Let's take a look at an example that highlights what’s been happening in parts of Florida. Back in May 2022, right in the middle of the pandemic housing boom, FirstKey Homes—an institutional landlord owned by private equity firm Cerberus—purchased a three-bedroom house in Punta Gorda, Florida for $445,000. Now, Punta Gorda, like many places in Florida, saw home prices skyrocket during the pandemic.

 

Initially, FirstKey Homes tried to rent the property out in July 2022, but after some back and forth with pricing, they decided to list it for sale in February 2024 at $400,000. Fast forward to July 2024, and the house is still on the market. In fact, its price has been reduced six times and is now down to $336,000—a 25% drop from what they paid for it just two years ago.

 

This is a good example of what’s happening in some regional housing markets. While national home prices are still near record highs, areas like Punta Gorda are seeing significant price corrections. During the pandemic, Punta Gorda’s housing market was especially hot, driven by an influx of retirees and people working from home. Between December 2019 and July 2022, U.S. home prices increased by about 42%, but in Punta Gorda, prices jumped an astonishing 73%.

 

However, after mortgage rates spiked and the wave of pandemic-driven migration slowed, Punta Gorda’s market entered what we call 'correction mode.' And this isn’t the first time Punta Gorda has seen a major correction. Back in the 2008 housing crash, it was one of the hardest-hit areas, with home prices falling nearly 48% from their peak in 2006 to the bottom in 2011. For comparison, U.S. home prices during that period dropped about 26%.

 

So, what’s happening now? Prices in Punta Gorda are still falling, and it looks like they’ll continue to decline throughout the rest of 2024. A key indicator is that Punta Gorda saw very little price growth during the spring selling season, which historically suggests that prices will likely drop even further during the second half of the year.

 

While most housing markets in the Midwest, Northeast, and even parts of Southern California have seen prices remain stable or increase since mortgage rates rose in 2022, Punta Gorda has gone in the opposite direction. As of July 2024, home prices in Punta Gorda are down 9.1% from their 2022 peak. Only a few cities, like Austin and New Orleans, have experienced larger declines.

 

There are several factors contributing to this decline. First, the inventory of homes for sale in Punta Gorda is much higher than it was before the pandemic, up 76%. In contrast, U.S. active inventory in July 2024 is still 29% below pre-pandemic levels. The rise in available homes, combined with slower demand due to higher mortgage rates, insurance premiums, and HOA fees, has put pressure on prices.

 

Additionally, Hurricane Ian in September 2022 led to an increase in homes for sale as damaged properties hit the market. And, there’s also the issue of new condo regulations that were passed after the Surfside condo collapse in 2021, making condo ownership more costly and contributing to the cooling of the overall market.

 

But the biggest factor in this price correction is affordability. During the pandemic, home prices in Punta Gorda soared to levels that stretched far beyond what local residents could afford. By mid-2022, the market was overvalued by nearly 56%, according to Moody’s. Since then, prices have come down, but as of the end of 2023, Punta Gorda was still overvalued by 28%—higher than the national average of 14%.

 

It’s also worth noting that Punta Gorda saw an increase in new home construction during the pandemic, permitting more homes than much larger cities like Pittsburgh. Builders are now offering significant discounts and mortgage rate buy-downs to attract buyers, which is making it even harder for existing homeowners to sell their properties at competitive prices. Why would buyers go for a resale when they can get a brand-new home with better financing deals?

 

In summary, while markets like Punta Gorda are going through a tough correction, other areas, particularly in the Midwest and Northeast, are still seeing strong competition and higher prices. It’s a split market right now, and where you are makes all the difference.