Florida’s real estate market was hit hard by the Great Recession. Housing prices plummeted, foreclosures increased, and homeowners across the state found themselves facing financial ruin. Many were forced to short sell their homes, meaning they accepted a price lower than the value of debts secured against that property. By 2012, nearly a quarter of real estate sales were short sales, more than double the national rate of 11%.
Since then, the state’s real estate market has recovered somewhat. The number of distressed transactions in the southern part of the state fell by half, while home prices rose by 3.4%. The number of short sales decreased by 14% statewide. The Miami market has done particularly well, with a record-breaking 4.8% price increase for single-family home sales.
Despite this improvement, distressed sales continue to dominate the state’s real estate market. Florida’s rate of short sales remains the second highest in the country, and the number of short sales began rising again in Palm Beach County over the past year. And although Florida home prices have been rising, they haven’t kept pace with the national rate. Whereas the median price of single-family homes increased by 3.4% in Florida during 2014, it increased by 5.1% in the United States as a whole.
Florida’s short sale rate is so high in part because of the large number of cash purchases in the state’s real estate market. Cash payments lack much of the risk and overhead associated with mortgages, which is why Florida homeowners are willing to offer buyers who pay with cash discounts of as much as 30%. These discounts often lower the price below the value of the property’s debts– hence the high rate of short sales.
These cash transactions, usually initiated by foreign buyers, are driving much of Florida’s real estate recovery. Foreign buyers usually renovate the homes to raise their value, or sell them to ambitious homeowners with the wherewithal to renovate them on their own. Either way, these transactions improve the quality of Florida’s homes and neighborhoods, leading to higher long-term real estate prices.
In the long run, the number of distressed sales will continue to decrease. As home prices continue to rise, homeowners will no longer be desperate to sell, and will be able to demand the full value of their homes even to buyers who offer cash. In the meantime, however, Florida lags the rest of the country.