven homes sold in America’s top metropolitan areas, the most in at least two decades, according to a recent Washington Post report.
In the Jacksonville metro area, 22% of homes purchased were bought by investors. This is double the rate of the 11% of homes purchased by investors in 2015.
Jacksonville is the No. 4 metro area in which investors bought the highest percentage of homes, following Atlanta and Chicago, at 25% each, and Miami at 24%.
To those in the Jacksonville Real Estate Investors’ Association (JaxREIA), an education and networking nonprofit with over 400 active members, it’s a good time to be buying and flipping homes, said JaxREIA President Mike Grandjean.
“For a lot of investors, the strategy is dictated by the time and the property,” Grandjean said. “Now is a pretty good time to be flipping property. You’re still going to be having some people buying and holding [to rent], but I think the times kind of dictate that a little bit.”
Grandjean said investors are selling and renting at about a 50-50 rate right now, whereas in a more “stabilized market,” he typically sees closer to a 70-30 or 60-40 split in favor of investors buying property to rent it.
“Now is a good time to be flipping,” he said, “and that’s not a bad thing for those first-time homebuyers.”
Grandjean described real estate investors as enhancing current inventory on the market so houses that might not qualify for financing meet the necessary standards.
“It refreshes the market,” he said.
Unfortunately for those buyers, real estate is appreciating at nearly 20% a year, which can easily price people out of the market.
Ross described investment purchases as “a big part of the affordable housing crisis.”
“The best thing you can do is to get into stable housing,” Ross said. “I think it’s only going to get harder. [Renting] is just not very stable.”
A year in the making
As a first-time homebuyer, Denmark, 28, said the competition she experienced in the market had her teetering back and forth between wanting to purchase a home or settling on renting in order to live with her partner, Norton, who moved in with his parents after being priced out of his apartment in Riverside in December 2020.
Denmark, a patient care technician at Ascension St. Vincent’s Riverside Hospital, said it felt impossible to compete in the housing market at times because she and Norton work full time and couldn’t tour homes fast enough.
“It was disappointing too because Jacksonville is such a cool place and people who want to enjoy the culture and they’re being priced out of it,” Denmark said. “You could be the cruddiest house in the nicest neighborhood or the nicest house in the cruddiest neighborhood.”
At one point, the couple was so disheartened by the housing market that they considered finding a place to rent together instead and delaying their dreams of homeownership but decided against it because it would cost them more money in the long term.
“The only way for middle-class Americans to accrue wealth is to buy a home and own property,” said Norton, who works for a specialty medical equipment company. “And renting for $2,500 a month... you’re just never going to own that, you know?”
Denmark said she found it hard not to take being priced out of potential home purchases personally.
“It’s money,” she said. “Like this is our future, this is money to consider for my daughter. It’s not like we’re deadbeats, and somehow this market isn’t wanting people like that to succeed.”
Norton said they looked in the Fruit Cove, Lakeshore and Ortega areas to find a family-friendly home with enough space for their artistic hobbies. He estimated that, on an average week for the last year, they would see 15 or 20 houses of interest and most of them were off the market again before they could even schedule a showing.
“The few experiences we had where we were getting close were just so disappointing,” Denmark said. “The house before this last house was like a bad breakup. Like no one compares to that house, and I don’t even want to date anymore.”
A year after starting their home search, Denmark and Norton hope to close on their first property at the end of the month.
Grandjean said he could see a clear effect this market and investment purchases were having on first-time homebuyers.
“You’re competing with not just mom and pop investors but Wall Street investors for the inventory that is out there,” he said.
The sheer number of investment companies doing business in Florida is inflating the market and driving up the costs while also being more competitive than individual buyers are able to be for the houses that do go on the market.
Duval County Property Appraiser Jerry Holland noted these sales affect overall values by creating “a greater demand for homes when they are for sale.”
“It drives the price up,” Holland said. “The investor market is definitely paying into higher prices because of the demand.”
San Francisco-based Opendoor, a digital residential real estate company that makes cash offers on homes to repair and resell, is one of these types of investment companies. The company has purchased 413 homes in Duval County alone since 2020.
Low inventory breeds more competition
A Sept. 1 Comprehensive Market Analysis for Jacksonville from the U.S. Department of Housing and Urban Development labeled the supply of homes for sale as “tight,” noting supply fell to about a 1.4-month inventory during August 2021, “down from 2.4- and 3.2-month supplies during August 2020 and August 2019, respectively.”
Grandjean estimated the supply is closer to under one month now.
“We’re looking at low inventory,” Grandjean said. “In a stable market, there is about six months’ worth of inventory, and we’re below one month. I think it’s just as hard for an investor to compete as well.”
New and existing home sales increased 9% during the 12 months ending August 2021, the HUD report also said, with an average price increase of 17%.
“First-time homebuyers can’t compete with investors,” Ross said. “That doesn’t mean there are no opportunities. I wouldn’t want people to give up hope. Now is a good time for homebuyers because interest rates, although they’re going up, are low comparatively ... Even though the interest rates have risen, they’re around 4%. My first home was about 11% in the ‘70s.”
Ross said first-time homebuyers have other advantages and opportunities they can take advantage of, including the State Housing Initiatives Partnership (SHIP) program, which she said will have more funding than last year, and downpayment and closing cost assistance programs, among others.
“Prices are only going up at this point,” Holland said. “If you are on the fence and want to purchase, now is the time to purchase. It may be another five or six years or more before you see another dip in the prices.”
Investors target lowest-income areas
Overwhelmingly, the north and west areas of Jacksonville experience the highest rates of investor purchasing, with the 32209 ZIP code seeing 54% of homes going to investors. The area encompasses neighborhoods like Moncrief, Grand Park, Mid-Westside and New Town.
Most of the homes in this ZIP code have some of the lowest-income residents in Jacksonville with a median annual income of just over $25,000, compared to a city average of about $55,000, according to the most recent U.S. Census Bureau data.
Other investor-heavy areas for buyers include Arlington, Ortega, Springfield and West Jacksonville.
“When investors own your property, these are big corporations,” Ross said. “They really aren’t looking at you as a family or individuals. They’re just looking at the market. It’s very hard for a family in a rental unit owned by an unnamed corporate entity to have stability and to know that they are going to be able to afford a lease next year.”
As Jacksonville’s population steadily increases, apartment occupancy follows, and rental prices increase, too. This makes people want to get into the market, Holland said. And the cycle of competition continues.
“People are willing to offer more to be able to get the home, and sellers are very interested in cash sales,” he said. “A lot of the investor market is cash sales and being able to buy the home quicker.”
For the appraiser’s office, this means home values are changing more frequently as a result of the supply and demand.
“At some point, the market will, as it always does, take a dip,” Holland said. “We’re not anticipating any time soon, but if interest rates go up, the demand may go down, and that may dip.”