House Prices In Pandemic-Era Boom Towns Are Going Bust As Prices Fall

Several Southern cities that experienced rapid growth during the pandemic now face a cooling real estate market characterized by declining home prices and increased inventories surpassing pre-pandemic levels.

According to June's Mortgage Monitor Report issued by the Intercontinental Exchange (ICE), 14% of major markets now have inventories at or above pre-pandemic levels, up from 10% just a month ago. Florida, Texas, and Colorado account for nearly all of the markets, with San Francisco being the lone exception outside these states.

Lakeland, Florida, leads the pack with a 43% surplus in homes for sale compared to its 2017-2019 average. Austin, Texas, follows with a 29% increase, while San Antonio rounds out the top three with a 27% rise in inventory.

The figures mark a reversal from the frenzied buying that characterized the markets during the height of the pandemic. In Austin, for example, home prices soared nearly 70% between 2020 and 2022. Now, the Texas capital is seeing price declines, with a 0.25% drop in April alone, according to ICE Mortgage data. According to a recent report by the National Association of Realtors (NAR) noted that in Florida, areas like Cape Coral saw home prices fall 4.4% over the first quarter, while Panama City's home values slid 3.8%.

"Really the storyline of this spring has been elevated interest rates, less affordability, [and] less demand that is allowing inventory to grow across the country and you’re seeing that by and large nationwide," Andy Walden, Vice President of Enterprise Research Strategy at ICE, said in a video posted to LinkedIn last week.

Several factors are contributing to the recalibration. One is the surge in property insurance premiums, particularly in Florida and Texas, where severe weather events have driven average premiums well above the national average.

Additionally, homebuilders have ramped up development in the South. Florida and Texas saw the highest number of housing units approved for construction in April, according to U.S. Census Bureau data. Year to date, the two states have outpaced other regions in new housing permits.

"Roughly one in seven major markets across the country are now back to or above pre-pandemic levels, and the majority of those are in Texas, Florida or Colorado," Walden said. "Overall, we’re seeing 30% more for-sale inventory than we had at the same time last year, and we’re in the best inventory position that we’ve been in since the middle of 2020."

At the same time, the migration patterns that fueled the boom are shifting. While the South remains popular, moving data suggests that Texas and Florida aren't as popular as they once were, with Tennessee, the Carolinas, and Georgia now being preferred.

Austin, once a top destination during the pandemic, is now seeing many of its residents move. According to data issued by Pods, Austin will be the fifth-highest move-out city in 2024.

However, the central challenges persist with rising home prices and elevated mortgage rates. While mortgage rates are at highs last seen at the turn of the century, according to the April ICE Home Price Index, the average home has increased in value by 50% since the start of 2020, more growth than in any other decade since the 1980s.