Orlando, Florida Housing Market in 2015: Inventory Will Slow Price Growth

It’s real estate prediction season at the Home Buying Institute, and today we are turning our attention on the Orlando, Florida housing market. What will home prices do over the next year or so, in this metro area? What’s the supply and demand situation? In short, what do buyers and sellers need to know about market conditions now and in the near future? Here’s a prediction for the Orlando real estate market in 2015.

This metro-level forecast can be summed up in a single sentence: Home prices in the Orlando area will likely continue to rise through the end of 2015, but not nearly as much as they rose over the last year or so. As you’ll soon see, inventory has a lot to do with this sea change.

Current Housing Market Conditions in Orlando, Florida

Before we look ahead with any market predictions or projections, let’s examine the current real estate market in Orlando, Florida. This metro area has experienced significant home-price appreciation over the last year or so. How significant? Consider the following:

According to the local Realtors association, the median house value rose 7.37% from September 2013 to September 2014. That marked 39 consecutive months of year-over-year price gains for this metro. This is yet another sign that the Orlando, Florida real estate market has reached a state of normalcy, following the worst housing crisis of the last fifty years.

According to the housing information service Zillow, home prices in the area have risen by nearly 12% over the last 12 months or so. Unlike the median figure mentioned above, Zillow’s stats are based on their “Zillow Home Value Index,” a proprietary measurement of house values in a certain geographic area.

So, any way you slice it, the Orlando housing market has made significant price gains over the last year or so. But what about next year? What’s in store for buyers and sellers in 2015? Let’s shift from current assessment to future predictions. Here’s an outlook for the next 12 months, starting on the supply side with inventory…

Sharp Rise in the Number of New Homes for Sale

We began this story with the prediction that Orlando’s real estate market would experience smaller price gains in 2015, compared to the last 12 months. But why? What kind of shift is taking place that would account for such a slowdown? The biggest change of the last year or so has occurred on the supply side. In short, there are many more homes for sale today, compared to a year ago, and this will likely have a cooling effect on home prices in 2015.

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Recent reports by the Orlando Regional REALTORĀ® Association show a rise in for-sale inventory over the last year. According to their “Monday Morning Quarterback Summary” for the week of October 5, the total number of active real estate listings (homes for sale) in Lake, Orange, Osceola and Seminole Counties rose by 27.17% since the start of 2014.

Other statistics point to an even larger rise in inventory across the metro area. Each month, Realtor.com publishes a monthly housing report with data for 146 major cities and metro areas in the U.S. In the latest report, released on September 29, the Orlando real estate market had the largest year-over-year increase in total listings (on Realtor.com). The number of for-sale listings in this area rose 81.2% from August 2013 to the same month this year. That was the largest annual gain of all 146 metropolitan statistical areas (MSAs).

Zillow Prediction for 2015: Orlando Home Prices Up 3 Percent

On October 15, when this story was published, Zillow was reporting an 11.8% increase in Orlando home prices, over the previous 12 months. Their forecast and prediction for 2015, however, was much more modest. According to their latest analyst, the company’s economists expect local home values to rise by a mere 3% over the next 12 months or so.

This relates back to the inventory situation mentioned above. There are many more homes for sale in the Orlando metro area today, compared to the same time last year. Demand from buyers, on the other hand, has remained more constant by comparison. So here we have a sharp rise in housing supply without a corresponding rise in demand. Price appreciation tends to slow down under such conditions. Real Estate Economics 101.

If Zillow’s outlook proves accurate, homeowners in the Orlando area will experience a smaller increase in property values in 2015. Additionally, the local housing market could shift to the point that it strongly favors buyers over sellers.

Will Real Estate Conditions Create a Buyers’ Market in 2015?

In a real estate context, a buyers’ market occurs when there are plenty of homes for sale in a geographic area, but not enough buyer demand to “absorb” them all. In other words, it is when supply outgrows demand. We are starting to see this in the Greater Orlando housing market, and conditions will likely continue in this direction over the coming months due to the aforementioned inventory shift.

This is mostly good news for home buyers. While local house prices could certainly rise over the next 12 months, it will likely be a more modest increase compared to the last year or so. There are more properties listed for sale today than this time last year. Home buyers have more choices when it comes to shopping for a house. They’ll also have more leverage when the time comes to make an offer.

Earlier this month, Bloomberg published a story about home builders offering freebies to attract buyers. Such incentives have been part of the builder’s marketing toolbox for decades. But it appears that builders are “sweetening the deal” more so than in the past, in response to dwindling home sales.

According to the Bloomberg report:

“In Orlando, where builders such as Hovnanian Enterprises Inc. (HOV), Beazer Homes USA Inc., Ryan Homes and David Weekley Homes are advertising incentives such as discounts, appliance packages and the covering of closing costs, new-home sales fell almost 19 percent from a year earlier in June…”

Will 2015 be the year of the buyer in Orlando, Florida? It’s shaping up that way.

Disclaimer: This story offers real estate predictions, forecasts and projections for the Greater Orlando housing market. These forward-looking statements are the equivalent of an educated guess, and should not be viewed as actionable information. No one can predict future economic conditions with total accuracy. We make no claims, guarantees or assertions about future trends in this or any other local market.