We Made The Real Estate News In Tallahassee
I was interviewed by TaMaryn Waters at the Tallahassee Democrat this past Friday regarding the current state of the Tallahassee real estate market.
The interview is shown in the video below (it starts right away when you load the full article), and I share some information about both the Tallahassee housing market and the overall Florida housing market as well.
Most people do not realize it, but the Florida residential real estate market is likely going to record the most home sales every this year. That's right, based upon the number of homes that will sell in 2015, the real estate recovery is completely over in Florida, though home values have not yet returned to peak values in most locations.
Real Estate Video With TaMaryn Waters
Tallahassee Real Estate Market Lagging
Unlike the Florida housing market, Tallahassee is lagging well behind. Yes our market is recovering, but it is slow-going at best. We are still several years away from achieving the success that the rest of Florida is enjoying.
Job cuts at the State level have impacted Tallahassee much more severely than anywhere else, and these jobs have not been replaced by the private sector.
Forecasting home sales is a process of tracking supply and demand. The supply-side is fairly simple for me, I know where to look to find all the inventory of homes for sale in Tallahassee.
But the demand side is not so simple. I can tell you what demand is now, and I can tell you what demand has been in the past. But future demand relies on an understanding of the local economic and demographic base, and it requires far more scrutiny and analysis than merely tracking and recording home sales.
Some of the key metrics include inflation and population change, and the population change that our market needs for recovery includes adults moving to Tallahassee who consume housing units.
It does not matter if they rent or if they buy, but we need them to consume.
The West Side Influence
You might think that the "for sale" market and the "for rent" market are unrelated, but that would be a big mistake.
A thorough analysis of demand in real estate looks at the full consumption in the local market. Here's why:
Imagine a large institutional investor came in to town and purchased every single vacant house on the market. At first blush, it would appear as if all of our "glut" issues were solved. But the investor would immediately try to rent these out or "flip" them in order to make a profit. Thus, the "large investor" scenario would have no real impact on the market, as only the ownership of the units would change, not the ultimate consumption of the units. For real supply change, we need somebody to move into a vacant unit.
Here's another scenario (and this one is happening right now on the West side of town). Investors are currently building multi-family units targetting the student population from TCC and FSU along Tennessee Street. They have built more than 4,000 units that will be coming online over the next several months and years. Have you considered what this means for the supply and demand for single family homes, condominiums, and townhouses?
Remember, supply and demand is about consumption.
If the investors are to be successful with their new ventures, they need students to sign leases. Where are these students going to be found?
I have not heard about any abnormal positive growth-rate among higher education students occurring in Leon County, so I suspect they will be targeting the same students as the already-oversupplied student rental base on the West side of town.
So we are increasing supply while demand is not changing. How will this play out?
I suspect that students will flood to the new units. They are brand new. They are stylish. They are sexy. And they are going to hurt a lot of local small investors on the West side.
The 4,500 units built will displace the tenants from more than 1,500 single family homes, condominiums, and townhouses, and these units will soon be moving from the "for rent" market to the "for sale" market. If this were to occur over the next 24 months, what would that mean to an already over-supplied West side?
The West side has 591 homes for sale after recording 935 homes sold last year. If we added 1,500 more, that means the 7.6 months of supply of homes would become 26.8 months of supply (reminder, 6.0 months of supply is a balanced market).
So from my simple math, we need more students or more jobs, or the West side of Tallahassee is going to jump from the frying pan into the fire.
East Meets West
For those homeowners who live on the East side of town, don't think that this drama is somebody else's problem. There is definitely a food-chain effect in real estate. We cannot disrupt one segment of the market without causing ripples of change in all parts of the market.
If the West side does not gain an influx of tenants rapidly (incoming freshman only help in so much as they must be a larger group of students than the graduating classes that are departing), than these homes will make it to the market for sale.
The supply will be so flush that values will take a beating. All the people who are looking at paying $300,000 on the East side of town for an 1,800 square foot house might seriously consider picking up a 2,500 square foot house on the West side for less than $100,000.
The lower prices will persuade many to choose the West side of town, and that will help shift the gross supply from the West to the East (meaning everywhere).
Jobs, Jobs, Jobs
There is a simple cure, but it's not going to be easy.
We need more people in Tallahassee. We must grow.
Growth must be fueled by something. Perhaps we can grow our higher education enrollment (adding an additional 20,000 students should do the trick). Or maybe we can pull industry into Leon County. A combination of the two would be good, but bringing industry (jobs) to Tallahassee seems to be the most permanent solution for bringing back our housing market.
I would (urge) encourage all of our readers to discuss growth in Tallahassee with their friends and neighbors. We need to ensure that our local leaders understand that job creation should be a very important issue in their current schedules.
I will continue to report housing market trends in Tallahassee. If you'd like to stay up-to-date with what is going on, simply subscribe to the Tallahassee Real Estate Newsletter and you'll get the news whenever it is reported.