Over the past two years, inflation has become a significant concern in the U.S. economy. The labor market has remained remarkably robust during this period, with wages rising to meet labor demand. However, while wage increases have been significant across many industries, most have yet to experience sufficient growth to keep pace with inflation. This struggle to maintain purchasing power has been particularly challenging for the labor force in Florida, given the substantial increase in population and labor force since the COVID-19 pandemic.
Like many regions nationwide, housing has become a significant driver of inflation, making it increasingly difficult for many to obtain affordable shelter. At the national level, housing prices have soared by 39% from August 2020 to August 2023 (S&P/Case-Shiller U.S. National Home Price Index). Location plays a crucial role in real estate, and homes in Tampa, FL, and Miami, FL, have experienced price jumps of 61% and 64% over the same period (S&P/Case-Shiller Tampa and Miami Home Price Index). This surge has made housing affordability in the Sunshine State a significant concern for residents, employers, and policymakers.
This month, ABLE Operations examines housing affordability for each Metropolitan Statistical Area (MSA) throughout Florida with recent data available. We employ a historical house price-to-earnings ratio to assess affordability. This ratio utilizes two datasets: single-family housing prices and weekly earnings (income). Typically, earnings are only tracked on an annual basis. However, Florida's Department of Commerce provides monthly earnings data for the State and Metropolitan areas. This offers a "real-time" metric, capturing immediate changes to earnings in our robust labor market.
State Overview
Earnings data is available from January 2007 to September 2023 (present), allowing us to observe the volatility in house prices before and after the "Great Recession". According to the S&P/Case-Shiller U.S. Index, national home prices peaked in February 2007. We compare the current house price-to-earnings ratio relative to February 2007. The map of Florida below highlights the percent change for MSAs over that period. To interpret the map correctly, red MSAs have a higher price-to-earnings ratio than they did in 2007 (less affordable than in 2007), green MSAs have a lower price-to-earnings ratio than in 2007 (more affordable than in 2007), tan MSAs are on par with 2007 affordability, and grey MSAs indicate insufficient data.
While housing affordability has deteriorated for most MSAs compared to 2007, Tallahassee, Ocala, and Cape Coral stand out with lower house price-to-earnings ratios than in February 2007. Tallahassee's improved affordability stems from robust earnings growth since the COVID-19 pandemic began. Earnings in the state capital have soared over 20% in the past three years. In contrast, Deltona has witnessed a nearly 50% surge in housing prices over the same period, making housing significantly less affordable in the region.
Regional Differences
Regional variations in house price-to-earnings ratios are evident. For instance, Ocala's affordability ratio between February 2007 and September 2023 is -11.3%, indicating that Ocala was more expensive in 2007. On the other hand, Deltona's ratio has jumped 41.8% since 2007, suggesting a significantly less affordable housing market for those still in the workforce. This disparity likely stems from regional factors, including demographics, industrial makeup, the prevalence of second homes and short-term rentals, and labor force composition. While earnings are comparable between Ocala and Deltona, retirees, "snowbirds," and visitors not in the labor force are driving up prices and diminishing affordability in Deltona. The following five graphs illustrate historical house price-to-earnings data across Florida's MSAs.
Conclusions
From a house price to earnings ratio, most of Florida is at a rate higher than the previous housing peak of 2007.
However, certain regions remain more affordable than in 2007, including Ocala, Tallahassee, Cape Coral, and Punta Gorda.
Demographics play a significant role in the level of the ratio; for instance, as retirees migrate to Florida, the ratio is likely to increase in certain regions as many retirees have sold their previous homes at record high valuations, purchased new homes in Florida at record valuations, thus putting continued upward pressure on house prices.
While the Florida Legislature has recently passed the Live Local Act to expand housing supply, only time will tell how Florida's housing market will react to the legislation and if, and to what extent, mortgage rates and/or a national recession impact Florida's housing market in the coming years.
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