Forecast: SWFL home prices will rise, become overpriced
Southwest Florida home prices are predicted to rise over the next three years but will become overpriced during that time, a housing research group predicts.
- Local Market Monitor’s first-quarter forecast projected that average overall home prices in the Naples-Marco Island area will rise 7 percent each year for the next three years, for a total of 21 percent.
That puts it 10th out of 20 metro areas in Florida that the Cary, N.C.-based group tracks. Nationwide, the firm follows 315 markets.
- The projected price growth in the Naples area is almost half the cumulative three-year price growth the firm predicted in the first quarter of 2015. Last year it expected three-year cumulative price growth of 41 percent.
“Economic growth has been erratic since the recession, when 15,000 jobs were lost in a relatively small market,” said Ingo Winzer, president and founder of the firm, in the report.
In Naples, actual single and multifamily home prices (as determined by mortgage data the company tracks) reached $363,800 in the quarter. Prices are 3 percent below what Winzer calls the equilibrium home price of $376,772, which he calculates as the price where a home is neither overvalued nor undervalued.
So if prices rise another 7 percent in the coming year, that would make the Naples market overvalued in a year’s time. He emphasized that if “actual home prices rise well above the equilibrium level, they always eventually come back down.”
- Cape Coral-Fort Myers ranks fifth in the state for projected price growth, Winzer said. The metro area will see prices rise 11 percent by the first quarter of 2017. By the first quarter of 2018, they should rise an additional 9 percent, and the following year, another 8 percent, for a total increase of 28 percent.
That’s faster price growth than LMM predicted in the year-earlier quarter, when it expected three-year total price growth of 21 percent.
With current home prices at $224,861, it would take two years for homes to reach their equilibrium point of $261,006, he predicted.
One reason why Lee County’s housing market is expected to have stronger price growth than Collier’s is because its job growth has been stronger, Winzer noted.
In December, job growth in the Cape Coral-Fort Myers area rose 3.4 percent over the year, compared with 2.3 percent in Naples-Marco Island.
The unemployment rate in Lee County is also less, at 4.3 percent, compared with 4.4 percent in Collier County.
“Overall, job growth was good in recent months,” Winzer said in the report. He characterized growth in the tourism sector as fair in Collier County, and strong in Lee County
So is it better to own or rent a home in the two metro areas? Winzer said that if the rent-to-home price ratio is greater than 4 percent, it makes more sense to rent; if below that level, buying is a better financial alternative.
Rents are more closely tied to local income, while home prices more easily respond to relatively small changes in supply and demand, he added.
In the Cape Coral-Fort Myers area, the current monthly rent averages $1,025. So the rent-own ratio is 5.5 percent, making it a better market for renters.
Average rents are higher in the Naples-Marco Island area at $1,234, but home prices are much higher, too. With an average rent-to-own ratio of 4.1 percent, renting makes more sense, but only slightly.