A market gone mad

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At all price levels, for buyers and renters alike, experts say Sarasota’s hot real estate market will continue to affect Siesta prices for the next 18 to 24 months — at least

By Hannah Wallace

In January of this year, the Wall Street Journal/Realtor.com Emerging Housing Markets Index revealed nationally what local Realtors had already been dealing with for months: The Sarasota housing market is red hot.

WSJ/Realtor.com named North Port-Sarasota-Bradenton No. 2 among the country’s “top metro areas for home buyers seeking an appreciating housing market and appealing lifestyle amenities.” The rankings were based in part on numbers from the fourth quarter of 2021. (Naples was No. 1.)

Seeing a hot market get even hotter, local homeowners have been moving to put their properties on the market to take advantage of the growing demand. Prospective buyers are looking to pull the trigger now as prices seem destined to climb.

“The Sarasota and Bradenton area is growing rapidly with many out-of-state buyers entering our market. That is especially true this time of year when more ‘snowbirds’ are enjoying the Florida winter lifestyle,” said Tony Veldkamp, president of the Realtor Association of Sarasota Manatee (RASM), in a Feb. 21 press release. “As buyers see the increase in home prices and interest rates, they are in a tough competition to get into the market before their purchasing opportunity is out-of-reach.”

Competition only gets tougher on Siesta Key, where existing residential density in a finite land space puts a much more concrete limit on the number of housing units available in any kind of market.

As Veldkamp noted, some influx of buyers is natural this time of year as part of our region’s annual cycle. But in an area long known as an idyllic destination, especially for snowbirds and retirees, southwest Florida real estate laypersons could be forgiven for asking: Is Sarasota’s current housing market really that much hotter than in years past?

“Absolutely, yes,” said Sarasota Realtor David Zarghami, echoing the sentiments of others in his field.

This market growth goes beyond the usual snowbird season.

“We always say there are three things that make Florida appealing: beaches, weather, and tax favorability,” said Zarghami, adding that Sarasota’s arts and culture help it to stand out even further. Now COVID-19 has added a fourth: People aren’t waiting for retirement to move to their dream locales. If they can work wherever they want to live, they want to live here.

According to the RASM, monthly median sales prices for single-family homes in Sarasota County were $464,500 in January 2022, 36.6% higher than January 2021.

High demand doesn’t just mean high prices; it means real estate transactions are happening faster, too.

“If we put properties on the market that are priced right, you’re going to have five to 10 offers — at the bare minimum — in the first 24 to 72 hours. And they’re strong offers,” said Sarasota realtor Curt Ware. “Historically [sellers would wait] 30 to 45 days [for a good bid], and then you’d have to make a price adjustment.”

Relatively low interest rates are encouraging homebuyers, too. But we aren’t in the precarious lending bubble that we saw in 2007-2008. Ware pointed out that a great majority of sales these days are happening in cash.

“A couple of my mentors who’ve been in real estate 20 or 30 years, who saw the big boom and bust, say it’s absolutely incredible to see so much cash as opposed to finance transactions,” he said. “This market is substantiated with hard money, real money, instead of mortgages.”

Cash doesn’t even give buyers the same advantage that it did in years past. Zarghami said that buyers have been making other concessions just to streamline the process to try to appeal to sellers.

“Historically a buyer would build in as many protections as possible, including things like financing contingencies, appraisal contingencies, inspection periods, securing the lowest deposit possible, etc.,” he explained. “In the current market, there’s such a scarcity of viable homes, and such a frenzied demand, the rules of the game have changed. It comes down to who writes the most seller-friendly offer. How bad do you want it? Because the seller’s only going to pick one.”

Even as sales are closing at break-neck speed, scores more prospective buyers are still getting in line. Experts say that those who are waiting should be prepared to do so for up to two or three years, even for new construction.

America as a whole is still experiencing a slowdown in new residential construction that was triggered in 2008, when the real estate bubble burst and builders cut their production in half. In previous decades, the national market built one new home for every two people added to the population, or about 1 million new homes annually. According to the U.S. Census Bureau, this drop-off reached its nadir in 2011, when only 483,000 new homes were built.

New home construction has risen steadily since then, with 912,000 single-family homes built in 2020, according to building permit data. But even before our current pandemic-related surge in demand, and with an overall slowing of population growth, the deficit in new U.S. housing was going to take years to reverse. Now COVID-19–related supply-chain issues have interrupted new construction, too.

No longer can buyers simply tour a completed new home and then decide to buy it. Rather than first-come, first-served, builders themselves have begun taking bids or selling by lottery. Most new homes are spoken for well before they’re built.

Explained Ware, “Builders have started saying ‘We’re not just going to build the house and give it to the next person. How much are you willing to pay?’”

On Siesta Key, where we have no room left for brand-new single-family communities, new housing units tend to arise one at a time. Teardowns and one-off builds rule the market.

“I do a lot of business on Siesta, and land values have gone through the roof,” said Ware. “Lots and teardowns that used to sell for $750,000 are now selling for $1.2 or $1.3 [million] on the canal, 14,000-square-foot lots.”

Rental properties, too, have seen monumental gains. “With the demand for rental, people are snapping up anything that comes on the market,” said Ware.

That demand is being passed on to tenants. In October, Sarasota County median rental prices hit $2,051, higher than those in Miami-Dade. Renters here, for anything from a studio to a four-bedroom rental, are now paying more than twice the national average.

“Rent increase has been 30 to 50 percent,” said Ware. “It’s tough to find a rental, and then if you find one, you’re going to be in the same scenario as if you were buying: a huge pool of renters trying to secure the same property. The people that cannot afford to pay these prices are really caught in an unfortunate way. If they could get in and buy a house, they may pay less on their mortgage than they would on rent. But they don’t have the money for the down payment.”

This market is especially troublesome for professionals in industries where remote work simply isn’t an option, nor is buying a house for six figures, cash. On Siesta, the search for solutions to service-worker housing has become more dire than ever.

More inventory, and relatively more affordable prices, can be found the farther you get from Sarasota’s city center (usually characterized as just south of downtown, or in the region of Sarasota Memorial Hospital). Siesta Key workers who find housing in Parrish or North Port are facing a 30-mile mainland drive just to get to the eastern edge of Siesta’s two bridges. Getting on and off the island, especially at peak traffic hours, exacerbates that commute.

Barring a major macro-economic shift, the Sarasota-Manatee housing market will hinge on its supply of homes for sale. Early in 2022, inventory in Sarasota-Manatee actually went up as more properties were put on the market than sales closed. Some experts argue that the supply of new listings will ultimately be enough to control prices.

“While it’s too early to determine whether this is a trend that will continue through 2022, it is a figure that we will be watching closely,” said RASM’s Veldkamp in February. “We anticipate the price growth and velocity of sales to start leveling off, helping to increase inventory.”

But other Realtors predict that the area’s voracious homebuying demand will continue to outpace the inventory for the foreseeable future.

 “Locally it’s just a matter of waiting for people to decide they want to sell,” said Zarghami. “What’s going to change that? Is the beach not going to be the best beach in the world? Is the weather not going to be as favorable?”

They say achieving a supply/demand balance in the housing market — both nationally and locally — is probably going to take years.

“Personally, I think that this market for Sarasota and Mantatee has probably got another 18 to 24 months of growth,” Ware added. “The legs of this market can still run.”

Hannah Wallace
Author: Hannah Wallace

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