Orlando, Florida
Florida’s “City Beautiful” Endures a Statewide Market Shift
by Carole VanSickle Ellis
The third-most-visited city in the United States could see a shift in the next few years as formerly happy pandemic-era homebuyers put their properties back on the market and flee inland once more…or the market could “correct” in one of the gentlest “softening” events in the country. Analysts can make compelling arguments in both directions.
“Florida’s real estate market has a split personality,” wrote Realtor.com data journalist Evan Wyloge in August 2024. The same is arguably true on an individual level for at least some of the state’s markets, including Orlando.
After weathering multiple named storms in 2024 alone, including Hurricanes Helene and Milton, many Orlando residents say they are considering listing their properties and relocating closer to their pre-pandemic stomping grounds. Given how prices have risen over the past four years, many expect to liquidate to great effect and, furthermore, they have high hopes of an expedited experience thanks to rising demand for housing around the country. The sales process, however, may not go as smoothly as many expect.
“We could see some price deterioration in some areas,” warned Florida Realtors chief economist Brad O’Connor in an interview with the Wall Street Journal in early October of this year. He added, “[There has] definitely been a sizable increase over the last couple of years in inventory.”
The combination could spell bad news for Florida homeowners who purchased at peak pandemic pricing and are now hoping to sell quickly for top dollar and make an exit.
While Orlando has not been hit as hard as much of the Gulf Coast of Florida this year, the city did experience tangential economic impact from the rough weather associated with Hurricane Helene. The storm made landfall in northwest Florida but created a preemptive economic impact as Orlando’s theme parks and other tourist attractions and services shut down or cancelled certain seasonal events.
Orlando experienced more direct damage from Hurricane Milton’s flooding and extremely high winds, which caused damage in the Orlando area as well as throughout much of the state. Investors should note Orlando may be classified as an “inland market,” but this does not exempt it from looming threats associated with the departure of property insurers and rising rates associated with inland flooding and other natural disasters. Unfortunately, the classification often causes property owners to forego flood insurance if they are not located in an officially designated flood plain. Some insurance companies in the Orlando area will not insure properties once they reach a certain value unless the owner also takes out flood insurance even if the property is not in a flood plain.
These storms and others are causing property insurance premiums to skyrocket across the state, including in Orlando. Katherine Frattarola, an insurance agent at a firm catering to high-net-worth clients, noted earlier this fall that many of her clients are reconsidering waterfront Florida property acquisitions in response to these premiums.
“People are making different choices as a result of the rise in insurance costs,” Frattarola told WSJ.
According to a report from the Florida Policy Project, Florida homeowners saw rates rise 45% between 2017 and 2022. Since 2022, areas hit by hurricanes have posted insurance premium spikes as high as 400%, according to Moody’s Analytics. Moody’s also predicted rates would rise still higher in areas affected by Hurricanes Helene and Milton.
Although state legislators have attempted to insulate property owners from instability in the insurance market by creating a $1 billion “reinsurance fund,” disincentivizing “frivolous lawsuits,” and establishing stringent deadlines for the claims process, it appears unlikely that such measures will hold in the face of homeowner discontent and increasingly strong hurricanes and rainstorms. Florida governor Ron DeSantis noted more than one in 10 Florida homeowners do not have property insurance (vs. about one in 20 nationally) and expressed hope that the bill would keep the state’s residents insured at affordable (or at least only gradually rising) rates. Critics of the bill said it would not stop rate increases or cancellations; investors should note ten insurance companies had left the state due to “choice or insolvency,” as the Insurance Information Institute described it, as of August 2024.
Florida’s “Split Personality” Could Make Orlando Investing Complicated
As the state of Florida experiences volatility in the housing market, markets like Orlando are divided not only by the extent to which they are affected by extreme weather but also by housing sectors.
For example, insurance premiums and fees play an outsized role throughout the state, but particularly in prime landfall locations on the coast. On the other hand, state regulations on condominium assessments and related regulations have softened up the condo market substantially in the past few years, including in the condo-flush Orlando market. At present, about one-third of all listings in Orlando are for condo properties.
“Nobody can afford the association fees anymore,” realtor Jennifer Levin told Realtor.com in mid-August of this year. She cited legislation enacted in the wake of the tragic collapse of the Miami Surfside condominium building in 2021 as a significant component of the softening condo market.
“The big pullback in the market is in the condo market because of rising insurance costs and new laws that require buildings to have full reserves by next year,” Levin said. Realtor.com reported condo prices have fallen about 12% since 2022, while single-family homes have held steady or risen in value in most markets. In Orlando, single-family home median values were up slightly year-over-year in August 2024, reported Bankrate, posting gains of 9.3% year-over-year but falling slightly from a July 2024 peak of $412,000 to $399,000 in August.
Readers should note the state of Florida remains one of the most attractive states in the country for new residents and gained a net of nearly 250,000 new residents in 2022 alone according to the most recent available data from the U.S. Census Bureau. The Orlando-Kissimmee-Sanford metro area holds steady in the top three most-popular Florida metro areas and had a net migration of more than 137,000 people the same year.
The relative softening of the Orlando housing market is due more to the relative increase in local inventory than a dramatic decline in demand. According to the St. Louis Federal Reserve Bank, there were roughly 144,300 single-family homes listed for sale in September 2024. A year prior, the available housing inventory numbered less than 91,000.
Orlando Continues to Exert a Strong, Steady Attraction
Although conventional wisdom states hospitality-based economies like that in Orlando tend to suffer first when economic volatility or uncertainty emerges in the national economy, the powerful pull of Orlando’s “magical” tourist engine is likely to shore up the metro-area housing market rather than exacerbate any softening in the market. So far, post-pandemic trends appear to validate this expectation.
In 2020, at the height of the global COVID-19 pandemic, Orlando’s annual visitor count barely topped 35 million, down more than 40 million from its pre-pandemic peak. By 2021, however, those statistics were improving, with visitor counts rising to more than 59 million, and, in 2023, the city had nearly reached pre-pandemic tourism rates. This meant annual tourism revenue statistics were also returning to normal, supporting the permanent population with jobs and growth opportunities. In 2022 (the most recent numbers available), visitors to the Orlando area spent a cumulative $55.5 billion (vs. $23 billion in 2020 and just under $48 billion in 2019).
Hospitality and tourism play outsized roles in the Orlando economy, but there is far more than just a set of mouse ears at play in the city’s economic stability. According to the Orlando Economic Partnership’s “Orlando MSA Business Update,” published in September of this year, the Orlando metropolitan statistical area (MSA) added 23,000 jobs between August 2023 and 2024, and “employment growth in healthcare and construction is offsetting a slowdown in leisure and hospitality.” The report also noted the U.S. Census Bureau indicated “Orlando is one of the most dynamic and entrepreneurial regions in the U.S. [with more than 8,000 startups in 2022 alone],” and local analysts confidently predicted declining mortgage rates would help buyers absorb most housing inventory without a significant softening in the market. Readers should recall, however, the unique challenges facing the condominium sector; these challenges were not addressed in this report.
In mid-2023, Bankrate personal finance columnist David McMillin wrote, “In Orlando…one of the main selling points is the ability to build a beautiful career.” As long as this statement continues to hold true (and it shows no sign of falsifying), then Orlando investors will continue to find opportunities in the market, but they must monitor individual sectors’ behaviors carefully to avoid looming pitfalls.
