FORECAST: What To Expect Next In The Tallahassee Real Estate Market

What is the next move for the Tallahassee real estate market? Where is it heading and what will home prices do?

We often receive questions from readers, and today's post is a comprehensive response to a long-time reader who is concerned about future home values.

He asks:

I am concerned about the real estate market, so I have a question that I feel you are best qualified to answer. After the presidential elections some people are expecting a real estate correction that will come as a result of the interest rate hikes or the uncertainty of the economy and that home values will weaken by 20 - 25%. WHAT IS YOUR INTERPRETATION? Will home values have the expected correction, or will selling prices stay where they are at, but become harder to sell, and due to the higher interest rates, eventually the supply will overcome the demand thereby facilitating the correction............catch 22. Your valued interpretation please. - Jim L.

So let's take this bite by bite

Forecasting Tallahassee Home Values In 2017

Will Interest Rates Rise?

Anybody who thinks they can predict the future of mortgage interest rates has a far better crystal ball than the one that I threw away years ago.

For what it is worth, interest rates are at historical lows, so I would think anybody who studies long-term money cycles will tell you interest rates have to rise. So the real questions are "when will they rise?" and more importantly, "how fast will they rise?"

Unfortunately, the answers to these questions are above my pay grade. I suspect we will see continued low rates for the foreseeable future, as the short-term economic consequences of rapidly rises rates is not something modern politicians seem willing to stomach. The topic of "rates" goes far beyond the housing industry, so a study of securities and the bond market is your best bet here.

Will Home Values Weaken 20 to 25%?

September 2016 Housing Report And ForecastNo.

Home values in Tallahassee are still undervalued, we've only recaptured a little more than half the equity that was lost during the housing market collapse. A better way to understand the near-future of home values is to study the relative supply of homes for sale in Tallahassee. This is something we do at the beginning of every month, and you can see our reports HERE.

Different areas of Tallahassee have completely separate market dynamics right now. The same is true for different price ranges. The glut of $800K homes everywhere in town brings concern for depreciation, while the shortage of $200K homes in Northeast Tallahassee all but guarantees accelerating appreciation in 2017.

Home value changes will not be fairly distributed to all homeowners, thus you must understand the supply and demand for homes similar to your own.

If you read our report on THE COMPRESSION EFFECT IN TALLAHASSEE, you will have a better understanding of the future of home values here. Overall, I expect to see at least 4% appreciation (on average) in Tallahassee in 2017, but would not be surprised to see it hit double digits. The former will be true if interest rates move higher, the latter possible if they do not.

How Will Higher Mortgage Interest Rates Impact Housing?

Mortgage interest rates are a big factor in the affordability of homes. Currently, the rising number of buyers in the market is still far below what we saw ten years ago, so anything short of a significant loss of jobs, significant rise in interest rates, or a significant decrease in our population, I expect to see more buyers (more demand, falling supply, thus rising values).

More buyers = increased demand which results in a reduction of supply. 40% to 60% of our sellers buy again in Tallahassee, thus making the growth of sales an impetus for buyers.

Hurricane Hermine slowed the market, but only for a few weeks. Expect to see the reduction in pace from the storm result in an increase in pace of home sales during the remaining months in 2016.

Will Homes Become Harder To Sell?


So long as there is ample buyers in the market, homes sell right away. The most expensive existing homes in the market have low demand (a large percentage of high-end buyers are choosing new construction right now ... supply is not dropping and existing homes are being ignored). You could definitely say the very priciest existing homes are tough to sell.

But once we get below the $350K level, demand continues to outpace supply, and that means values are rising and properly marketed homes have multiple buyers. A properly marketed home takes 4 to 14 days to sell (in all market cycles!).

Will Supply Overcome Demand?


Overall, I do not see this happening any time soon. Of course, this situation already exists at the highest end of our market. Should we begin to see a lot of single family construction permits being issued, I could also change my answer on this. But accelerated construction is not likely to occur without increased demand coupled with low mortgage interest rates. In other words, supply (which is currently moving towards a sellers market) is not likely to head in the other direction. The majority of Tallahassee buyers want/need homes that are priced too low for builders to create replacements, thus there is a level of protection that exists right now for existing homeowners.

Supply will not overcome demand in 2017, but it could happen in future years when we hit new highs in home valuations. Until we see existing home values reach levels near where builders can build, existing home owners have a safety net at all but the higher levels ($400K+) in the Tallahassee housing market.

My Forecast For Tallahassee Real Estate In 2017

Continued growth.

The current number of home sales in Tallahassee is consistent with what we saw pre-bubble in the early 2000s, and yet our population has grown and thus our need for housing has likely grown too.

The number of credit challenged buyers is falling as the penance period for short sales and foreclosures expires. People who traditionally have bought and owned homes are re-entering the market and trying to lock-in these low 30 year mortgage interest rates. If you are one of these people, get in the market before values skyrocket.

What Should Our Reader Do?

If he owns a home and wants to keep it, he should speak with a mortgage professional about doing a refinance. Interest rates for 30 year loans are sub 4% and might be a very smart move. Even people with homes owned free and clear should consult their investment advisers about the benefits and risks of borrowing against their homes. At rates in the low 3s, could you reinvest it elsewhere for a smart rate of return?

If he wants to buy a home, there are a lot of personal variables to consider.

He should speak with a market expert who works with buyers. Discuss goals and desires and compare it with market conditions, supply and demand, and do a cost-benefit analysis for his specific situation. There is not a one-size-fits-all answer on "what to do," but an expert can help him find the best solution to fit his needs.

Tallahassee Housing Market Conditions

Whether you sell a home and buy another, or merely stay in your home, you will be gaining equity if you are in the market right now. Home values are rising, so ultimately, put yourself in the home that you would like to live-in during this equity accumulation period. This is not the time to be outside of the market.

If this is something you would like to discuss with a professional who has hundreds of 5-star customer reviews, simply drop me a note and we'll be in touch right away.

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