Florida Rents Are Dropping Fast Is It Time For Investors To Look Elsewhere?
A recent study from Redfin shows that year-on-year rents in some of Florida's major cities are down significantly. Some real estate investors wonder if this is a natural correction or the beginning of a significant pullback in the Sunshine State. Redfin's data shows that Miami and Jacksonville experienced declines in the 5% range, while rents in Orlando and Tampa retreated by 4.3% and 3.2%, respectively.
Considering that all those markets have been seeing increases in rent until the last 12 months, some people might say a decline of some sort was inevitable. However, some industry analysts are looking at the rent declines and matching them with other data points to speculate that Florida might be in the early stages of a crisis that could shake a Florida real estate industry that's already been wobbled by an insurance crisis.
Some concerning data points include that the number of people moving to Florida has fallen dramatically in the past few years. As recently as 2022, the Florida Chamber of Commerce recorded 750,000 new residents vs. 500,000 people who moved out, leaving a net population gain of 250,000. The Chamber is only expecting between 225,000 and 275,000 new residents in 2024.
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First of all, that is a precipitous drop in new residents. Second, once the number of new Florida residents is adjusted for move-outs, Florida may have a net negative in terms of population growth. That outcome would be disastrous for real estate developers and home builders all over Florida, many of whom are still in the middle of bringing new construction online to accommodate what they expected to be sustained population growth.
However, nothing goes up without eventually coming down. In Redfin's analysis, senior economist Sheharyar Bokhari elaborated, "The Sun Belt has built a ton of new apartments in recent years, partly to meet the surge in demand brought on by the flood of people who moved in during the pandemic housing boom. But the boom is over, and now property owners are struggling to fill vacancies, causing rents to fall.”
That said, Redfin's data reveals something of a silver lining for Florida renters. Bokhari's analysis also noted that more inventory leads to more choice and lower prices for renters when he said, “The good news is that the uptick in housing supply in the Sun Belt has improved affordability for renters, which can be a lesson for other American cities grappling with housing affordability challenges.”
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It's also important to note that a combination of high interest rates and the highest home insurance premiums in the country is likely to keep hundreds of thousands, if not millions of Floridians renting for the foreseeable future. The Redfin study also believes that many Florida renters are delaying home purchases in the state until interest rates and insurance rates drop.
However, falling rents still represent a problem for real estate investors and developers, especially REITs. Many of their projects in cities like Miami and Jacksonville are budgeted for annual rent increases in the 4-6% range, which is the exact opposite of what's happening now. If the trend of inward-bound residents continues to slow, many of those assets will achieve their projected returns.
Real estate investors looking for markets with upside potential may want to cast a wider search radius than Florida. Nearby markets like Georgia, Alabama, and South Carolina may offer a lower buy-in price and more long-term appreciation potential. Investors may also be well served by looking further north at Midwest markets like Indiana and Ohio. It's always better to be ten minutes early to this party than five minutes late.
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