More Florida Buyers Back Out of Contracts in July

 By Kerry Smith

About 16.1% of U.S. home contracts fell through in July, up from 15% in June and 12.5% a year earlier. Of the top 10 city backout rates, 6 were in Fla., with Jacksonville No. 1.

SEATTLE – Nationwide, roughly 63,000 home-purchase agreements fell through in July, or 16.1% of homes that went under contract that month, according to a report from Redfin. It’s up from a revised rate of 15% one month earlier and 12.5% year-to-year.

An increase in backouts can reflect a changing market. Some buyers who started their search a few months ago may no longer qualify for a mortgage high enough to cover their purchase. Some frustrated buyers may have made a quick decision and then regretted it as more listings come into the market. And some buyers may feel they’ve gained more power after a seller refused to negotiate requested changes.

Florida is home to many of the cities seeing buyers back out, holding six of the top 10 spots in Redfin’s study. Jacksonville held down the No. 1 spot, with buyers backing out of just less than a third (29.3%) of all contracts.

Top U.S. cities where buyers backed out

1. Jacksonville – 29.3% of homes under contract
2. Las Vegas – 27.4%
3. Lakeland – 26.2%
4. New Orleans – 25.9%
5. San Antonio – 25%
6. Orlando – 24.5%
7. Palm Bay – 24.5%
8. Deltona – 24%
9. Atlanta – 23.7%

“Homes are sitting on the market longer now, so buyers realize they have more options and more room to negotiate. They’re asking for repairs, concessions and contingencies, and if sellers say no, they’re backing out and moving on because they’re confident they can find something better,” says Heather Kruayai, a Redfin real estate agent in Jacksonville. “Buyers are also skittish because they’re afraid a potential recession could cause home prices to drop. They don’t want to end up in a situation where they purchase a home and it’s worth $200,000 less in two years, so some are opting to wait in hopes of buying when prices are lower.”

Alexis Malin, another Redfin agent in Jacksonville, warns buyers that there’s no guarantee they’ll be able to find better deals in the future. Annual home-price growth has started to slow – to 8% today from 17% a year ago – but prices are still on the rise and Redfin economists don’t expect them to crash.

“Some buyers who are backing out of deals have this mindset that the market is crashing and they’ll be able to get a home for $100,000 less in six months. That’s not necessarily the case,” she said. “Homes in many parts of Florida are still selling for a pretty penny, so I warn my buyers that the grass might not actually be greener on the other side.”

Some buyers may also be backing out due to 5%-plus mortgage rates. Those who started their search months ago, when rates were closer to 3%, may be realizing the type of home they wanted before is now out of budget since monthly mortgage payments have soared nearly 40% year over year.

“Home-purchase cancellations may begin to taper off as sellers get used to a slower-paced market,” says Redfin Deputy Chief Economist Taylor Marr. “Sellers have already begun to lower their prices after putting their homes on the market. They’ll likely start pricing their properties lower from the get-go and become increasingly open to negotiations.”

“The last four buyers I’ve worked with have all backed out of deals,” Malin said. “One of my clients asked the seller for money to cover the home being repainted. The seller said no at first, so my buyer canceled the contract, but the seller then changed their mind and repainted the whole house. My buyer still walked away because he decided he didn’t love the home that much after all and he knew he had other options.”

© 2022 Florida Realtors®

Study: Climate Change Has Little Impact on Sales

 By Kerry Smith

While no one wants a life in a high-risk area, buyers generally ignore philosophical dangers and continue to pay a premium for properties in fire or flood zones.

SEATTLE – Homebuyers paid a premium for high-fire-risk and high-flood-risk homes during the pandemic, according to research from Redfin. Even as climate-change gains a higher profile, more people have moved into climate-risky areas than out of them in recent years.

The 50 U.S. counties with the largest percentage of homes facing high fire and flood risk saw their populations increase by an average of 3% and 1.9%, respectively, from 2016 through 2020, due to positive net migration.

In addition, second-home purchases with high flood, storm and/or heat risk surged roughly 40% over the past two years.

Part of the reason may be perceptions if climate change is viewed as a global problem that will exist in any location. The survey found that 63% of people who moved during the pandemic believed climate change is, or will be, an issue in the place where they now live.

“From devastating floods in Kentucky and Missouri to deadly fires in California and brutal heat waves across the U.S., it’s clear that natural disasters are intensifying. Still, people are moving into risky areas,” said Redfin Chief Economist Daryl Fairweather. “When people decide where to live, they consider a whole host of things ahead of climate change, which has potential implications on their safety, home stability and finances.”

Homes in high-risk vs. low-risk areas

The median sale price of U.S. homes with high fire risk was $550,500 in April 2022, compared with $431,300 for homes with low fire risk. In other words, the typical home with high fire risk sold for $119,200 (27.6%) more than the typical home with low fire risk – the largest premium in dollar terms since at least 2017.

Places like suburbia – which faces a greater first risk than downtown city locations – saw a surge in homebuyer demand over the last two years, causing prices to jump.

Similarly, the median sale price of homes with high flood risk was $402,010 in the first quarter of 2021, compared with $353,783 for homes with low flood risk. That means high-risk homes sold for a record 13.6% premium – up from a premium of 10.1% in the first quarter of 2020.

© 2022 Florida Realtors®

Florida Town Considers End to Single-Family Zoning

 By John Henderson

Is single-family zoning good or bad? It’s a hot issue, but affordable-housing advocates say it’s one of the problems, and Gainesville might nix it altogether.

GAINESVILLE, Fla. – A split vote during the Gainesville City Commission meeting on Thursday has put the city on pace to become the first in the state to eliminate single-family zoning. It was the first of two needed votes that came in around midnight after a crowd of nearly 100 people showed up to oppose the zoning change, while only about a dozen supported it.

The 4-3 vote calls for small-scale, multi-family housing throughout the city, affecting up to 63% of Gainesville’s residential properties. The proposal replaces the single-family exclusionary zoning with a new “neighborhood residential” category that would allow residential structures of up to four units per parcel depending on the size of the lot.

Buildings can’t be more than two stories tall.

The motion to approve the change included a recommendation by commissioner Reina Saco that staff come back with the pros and cons of sunsetting the laws in three to five years to give the city time to study how the zoning change works in the real world.

A vote to postpone the vote until after the Nov. 8 election failed.

“My concern has been that we don’t have data,” said city commissioner Desmon Duncan-Walker, who proposed the delay. “My bigger concern is that we don’t have the will of the people. And I think we need that.”

Saco, Mayor Lauren Poe, and commissioners Adrian Hayes-Santos and David Arreola voted in support of the first of two required votes on the zoning and plan change. Commissioners Cynthia Chestnut, Duncan-Walker and Harvey Ward voted in dissent.

“The best time to plant a tree is 20 years ago,” Poe said. “The second best time to plant a tree is today. The same is true for housing. The best time to build adequate housing, and abundant housing, was 20 years ago. The second best time is today.”

Poe said he wants people to be able to choose where they want to live and not be forced out of their neighborhoods. But he added that when there is a shortage of homes, wealthy people will gobble up those in more desirable neighborhoods.

“That is how displacement and gentrification works in every single city and town. It’s not unique to Gainesville,” he said.

The emotionally charged meeting at the packed City Hall lasted more than six and a half hours, with a crowd flowing into a conference room and out into the parking lot, where some elderly people complained about standing for hours in 90-degree heat.

Commissioners who support the zoning and plan change have said that allowing the slight increase in density in single-family neighborhoods could create more housing units and help with the affordable housing problem over time. They attribute the origins of the city’s zoning laws to racist policies set during the desegregation era.

But the vast majority of Black people who have spoken out are opposed to eliminating exclusionary zoning. Commissioner Chestnut said the situation was odd and had emboldened Gainesville’s Black community like never before.

“I have never in my life been in a situation where you have white people calling an issue ‘racist,’ and Black people saying, ‘No, it’s not racist,’” said Chestnut, adding that the issue should not be about race.

But some historically Black neighborhoods, like Porters and Fifth Avenue, won’t be directly affected by the zoning change, as those areas already allow multi-family units. If anything, some argue, the zoning change would alleviate pressure in neighborhoods by expanding similar multi-family homes around town, mostly in the northwest part of the city.

Pushback from community leaders

Local state legislators are trying to get the plan change held up at the state level.

State Rep. Chuck Clemons, R-Newberry, and Sen. Keith Perry, R-Gainesville, recently sent a letter to the Florida Department of Economic Opportunity, asking it to intervene and hold up the process until the Legislature meets next spring to possibly address the issue. That agency is now the one that must sign off on the comprehensive plan.

The commission made the decision over not only residents’ objections, but all of its advisory boards.

Earlier this week, the Alachua County Commission voted to recommend that the city not approve the change. The city’s Affordable Housing Advisory Committee on July 12 unanimously urged the commission not to move ahead with the zoning change. And the city’s Plan Board was not opposed to the new multi-family zoning category but recommended it not be implemented citywide.

Community feedback

Several speakers urged the commission to put the proposal on a ballot for voters to decide. Petitions were presented with more than a thousand signatures of residents opposed to the change.

Harry Shaw, a Suburban Heights resident, said the rezoning is “unproven radicalness,” adding that it would result in a “costly ill-conceived boondoggle for Gainesville” but a windfall for developers.

Some residents also said they fear allowing multi-family units in single-family neighborhoods would lower property values and encourage student rentals that are not affordable. They said the multi-family units would result in more noise and parking issues.

Several UF students were among those in the minority who urged the commission to get rid of the exclusionary single-family zoning, saying it is keeping home prices high.

“This is just allowing people the flexibility to build housing that meets their needs,” Joshua Ney said.

It’s not over

The vote does not mean the changes are law yet. It was the first of two required votes. In between each, the plan must also be approved by the state Department of Economic Opportunity.

Ward said he believes the plan will get held up for a while there, calling it “uncharted territory.”

Chestnut agreed on Friday, saying it could be delayed until new elected leaders take office in January.

If that happens, the plan and zoning change would not likely happen, she said, noting that one speaker polled commissioner candidates who overwhelmingly said they would attempt to reverse the change.

The state agency has 30 days to respond to the city’s proposed land plan change.

“They could ask for more time,” Chestnut said. “I think they could take a number of approaches … They could say, ‘You need to have more public input,’ which I fully expect them to say. And I think another very, very powerful piece here is the Black community. With the Black community unanimously saying ‘no,’ I don’t think the state is going to ignore that.”

GNVoices President Casey Fitzgerald, who heads the organization fighting the plan and zoning change, said they will first contact the state agency and point out that the city has not done enough studies to justify the plan change, which is required by law. He said this could hold the case up until the next commission is seated after January, which would likely mean the zoning and plan proposal would die.

If the state agency approves the plan, then GNVoices will file an administrative appeal to the state’s decision to allow the plan change, he said.

Copyright © 2022, Gainesville Guardian, all rights reserved.

NAHB: Affordability at Lowest Point Since Recession

 By Kerry Smith

Only 42.8% of Americans with a median income could afford a median-priced home in the second quarter of 2022 – a sharp drop from 56.9% in the first quarter.

WASHINGTON – In the second quarter of 2022 (2Q), rising mortgage rates, high inflation, low inventory and higher home prices pushed housing affordability to its lowest point since the Great Recession.

According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI), just 42.8% of new and existing U.S. homes sold between the beginning of April and end of June were affordable for families earning the U.S. median income of $90,000 – a sharp drop from the 56.9% of homes sold in the first quarter.

“Rising housing costs stemming from increased interest rates, supply chain disruptions … and a persistent lack of construction workers are dramatically affecting home prices,” says NAHB Chairman Jerry Konter. “Taming housing costs will ultimately require building more homes, and it will be easier to increase production in more affordable smaller and mid-sized markets.”

“Declining affordability has also pushed builder sentiment down for seven consecutive months and NAHB is projecting a net decline for single-family construction in 2022 as the housing markets slows due to ongoing affordability issues stemming largely from supply side challenges,” said NAHB Chief Economist Robert Dietz.

According to the HOI, the national median home price jumped to an all-time high of $390,000 in the second quarter, surpassing the previous record-high of $365,000 set in the first quarter.

Meanwhile, average mortgage rates soared by 1.47 basis points in the second quarter to 5.33% from an average rate of 3.86% in the first quarter – the largest quarterly mortgage rate jump in the history of the HOI series, which dates back to 2012.

In the nation’s most affordable housing market with a population of at least 500,000, Lansing-East Lansing, Michigan, 85.2% of all new and existing homes sold in the second quarter were affordable to families earning the area’s median income of $89,500.

Elmira, N.Y., was the nation’s most affordable small market. In Elmira, 91.8% of homes sold in 2Q were affordable for families earning the median income of $77,900.

For the seventh straight quarter, all top five least-affordable housing markets – major and smaller – are in California.  Los Angeles-Long Beach-Glendale, California was the nation’s least affordable major housing market: Only 3.6% of homes sold during 2Q were affordable to families earning the area’s median income of $90,100.

Salinas, California led the list of unaffordable small markets, with only 5.3% of new and existing homes sold in 2Q affordable to families earning the area’s median income of $90,100.

Most affordable housing markets

Top five affordable major housing markets

1. Lansing-East Lansing, Michigan
2. Indianapolis-Carmel-Anderson, Indiana
3. Toledo, Ohio
4. Harrisburg- Carlisle, Pennsylvania
5. Scranton-Wilkes-Barre, Pennsylvania

Top five affordable small housing markets

1. Elmira, New York
2. Cumberland, Maryland-West Virginia
3. Wheeling, W.Va.-Ohio
4. Utica-Rome, New York
5. Davenport-Moline-Rock Island, Iowa-Illinois

Least affordable major housing markets

1. Los Angeles-Long Beach-Glendale
2. Anaheim-Santa Ana-Irvine
3. San Diego-Chula Vista-Carlsbad
4. San Francisco-San Mateo-Redwood City
5. San Jose-Sunnyvale-Santa Clara

Least affordable small housing markets (all California)

1. Salinas
2. Napa
3. San Luis Obispo-Paso Robles
4. Santa Cruz-Watsonville
5. Santa Maria-Santa Barbara

© 2022 Florida Realtors®

Florida’s Insurer-of-Last-Resort Now Has Over a Million Policies

Citizens Property Insurance Corp. hasn’t had 1M policies since 2014, and the latest surge comes despite strong efforts to lower Florida’s potential liability.

TALLAHASSEE, Fla. – The state-backed Citizens Property Insurance Corp. has surpassed 1 million policies for the first time since 2014.

Created as an insurer of last resort, Citizens has been absorbing a flood of policies as private insurers drop customers and push for large rate increases because of financial losses. The Citizens website on Thursday showed it had 1,000,624 policies as of Aug. 5, up from 937,835 policies on July 8.

Citizens President and CEO Barry Gilway said the insurer could reach 1.2 million policies by the end of the year since many private companies are not writing coverage.

“The market is probably 75% shut down,” Gilway told the Citizens Board of Governors on July 13. “(There are) very, very few companies that are really open in the marketplace.”

Citizens had 883,333 policies at the end of May. As longer-term illustrations of the growth, Citizens had 661,150 policies on June 31, 2021, and 486,773 policies on July 31, 2020, according to data on its website.

State leaders have long sought to limit the size of Citizens because of potential financial risks if Florida is hit by major hurricanes. If Citizens does not have enough money to pay claims after a disaster, it can collect additional money from policyholders throughout the state – a process known as collecting assessments.

“Citizens Insurance topping the 1 million policy mark signals a market that is teetering, putting millions of Floridians and local businesses at risk of even higher costs in the form of hurricane taxes,” Florida Chamber of Commerce President and CEO Mark Wilson said in a statement Thursday, likening assessments to taxes.

Gov. Ron DeSantis called a special legislative session in May to address the property-insurance system, but problems have persisted since changes take time to impact the market. In all, five private insurers have been declared insolvent since February, with Weston Property and Casualty Insurance the latest to be placed into receivership.

The last time Citizens topped 1 million policies occurred after the 2004-2005 hurricane seasons, in which seven storms made landfall in Florida. But Citizens hasn’t had over 1 million policies since February 2014.

© 2022 The News Service of Florida. All rights reserved.

NAR’s Yun: Any Economic Downturn Likely Mild By Catherine Mesick

 The chief economist pointed to signs of a recession – and signs that suggest no recession. At the least, he says, the latter should block a major economic slowdown.

WASHINGTON – The country isn’t officially in a recession yet, despite two consecutive quarters of national contraction of the gross domestic product, a commonly cited indicator of an economic downturn, says Lawrence Yun, chief economist for the National Association of Realtors® (NAR). And even if the nation is facing an official recession, several healthy economic trends – including a robust job market, coupled with new efforts to boost affordable housing – could stave off a more serious slump.

New guidance from the Treasury enables state and local governments to use leftover emergency funding from the American Rescue Plan to create affordable housing. Yun says that should help ease the inventory crisis and counteract the effects of a tightening economy.

Still, there are questions about U.S. “stagflation,” a period of high inflation combined with an economic slowdown. But the National Bureau of Economic Research – the council that watches over U.S. business cycles – still hasn’t declared an official recession, Yun notes.

Major factors counteracting current slowdown conditions

1. Job creation is robust. Total payroll jobs were over 150 million in early 2020 before the onset of the pandemic, Yun said at NAR’s Real Estate Forecast Summit last week. While COVID-19 shutdowns precipitated a steep decline in jobs, each month showed strong job creation after the restrictions were lifted. Though there is variation across the country, Yun says, the job market has largely recovered.
   
   “We are essentially at the same level of jobs and W-2 employment now compared to pre-COVID days,” he said. Data from the Bureau of Labor Statistics shows that right now, there are more job openings than unemployed people. As of June, there were 5.9 million workers searching for jobs and over 10 million job openings. So, while high unemployment typically characterizes a recession, “the ratio [today] is almost two to one,” Yun said.
   
   “It’s a very unusual recession – if we are in one.”

2. Commercial real estate is growing. Though a recession typically means bad news for commercial properties, the commercial market as a whole is flourishing despite a stagnant office sector, Yun writes in a recent Realtor Magazine column. Rental demand is booming, and rents are up significantly. Demand for warehouse space has surged as retailers stock up to avoid supply chain disruptions. Hotel bookings, air travel and park attendance are now above pre-pandemic levels. All of this increased activity has led to high demand for new commercial construction.
   
   “The improving construction sector means that any recession will be mild,” Yun said.

Despite the positive economic signs, falling homes sales remain a concern.

“Home sales are down largely because mortgage rates have risen sharply,” Yun said at last week’s event. “If interest rates rise further, then home sales will decline even more – even if there is no recession.”

One long-term solution is to increase housing supply, which is why the Treasury’s announcement is meaningful. The change in American Rescue Plan guidance could mean significantly more funds going to housing supply and a reduction in costs for buyers over time.

Another factor that will help in the short term is employers finding a way to match workers to openings and fill jobs, Yun said. “We still need workers. In an environment with rising mortgage rates, what will drive homes sales is jobs.”

Source: National Association of Realtors® (NAR)

© 2022 Florida Realtors®

Fannie Mae: Buyers Wary of the Housing Market

 By Kerry Smith

Buyers’ feelings about the current market hit a low not seen since 2011. Only 17% think it’s a good time to buy a home, and the “good time to sell” index also dropped.

WASHINGTON – Consumers don’t have a good feeling about the current market.

The Fannie Mae Home Purchase Sentiment Index (HPSI) decreased 2.0 points in July to 62.8, its lowest level since 2011 and well below the all-time high set in 2019.

Only 17% of respondents say it’s a good time to buy a home, and the percentage of who believe it’s a good time to sell has also been ticking downward. In July it fell to 67% from a 76% reading in May.

Overall, four of the index’s six components decreased month over month, including the component associated with home price growth expectations, which has fallen meaningfully over the past few months though remains positive. Year over year, the full index is down 13.0 points.

“The HPSI has declined steadily for much of the year, as higher mortgage rates continue to take a toll on housing affordability,” says Doug Duncan, Fannie Mae senior vice president and chief economist. “Unfavorable mortgage rates have been increasingly cited by consumers as a top reason behind the growing perception that it’s a bad time to buy, as well as sell, a home.

“Some homeowners may opt to list their homes sooner to take advantage of perceived high prices, while some potential homebuyers may choose to postpone their purchase decision believing that home prices may drop. Overall, this month’s HPSI results appear to confirm our forecast for moderating home sales over the coming year.”

© 2022 Florida Realtors®