In only 4 years, the Tampa Bay real estate market health saw a 65% appreciation of home prices! With such unprecedented price increases, it leaves the question: Is the housing market unhealthy?
For this, I took a lesson from the Bigger Pockets podcast. Dave Meyer shared 5 basic criteria for determining the health of the real estate market.
In this article, We’ll discuss the 5 key factors to determine the health of Tampa Bay’s real estate market.
Historically, a balanced housing market is considered a healthy market. This is when there are enough homes to purchase (supply or inventory) and enough buyers to purchase them (demand).
A balanced market is when there is a 6-month supply of homes. This means if no other homes came on the market, it would take 6 months to sell the current inventory. A month’s supply is calculated by taking the active number of listings (supply) and dividing it by the number of sold homes (demand).
A market with less than a 6-month supply is considered a seller’s market – the inventory is tight, which drives prices up, leaving buyers little negotiation power.
On the flip side, A buyer’s market is when there is too much inventory or more than a 6-month supply of homes available on the market. In these conditions, prices are dropping and buyers have more negotiation power.
In April, there were 8720 homes available to purchase (supply).
Divide the supply by the demand, or 2254 sold homes.
It leaves us with a 4-month supply.
Tampa Bay is still in a seller’s market but is getting healthier as more inventory becomes available for sale. Let’s mark this one as “Getting Healthier”.
National averages can be misleading for the local market. Knowing there is a 4-month supply of inventory in Tampa Bay might also be misleading when you are considering selling or negotiating a purchase. It is important to look at your specific market segment and the local area.
Below are two examples of how specific segments of the market change based on price and location.
Historically, homes appreciate 3-5% per year
The average inflation rate from 1930 – 2024 was 3.18%
The question, “Are home prices at least keeping up with inflation?” would make us think the housing market is healthy because prices definitely kept up with inflation. Unfortunately, a 65% increase over a 4-year period isn’t healthy. When home prices appreciate too quickly, affordability becomes an issue. We will look at affordability in the next section.
It is also important to note that prices dropped 7% year-over-year in Tampa Bay. With the slight correction, home appreciation is now below the inflation rate.
This one is UNHEALTHY.
Affordability is determined by the median income being able to afford the median-priced home with a 20% down payment. It measures whether the typical family can afford the typical home.
At the onset of COVID, housing in Tampa Bay was considered very affordable, with a median price 10.5% less than the national average. From 2020 – 2023, the area grew by 221K people! Supply was low. Demand was high. Prices increased accordingly. Salaries also increased but not enough to meet the affordability criteria.
To determine the current affordability health rating of our Tampa Bay real estate market, let’s look at the income needed to purchase a median-priced home.
The median home price in Tampa is $430,000 (National median price is $403,000)
20% down payment on a $430,000 = $86,000
This is where it gets a little tricky… the median income needed to purchase this home is based on the amount of debt the borrower has. Traditionally, it is thought that your home should not cost more than 28% of your monthly income. However, borrowers can actually borrow up to 49% debt-to-income (DTI).
To determine if the median home is affordable in Tampa Bay, I used 38% DTI.
If principal, interest, taxes, and insurance (PITI) costs 38% of your monthly salary, you would need a household income of $85,000/year to afford a $430,000 home.
The Tampa Bay median household income in 2024 was appx $75,000.
Based on this information, I would mark Affordability as UNHEALTHY.
Your monthly debt and income are just 2 factors determining affordability. Taxes, property insurance, and interest rates make significant impacts. For the example we just went through, taxes, insurance, and a 6.8% mortgage interest rate were part of the equation. However, if interest rates were 6%, the income needed to purchase the median home would be closer to $77,000.
It is a tricky situation. If interest rates come down and buyer demand picks up, it will have a negative impact on the healthy growth of inventory we are seeing. If inventory tightens, expect home prices to start rising.
Demand is still low right now with affordability being slightly out of reach for some homebuyers. It is important for interest rates to stay where they are until inventory increases a little more and prices slowly correct.
In my opinion, our market is in a healthy, slow, and natural correction.
Housing makes up 15-18% of the GDP. Every real estate transaction adds a little boost to the economy. When you buy a home or sell a home, you employ a massive spectrum of services from your Realtor, inspector, title company, attorney, contractor, handyman, survey company, and all of your Home Depot and Wayfair purchases. The list is endless!
For these reasons, when determining the health of the real estate market, transaction volume is a better indicator than price.
The amount of available inventory is typically a good indicator of the number of transactions. Homes have to be available for buyers to purchase.
During the pandemic years, inventory was very tight, with only 2496 homes available for sale in April 2022. Because of the craze with 2-3% mortgage interest rates, there were 3116 homes sold! That was not a typo – more homes were sold than were available for sale!
You will often hear analysts refer to 2019 because it was considered our last “healthy” year and provides pre-pandemic data. In April 2019, there were 7808 homes available and 3078 sold.
Since mortgage rates spiked nearly 3 years ago, inventory has been on the rise. Now, there are 11% more homes on the market in Tampa Bay as compared to April 2019. However, the increase in inventory has not translated to an increase in transactions. There were 36% fewer transactions this past April compared to April 2019.
Because the transaction volume is not keeping pace with inventory growth, I’m going to mark this one as UNHEALTHY.
The number of transactions has been steadily increasing year-to-date, showing signs of improving health.
Many people speculated a substantial increase in distressed property sales after Hurricane Helene devastated so much of our area. However, this is not the case. Foreclosures and Short Sales made up only 13 of the 2254 closings last month.
This one is an easy: HEALTHY
With 3 of the 5 criteria market “unhealthy”, the Tampa Bay housing market is failing its medical exam. However, there are signs of improvement.
Whatever criteria you use, it boils down to one thing – we need buyers to purchase homes and sellers to sell homes to have a healthy housing market.
Reading national headlines and making assumptions based on fear could lead you down the wrong path. If you want to make smart financial decisions when it comes to buying or selling a home, we are here to help.
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