Top 10 Cities in Florida where Home Prices will go Down

When will Florida's Housing Market Crash? That's the question on the mind of every Florida homebuyer and investor in mid-2023.

Because it seems obvious that a big Florida crash is coming. And coming soon. Home prices went up so much during the pandemic that they're now 31% overvalued compared to the fundamentals. That can't sustain itself.

But despite these huge levels of overvaluation, Florida's housing market continues to defy the odds in 2023. Homebuyer demand is still robust in cities like Tampa, Sarasota, and Lakeland. And prices continue to go up across the state, with Zillow reporting 8.2% YoY growth in March 2023.

It's getting to the point now that many people in Florida are giving up on the idea that prices will ever go down. And accepting that things will remain expensive forever.

But I'm here to remind buyers and investors in Florida that you need to be very careful. Because we could be on the precipice of some very big declines coming in Florida's Housing Market.

In this post I will provide the data for why I think Florida's Housing Market will crash. And provide a list of the 10 cities where prices could go down the most.

Florida is a very high "Beta" Housing Market

The first thing every homebuyer and investor in Florida needs to understand is that your housing market has a very high "beta". Meaning it has high volatility.

The term beta comes from stock market analysis. High-beta stocks (Robinhood) are volatile and have big price movements compared to the market overall. Meanwhile, low-beta stocks (AT&T) don't move as much and are generally viewed as safer picks.

Florida is like a high-beta stock. Its home prices are exceedingly volatile and prone to big swings up and down. A reality that can be seen by analyzing its home-price performance over the last 25 years on Reventure App.

You can see that home prices in Florida never trade sideways. They're also making big moves. Particularly during the last Housing Crash from 2007-12. When home prices in Florida went down by 50%.

I want you to stop and think about that for a second. If someone in Miami purchased a $400k house in 2007, it was worth $200k five years later in 2012.

That actually happened.

And it happened for a distinct reason.

Florida's Housing Market runs off Migration. And Tourism. When those drop, there is a Crash.

Some people like to blame Florida's home price declines in the 2008 crash squarely on bad mortgages. And most definitely - bad mortgages were a big part of home price declines in Florida in that last downturn.

However, it's important to remember that bad mortgages were available everywhere in America in the mid-2000s. But not everywhere crashed. For instance, home prices in Tennessee only went down 10%. Home prices in Oklahoma didn't go down. Yet they declined 50% in Florida. Why was that?

The reason Florida crashed so bad last time, and will go down hard this time, is because its housing market runs entirely off two drivers:

1) Migration of second-home buyers

2) Tourism to support local housing demand

Meaning that when there is a surge of people moving down from New York and Illinois to buy a house in Florida, home prices boom.

At the same time, when the national economy is an up cycle and people are traveling to Florida to enjoy the warm weather and beaches, local employment surges, making the housing boom bigger.

But those surges in migration and local employment are not sustainable. And when they inevitably reverse, Florida's Housing Market crashes.

For example, look at what happened to migration during the last housing crash. Data from Reventure App shows that migration in Florida peaked around 360k people in 2004 and 2005. And then collapsed to nearly zero in subsequent years as the recession and housing crash unfolded.

Fast forward to 2022 and Florida set a new record of inbound migration of 445k. Smashing the previous highs in the mid-2000s. Which was great for Florida's Housing Market last year.

But where does that migration figure trend in the future now the pandemic is over and white collar workers are getting laid off and being called back into the office?

The migration will go down. And likely down by a lot.

(This decline in migration is likely already underway in 2023, with Redfin reporting a huge drop in homebuyer demand for vacation homes.)

Watch the Unemployment Rate in Miami

Another major warning for homebuyer and investors in Floida is the state's huge economic bust potential. To get a sense of this, just take a look at the historical unemployment rate in Miami.

Right now Miami's unemployment rate is a miniscule 2.2%. One of the tightest labor markets in America. But history says that will not last. In previous recessions the unemployment rate surged to 10% in 1993, 11% in 2010, and 14% during the pandemic.

This massive level of economic volatility is driven by the fact that Miami, much like the rest of Florida, runs off tourism. And tourism gets hit very hard by recessions since it's a discretionary spending item.

What's concerning for Florida is that we are likely already in the beginning stages of another tourism drop-off. With hotel revenues in Miami down a whopping -16% YoY. Meanwhile, data from AirDNA shows that cities like Cape Coral, Miami, Destin, and Fort Lauderdale have big declines in short-term rental occupancy rates.  

These are canaries in the coal-mine saying that "Florida's economy is at risk". And if that economic risk translates into meaningful job losses, home prices in Florida will go down.

But WHEN will Home Prices in Florida go Down?

So the risk factors in Florida's housing market and economy are clear. Home prices are way overvalued. The influx of pandemic second-home migration is declining. As is tourist demand. It's only a matter of time before the dam breaks.

But WHEN will this dam break?

I honestly thought it would have broken by now. Back in October 2022 I put out a video on YouTube saying the Florida crash had started. But clearly, that was a bit premature.

And ultimately what I've realized about Florida's Housing Market in the interim is that so long as the local economy appears strong, and sellers continue spinning themselves a narrative about how many people are moving to the state, prices won't go down meaningfully.

Even in the face of higher inventory. The number of homes for sale on the Florida Housing Market has more than doubled over the last year according to data from Realtor.com. In fact, Florida's 116% inventory growth rate is the highest of any state in America.

So we have way more homes sitting on the market for sale in Florida. To go along with a fairly high rate of price cuts (21%) compared to other states. Clear signals that the fundamentals in the housing market have weakened significantly over the last 12 months.

But I suspect it might not feel this way to a homebuyer in Florida right now.

I see you in the comment section talking about bidding wars. And about how sellers are still jacking up the price on their listings. Behavior that makes it appear like Florida's Housing Market will never crash.

But ultimately fundamentals will rule the day. Homebuyers in Florida can't keep paying 45% of their income to mortgage interest, taxes, and insurance for much longer. It just might take an economic downturn for those fundamentals to show themselves.

The Builders in Florida are still going nuts

In one second I'm going to discuss the 10 cities in Florida that I think will have the biggest home price declines in this downturn. But before that we need to have a brief discussion the builders.

These builders are still going absolutely nuts in Florida's housing market. And are setting up to deliver a massive pipeline of new single-family homes and rentals in 2023.

Data from Reventure App shows that builders in Florida have pulled nearly 200k permits over the last 12 months. The second-highest level of building in America after Texas.

And nearly double the rate of California in 3rd place.

There is about a 6 - 18 month lag from when a permit gets pulled to when a housing unit gets delivered. So we should a big increase in newly constructed sale and rental inventory in Florida in the second half of 2023.

Which will be welcome news for buyers and should put downward pressure on prices.

10 Cities in Florida where Home Prices will go down the Most

So that brings us to the list. What are the cities in Florida that will face the biggest home price declines in 2023 and 2024 as the recession and housing downturn worsens?

To answer this question I'm going to use Reventure App to filter the largest metros (min. 250k population) in Florida with the most overvalued prices.

Lakeland, FL comes in at #1. With home prices that are 34% overvalued compared the long-term fundamentals dictated by incomes. Lakeland is a market where inventory has absolutely surged over the last year. Buyer demand there is still holding strong, but if it wavers, prices could drop quickly.

Tampa/St. Pete comes in at #2. It's shocking just how expensive the Tampa area has become for both buyers and renters in recent years. It's now in a bigger bubble than in 2006. A concerning reality that suggests prices could drop 33%.

Miami/West Palm Metro at #3. You can see the specific county data for Miami-Dade, Broward, and West Palm on Reventure App. But aggregated together, the Miami/West Palm metroplex is 32% overvalued and has huge price downside if the area's tourism economy continues to decline.

North Port/Sarasota at #4. Home prices in the North Port/Sarasota area are 32% overvalued above the long-term fundamentals dictated by the incomes of the people who live there. That type of overvaluation can last for a little while when there is a surge in migration. But ultimately is not sustainable in a recession.

Crestview/Fort Walton Beach at #5. The panhandle area in Florida is already showing signs of economic weakness. Crestview and nearby Pensacola are about 30% overvalued and have lots of homebuilding occurring. Tread carefully.

The remainder of the list includes metros like Ocala, Jacksonville, Port St. Lucie, Pensacola, and Orlando. All of the underlying data overvaluation data on these markets can be accessed on Reventure App.

(Overaluation % is calculated by looking at the long-term average Home Value / Income Ratio in the market. And determining how much home prices need to go down from today's level to return the market to its long-term norms of affordability.)

How I could be Wrong

Lastly, let's explore an interesting question: is there a way I could be wrong?

And Florida's housing market doesn't crash?

There is actually a way this could happen. But it would require two major secular trends to work in Florida's favor.

1) the US to avoid a recession (aka, "no landing"), and

2) inflation to continue to be a major issue for the next five years.

If those things occur, then Florida's grossly inflated housing market might not crash. Because no recession would mean that locals would keep their jobs. And there wouldn't be an increase in distressed selling on the housing market.

Moreover, if inflation continues to be a major issue for years, then a wage-price spiral could occur that pushes up local incomes. Thereby reducing the overvaluation of the housing market and improving affordability.

Florida needs both of these things (no recession and big wage inflation) to happen to avoid a housing crash.

An outcome which is theoretically possible, but unlikely. Especially both occurring at once.

What are you seeing Florida's Housing Market? Do you think Home Prices will Crash?

You guys are my eyes and ears on the ground of the US Housing Market. Let me know what you're seeing in Florida in terms of home price and inventory trends in the comment section below. Make sure to note the city you're talking about.

PS - keep your eye out on YouTube for a video on the Florida Crash in the next couple days.

-Nick