Tallahassee Florida Homes


I wrote this article in 2012, shortly after moving to Tallahassee. It paints a pretty bleak picture for that time. Check out my latest article on this subject "Tallahassee Real Estate Market Outlook- 2015" which indicates a definite improvement in the last 3 years.

Just about every homeowner in Tallahassee is interested in what direction Tallahassee real estate, taken as a whole, is headed. Since the housing bubble burst in 2008 there has been a shortage of good news about homes for sale in Tallahassee. The real estate market in Tallahassee for 2011 didn't help much. Home sales fell about 7% for one of the worst years ever.

At present the 'supply' of houses for sale in Tallahassee, Fl is on the decline. At first glance this would appear to be a good thing. The real estate 'supply' can be looked at in a couple of ways. First is the actual Multiple Listing Service (or MLS) listings of Tallahassee homes for sale. The owners are actively showing their house, they have an realtor who is working for them, and realtors & brokers can find the house in the MLS listings. The Tallahassee real estate listings have been on the decline for the last several months.

Second, the demand for homes in Tallahassee can be inferred by the number of houses actually sold in a given month, and whether this is increasing or decreasing. When the supply of houses for sale in Tallahassee, based on the MLS listings, is compared against this demand, the 'relative supply' can be determined. This is in terms of the months of supply available to the market. At a given rate of demand for Tallahassee Florida real estate, how many months would it take to sell all of the houses available? Again, the relative supply for Tallahassee has been declining.

If there are too many months of supply available in the market it will push down the prices of the homes for sale. There is too much supply for the demand. It is a 'buyer's market', and prices will fall. The ideal amount of relative supply in the market is 6 months or less. At 6 months of relative supply housing prices stabilize, and then start to increase as supplies lessen. It becomes a 'seller's market' (although both these terms are misleading, as it denies the greater influence of the efforts of the homeowners and their agent in presenting the house for sale, and the location, layout & condition of the house itself.)

As of the end of 2011 Tallahassee houses for sale represented a relative supply of greater than 10 months, certainly not good news for a turnaround in house values. But a year earlier at the end of 2010 the relative supply was almost 12 months. Again, this would appear to be good news. With a steady demand, a decreasing supply has to indicate an improving scene in Tallahassee real estate for sale. However there is another factor which must be considered, which is the 'shadow inventory' in the housing market.

Both the actual supply, and the relative supply, of houses for sale in Tallahassee are based on MLS listings; actual houses currently up for sale. The shadow inventory is all of the houses that will soon be up for sale. These include homes that have been foreclosed on and are now owned by banks. These foreclosed homes will eventually be put on the market, at which point they become part of the actual supply. This would include all Tallahassee, Fl houses over 90 days late in mortgage payments, in pre-foreclosure.

Joe Manausa at Tallahassee Real Estate, who writes an excellent blog on the market conditions of homes for sale in Tallahassee, Fl, also includes in his predictions on housing market trends the additional factor, in the shadow inventory, of houses that were previously on the MLS but did not sell. These would be houses that the owners tried to sell, had no success, and so gave up, at least for the time being.

Based on his calculations, Tallahassee has at least a 2 year relative supply of 'shadow inventory' houses, and very likely a supply greater than 4 years, when these additional potential houses are considered. As the relative supply is based on the demand for houses, as determined by actual sales, it is hard to predict accurately the relative supply 2 to 4 years out. Unless there is a drastic change in market conditions, or broad government intervention in the housing market, his predictions however are probably pretty sound.

Then, there are two factors affecting the shadow inventory; foreclosures (& pre-foreclosures), and homes, condos and townhouses taken off the MLS. According to statistics published by the Federal Reserve Bank of Atlanta the number of houses in foreclosure, and the number of houses over 90 days late in mortgage payments, both rose consistently over the 4 quarters of 2011 for Leon county.

Foreclosures rose .65%, from approximately 2,860 houses, condos & townhomes to 3,220 in Leon county. Over 90 days late rose .34%, from roughly 1,110 to 1,330. These are all homes that will eventually enter the market, and shows a steadily increasing trend in the shadow inventory.
Almost half of all the houses listed in 2011 did not sell, and were taken off the market. Many were re-listed, but many were not. These are all potentially waiting for an increase in demand to be put back up for sale. The homeowners want to sell, but they cannot find a buyer. So there is a very large supply, both actual & 'hidden', of Tallahassee Florida homes for sale which outweighs the current demand. This oversupply has the effect of lowering overall housing values.

This drop in housing values heavily influences the level of demand of homes for sale in Tallahassee, Fl. While houses are less expensive to buy, and interest rates are at unprecedentedly low levels, the majority of 'home buyers' are first 'home sellers'. That is most home purchases are made by people who are looking for a new home to better suite their families or lifestyle, either to a larger, or smaller home. Or perhaps their search has found a new local neighborhood with better schools, greater security, or other such factors. But first they must sell their existing home.

With the drop in housing values, a great many families are 'upside-down' on their mortgages; they owe more on their mortgage than their house is now worth. They would love to buy a new home, but to sell they either have to provide the additional money needed to pay off their mortgage, above what they get for their house, or sell it in a 'short sale', where they arrive at an agreement with their creditors to take a reduced amount to satisfy debt. In this case, the homeowners are not able to qualify for a new mortgage for 2 years due to the resulting bad credit. So they cannot look at buying a new home and have to consider a rental for 2 years.

These 'upside-down' houses could also be considered part of the shadow inventory. As future value of properties start to rise, the negative value situation turns around and these houses start to enter the market. This extends the relative supply beyond the optimum 6 months, thus continuing to hold down housing values.

It is not likely house listing values will revert any time soon and will continue their downward trend, at least not in the next year or two. This will continue to push down demand due to the 'short sale' factor. So the picture for Tallahassee, Fl homes for sale is not likely to get any rosier in the near future.

On the plus side, the other factor which drives housing demand is an increase in population. Tallahassee, Fl has a track record of consistent population growth. This has flattened out since 2008, with the downturn in the economy, but is likely to return to its historic average.
A contributing factor to this is the yearly inflow of new college students to the city. The median age in Tallahassee is about 29 years. Also the average education level of a bachelor's degree or higher is roughly 49%, almost double the national average. It is likely that many of the students coming to Florida State, or Florida A&M, decide to stay and become first-time homebuyers, which is certainly good for Tallahassee. In fact a relatively high percentage of homeowners in Tallahassee are single, and who rent out rooms to college students. This accounts for a sizable piece of the Tallahassee real estate rentals.

There is another bright spot in the Tallahassee real estate scene. According to Bob Manausa, property values in Tallahassee have fallen below their 2002 'pre-housing bubble' levels, as projected forward to 2012. Before 2002, housing values increased at a consistent level, very likely tied to a steady increase in income levels and construction costs. The average price of a house in Tallahassee is now below this level.

While housing prices are continuing to drop, the market has entered a period where houses are now a great bargain compared with historic levels of Tallahassee, Florida homes.

Wishing you a happy and healthy home,

Mike Wreggitt

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