Is Tampa Bay’s housing market reaching its peak?

Tampa Bay home values are rising fast, which is raising alarm bells for economists.

Lakeland and Tampa Bay are the most overvalued markets in Florida, according to research by Florida Atlantic University real estate economist Ken H. Johnson and Florida International University economist Eli Beracha. That means homes here are selling at a premium, far beyond expected prices. The average home in Tampa Bay sold for 41 percent above the expected price at the end of 2021, the study found.

Nationwide, Tampa Bay was ranked 14th on a list of overvalued markets behind Boise City, Austin and Phoenix. Miami was the least overvalued market in Florida.

“The real worry right now is you don’t want to be buying near the peak of the market,” Johnson told the Tampa Bay Times. “But that’s where I think you’re at in Tampa.”

The research, updated monthly on the FAU website, stands in contrast to many national rankings – Zillow named Tampa the hottest market in 2022 and Realtor.com listed Tampa Bay in the top 10.

Johnson said he’s concerned by the rhetoric the real estate industry is pushing about rising home prices, which led him and Beracha to compare 100 metro areas across the country by their average sales price and historical pricing trends, similar to the S&P CoreLogic Case-Shiller home price index.

“It’s leading individuals to think ‘OK, everything’s rosy. Housing prices only grow to the sky,’” Johnson said. But that’s not true. The faster home prices rise, the riskier it gets, he said.

“Things are going to get a little rocky,” Johnson said.

A shortage of desirable housing is a main driver of Tampa Bay’s white-hot real estate market. Johnson said it’s been 15 years in the making, and that Tampa Bay is not unique in this way to the rest of the country. Not enough houses have been built since the Great Recession in 2008. This, on top of a strong influx of people moving to Florida during a period of record-low interest rates, have contributed to the soaring housing prices, he said.

Tampa Bay is growing significantly faster than Miami, data shows, and the local population could grow more than 16 percent in the next decade.

Tampa Bay’s housing inventory is down 46.6 percent from pre-pandemic levels, a Zillow analysis found. Home sales rose last year between 24 and 30 percent in Pinellas, Hillsborough and Pasco counties. Most homes in the area cost more than $350,000, according to data from Florida Realtors.

The rising home prices on top of record inflation has spooked some buyers. Nearly a quarter of Americans, a record low, said they think now is a good time to buy, according to a January survey by Fannie Mae. Consumers were most worried about affordability, job stability and their future mortgage rates. About 83 percent of respondents between 18 and 34 years old said it’s a bad time to buy a house.

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It’s difficult to measure if Tampa Bay’s housing market is overvalued by comparing historical pricing trends, said Lei Wedge, an associate professor at University of South Florida’s Muma College of Business. The study didn’t account for factors like population growth, job opportunities and inventory.

Because Florida was hit hard by the 2008 recession, homes across the state were deeply undervalued into the 2010s, Wedge said. It took much longer for prices to recover in Tampa Bay, Jacksonville and Orlando than other parts of the country.

The pandemic and the rise of remote work only sped up the state’s housing recovery, she said.

“You have investors buying the cheaper homes, making it extremely difficult for local homebuyers,” Wedge said. “Now the market is getting to the point that if you have to finance a home, you’re almost forced to cover the appraisal difference. Otherwise the sellers are not going to sell the home to you.”

And appraisals, which assess the value of a home, are typically behind the competitive price, Wedge said.

For Plant City homeowner Sharon Sorensen, buying a house in this market was “taking a gamble.”

Sorensen moved from Nashville with her husband for work. While shopping around for homes last year, sellers asked Sorensen to sign a contingency that they would pay the difference in the appraisal if they were going to place an offer. Some sellers prioritized offers that would forgo an inspection.

She and her husband ended up paying $12,000 out of pocket to cover the appraisal difference plus $3,000 for the closing costs on a $315,000 home they bought in east Hillsborough County in December.

“We’re hoping that this is the type of investment that will give us a return but we also want to put money away for retirement,” said Sorensen, 57. “But this money is coming out of it.”

Tampa real estate agent Kendall Bonner said she’s had clients pay $27,000 over the appraisal for a house. Another agent at her firm had a home sell for $50,000 over. Homebuyers have to be creative in order to compete, she said.

“The greatest risk is all the people paying above the appraised value,” Bonner said. “I would say that’s probably one of the scarier things I see. But I understand why buyers are feeling they need to do that.”

Bonner said she’s seen a rush of potential homebuyers trying to take advantage of lower mortgage rates ahead of the Federal Reserve possibly raising interest rates as soon as March. Experts have been anticipating a rise in interest rates due to the job market and rising inflation.

Despite this, Bonner said she doesn’t expect prices to drop in Tampa Bay. She said the market might be a little less competitive.

Pinellas County real estate agent Mary Meade said she’s concerned about how local manufactured housing like mobile homes are appreciating in value, counter to their nature. Manufactured homes typically depreciate like automobiles, she said.

“That used to be the last affordable option,” Meade said. “But now it’s getting inflated beyond what it should be.”

Some manufactured homes are being lumped in with traditional houses, Meade said. When the neighboring homes appreciate in value at record rates, manufactured homes are going up with it. One Clearwater manufactured house was valued at $80,000 two years ago, according to Zillow. It’s currently listed for $239,000.

The lack of affordability is what most residents in Tampa Bay should worry about, said Wedge from USF. She hopes the interest rate increases could deter investors from buying up the already limited housing and inflating home and rental prices. A slowdown in the market might even be a good thing, she said.

“The problem has been for local people,” Wedge said. “They’re being put into very tough situations because home prices go up so much.”