Centrally located in the Sunshine State, Orlando has always been a popular destination—not just for tourists, but for relocating families and investors, as well. The weather and job growth witnessed decades of slow, steady growth in population and real estate values. This healthy growth turned into rampant speculation during the housing boom. Of course, the bubble burst and Orlando participated in a big way. A glut of foreclosures created an overcorrection in prices. Institutional investors discovered this market and took advantage of what they considered a new asset class.
With foreclosure inventory back to normal levels, the recovery is complete, and Orlando is poised for another era of continued growth in values. This is in part due to the strong diversified economy. With this comes more population and job growth. Combining these basics with attractive cap rates and appreciation potential makes Orlando one of the hottest markets in the country and an attractive place to invest.
An objective look at the numbers shows a limited supply and plenty of demand for homes. Logic says this should lead to higher prices. Orlando’s inventory has now seen 12 consecutive months of year-over-year declines with the month of June recording an 11.85 percent drop, the steepest to date. This has already produced a 15 percent increase in the median price over the past year ($180,000 to $207,000). The Orlando median home price has now experienced year-over-year increases for the past 59 consecutive months. As of June, the median price is 79.22 percent higher than it was in July 2011.
The outlook for continued strength is highlighted by the fact that normal homes sales are increasing while foreclosure and distressed sales are down dramatically. Inventory is down to just a three-month supply, and average days on market is down to 62. This is more evidence of a seller’s market and upward price pressure.
Another way to look at this market is the fact that it remains cheaper to own a starter home than to rent. Increasing prices could change this eventually, but this doesn’t appear to be an immediate concern since there is a huge demand for rental homes. Rents are increasing as much or more than prices, thanks to extremely low vacancy and turnover rates. This continues to attract investors (30 percent of sales are still all-cash) and drive demand because the attractive cap rates are still above mortgage rates and the risk-adjusted returns of other investment vehicles.
The market forces of supply and demand will continue to drive prices in favor of Orlando real estate investors. Perhaps the better question is, “Is the market too hot and could we again face speculation or another miniature bubble?” While I believe steady growth is more likely, this is also a possibility. Either way, it appears there is still time for the short-term investor to capitalize on the market. For the long-term investor, it shouldn’t matter.
The future is bright for Central Florida, and Orlando will continue to shine in the Sunshine State.
at $415 million, but lowest out of these 10 states on an ARM ratio at 5.8 percent ($1,363 average monthly rent/$281,000 average home value). With these types of numbers, focus on vacant primary or secondary homes where the borrowers won’t contest the foreclosure. The one market to avoid currently would be Atlantic City, as unemployment is rising and property values are falling due to trouble with the major employers (casinos) in the area.
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