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A 'reckoning' is coming in the housing market

For sale.jpg
David Zalubowski
A for-sale sign stands outside a home in the north Denver suburb of Thornton, Colorado.

Sounding a dire warning, one of Florida's leading real estate economists says the nation faces a housing crisis that will lead to deep financial losses for millions of homeowners — except in places like Florida.

Here, with waves of people still moving in, we're more likely to see continued high prices and rents, making housing unaffordable for some time.

Ken H. Johnson, an economist in Florida Atlantic University's College of Business, says government can play a role in bringing sanity back to the market.

"When for-sale and rental markets regain and maintain a balance between supply and demand, housing stability will return," Johnson wrote in an analysis released this week.

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Toward that end, he said, local governments should consider creating public dashboards that show such items as building permits started, current and expected populations, where properties are to be built, units completed, and which units are proposed as rentals and which are proposed for ownership.

"That would help developers decide where and when to build," Johnson said. "Take these uncertainties away from developers, and we should more easily attain a balance between supply and demand."

Out of whack prices

Johnson's conclusions come from years of watching housing and rental trends in the Sunshine State and, most recently, tracking how far out of whack prices are.

Earlier this month, Johnson reported that rents in Jacksonville were 13.36% higher than they should be based on historical trends. He ranked Jacksonville as the 13th most-overpriced metro in the nation, though other Florida cities fared worse.

Typically, home values and monthly rents fluctuate, but not dramatically — especially rents, Johnson wrote this week. But a combination of factors have left rents and home prices significantly higher than their long-term trends, Johnson said.

  • Beginning in 2020, the COVID-19 pandemic resulted in near-record-low mortgage rates and the willingness of buyers to buy properties virtually, without ever seeing them in person, Johnson said.
  • During the same period, the federal government placed a national moratorium on rental evictions, resulting in a stall in rental rates. When the moratorium ended, strong demand — particularly in Florida — sent rental rates soaring.

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Johnson does not expect the type of collapse the nation experienced from 2006 to 2012, when home prices fell universally across the country. This time, shifts in population and the nationwide shortage of units to rent and own should prevent a repeat, he said.

But he does expect "a reckoning."

"Few markets, if any, will escape unscathed," he predicts.

More unaffordable housing

Growing areas like Florida and Texas, with a shortage of homes and apartments, likely won’t see significant declines in home values and rental rates, Johnson said. But those areas will face "a prolonged housing affordability crisis."

Until more rental units are built, landlords will continue to raise rates, pricing out many middle-class consumers who previously turned to renting because they couldn’t afford to buy, he said. This will contribute to local worker shortages, he said.

Elsewhere, homeowners will see their investments deteriorate and rents will remain sluggish until the market reaches a better balance of supply and demand — a process that could take years.

"The silver lining is that homes and rentals in those areas will be much more affordable," Johnson said. He specifically identified Detroit; Memphis, Tennessee; and Youngstown, Ohio."