More moderate Florida home construction growth relative to last year is the resounding prediction by many economists as we start 2020, but there are many factors to consider. Here are some of those major factors:
1) Still a low inventory environment in 2020
Low inventory in most parts of Florida will continue to be a factor in 2020, and as a result, prices are expected to continue to rise. Zillow reported Florida home values increase 4.3% on average last year, and projected home values to continue to increase 2% in 2020. This is not bad news for builders since the need for new single family housing throughout Florida will still be in high demand in 2020, even though home starts are predicted to be less this year than the 4.6% experienced last year.
2) The problem of affordability
While housing prices continue to increase, the income growth rate nationally is not keeping pace, resulting in more first-time home buyers being priced out of the housing market. The chasm between rising home prices and buyer affordability widens. To make matters worse, Florida wage growth has lagged behind National averages by 12.5% in 2019. This fact supports an eventual slowdown in the Florida housing market, but no one has the crystal ball to determine when.
3) Florida population continues to increase at high rate
Florida is the third fastest growing state by population, behind Utah and Arizona. Population growth rate was at 1.1% last year alone, and in the past decade Florida experience the largest population increase in comparison to any other decade in it’s history – a total growth of 3.6 million people. Growth expectations are expected to curtail in the short term, but over the next decade to increase by 23% to reach almost 26 million by 2030. This supports the need for many more new housing starts long term, in the face of a milder growth predicted in 2020 by many economists.
3) Wildcards: Election Year and Future Interest Rates
Back to the crystal ball. In addition to the presidential election, 35 of the 100 seats in the U.S. Senate, and 435 seats in the House of Representatives are up for grabs. That’s potentially a huge change in the political landscape. Politics can indirectly have a substantial effect on housing markets via impacts on business optimism and consumer confidence. The other unknown that can play out in 202o is changes to primary interest rate. Although the Fed has hinted at not changing the interest rates in 2020, reconsiderations have happened in the past and can have a substantial impact to the housing market.