With higher interest rates and tightening credit availability pushing more and more potential buyers out of the real estate market, the resulting lower demand would ordinarily crash home prices. But around the country, and especially in Florida, the opposite is happening.

Home values are appreciating in Florida, and throughout the nation, a phenomenon that continues to defy the underlying data. A new report by Black Knight, Inc., a Jacksonville, Florida-based analytics firm, shines some light on the situation, confirming the surge in housing prices across the United States due to a severe shortage in housing inventory. Inventory levels have plummeted by 51% compared to same months in 2019, the last data available before the pandemic. The low number of homes has resulted in a seller’s market that is causing inflation in home prices.

“The rapid rise in mortgage rates has put a lot of would-be buyers on the sidelines, but it’s also caused a sizeable decline in homes being listed for sale. That’s largely because so many current homeowners are locked into the much lower fixed rates that were prevalent before 2022,” explains Dr. Brad O’Connor, Chief Economist for the Florida Board of Realtors. “So while there’s fewer buyers right now, there’s also fewer homes to go around, so there’s still enough buyer competition to keep prices afloat.”

The situation is further exacerbated by significant population growth, which creates an added strain on the already scant housing inventory.

“Florida continues to be a hot destination for out-of-state buyers, whether they’re moving here permanently or buying vacation homes,” O’Connor said. “While prices have gotten quite high by our standards, for Californians and New Yorkers, Florida remains a relative bargain. The lack of state and local income tax doesn’t hurt, either, and Florida’s economy and workforce continues to grow at a rapid clip, as well.”

With a massive influx of new residents between July 2021 and July 2022, Florida outpaced all other states in population growth, according to the Census Bureau’s latest estimates. This demographic trend, compounded by ascending interest rates, scarce housing stock, and increased property insurance costs, all contribute to the escalating housing prices in the state.

At the same time, there is an increasing shortage of credit availability due to economic uncertainty. Black Knight’s latest report also showed a moderation in banks’ appetites for jumbo loans – mortgages that exceed conventional loan limits. The simultaneous increase in average approved credit scores for mortgages indicates a skewing of the market towards higher-credit borrowers – that is not a testament to improving individual credit scores, rather, a reflection of banks raising the credit score bar for loan eligibility.

The repercussion of the challenging housing market environment is the increasing financial burden of homeownership. As of June 22, the median-priced home required a principal and interest payment of $2,258, a historical high. The cost of that payment amounts to 35.7% of the median household income, nearing the least affordable month for housing in the past 37 years.