Homeowners in Central Florida are hearing the news that housing is slowing down nationally and as the Federal Reserve continues to aggressively lift interest rates to combat inflation, many believe there is about to be a full capitulation when it comes to housing prices. In fact, many potential homebuyers are sitting on the sidelines believing that home prices will return to the pre-pandemic COVID-19 levels. From my standpoint, I don’t see it.
Here are my top 5 reasons why home prices in Central Florida will not collapse to pre-pandemic levels:
Labor shortages and wage rates continue to rise, and there is little chance that the increase in wages will end. It is very hard to hire good people, and today, people will not work for minimum wage in many positions. Much of the cost in housing, whether it is actual construction or products, is heavily reliant on labor. Wages are not coming down.
There remains a housing shortage in America. Since the Great Recession, the country has averaged less than 1 million housing starts. Unless we allow people to start living in tents or shanty towns again, we need housing across the country. Right now, the country is barely keeping pace with the housing lost each year to fire, floods, and dilapidation.
It is estimated that a thousand people a day are moving to Florida. The great move to the Sunshine State will continue and despite the no-growth efforts in some communities, it cannot be stopped. The no-growth movements in Florida only raise the cost of housing, make it harder for essential workers to find a place to live, and force people into communal living. When housing gets unaffordable, more people will live together in one house or apartment. New York City and Los Angeles are prime examples of cities where several families must reside in one home due to unaffordable housing.
Local government continues to increase the costs of impact fees and building permits. For example, Lake County is proposing to dramatically increase impact fees, and the commission is pushing forward with this even though they are well aware of the affordable housing crisis in the area. They have a nonsensical belief that builders and developers pay these costs when in actuality, it is the end-user. Local governments in Central Florida are by far the biggest hindrance to affordable housing as they control impact fees, building fees, utilities, and property taxes. This is not a Washington D.C. issue; it is a local issue.
Energy prices are not going to drop anytime soon. Most Floridians have no idea that most of our energy is produced through natural gas, and over the last year, natural gas prices have risen by three-fold. In the building material world, energy is a huge component in producing every project as well as providing the trucking and logistics to ship the products to your hometown. The world demand for energy will only continue to accelerate, and the only way these prices collapse is through a world-wide depression. With persistent high energy and labor costs, expect little in price reductions even with lowered commodity prices.
This is not 2008, and the housing market is not over-built or in a financial bubble. The only way housing prices decrease to the levels of 5 years ago that many would like to see is through a world-wide depression, and at this point, housing would be the least of our problems. Yes, I do expect some moderation in pricing due to the actions of the Federal Reserve, but no collapse. Don’t forget the longer you sit on the sidelines, the higher interest rates will go and in fact, since last year, they have doubled. Even with lower prices and double interest rate, are you really saving anything?
Don Magruder is the CEO of Ro-Mac Lumber & Supply, Inc., and he is also the host of the “Around the House” Show which can be seen at AroundtheHouse.TV.