Housing bubble begins to burst in Covid hot spots, including Florida and Texas

Housing markets that were once Covid hot spots are witnessing the sharpest declines, according to a new report.

Home prices in Austin and San Antonio—some of the pandemic's largest boomtowns—have contracted by as much as 2.5% over the past year while listings are ticking up.

According to the ICE Mortgage Monitor, "every major Florida market had at least 50% more inventory in April than at the same time last year."

There are several factors that help explain what's happening.

For one, both states are aggressively engaged in housebuilding. Some 62,000 units have been approved in Florida so far this year, rising to 77,000 in Texas.

Affordability is another issue. Redfin data shows that median sale prices in Austin stood at $392,000 in May 2019 but skyrocketed to $667,000 just three years later—a 70% rise.

As of May 2024, the typical property there is still selling for $587,250. Those prices, combined with 7% mortgage rates, have put homeownership out of reach for many.

Then there's the issue of home insurance, which has become much pricier in the South following a slew of hurricanes and floods.

Data from Insurify shows premiums in Florida stood at $10,996, that's $8,619 above the national average. A policy in Texas typically cost $2,079 more at $4,456.

Pods research went on to show that South Florida had the third-highest number of residents moving out so far this year. Austin is a new entrant on this list and came in fifth place.

"Higher for longer" rates

Other than falling prices in pandemic boomtowns, the health of the housing market remains stable, According to ICE's Mortgage Monitor report.

Delinquencies have now returned to the record low set in March 2023, with home loans that are more than 90 days overdue falling to levels last seen in August 2023.

Unfortunately for would-be homebuyers, the report indicates that the Fed's decision to delay interest rate cuts will likely keep mortgage rates higher for longer.

Analysts now expect 30-year rates to average at 6.75% in the final quarter of this year, which is 80 basis points higher than four months ago.

And while there may be a slight fall to 6.25% by the end of 2025, that's 75 basis points higher than previously anticipated.

In terms of mortgage affordability, Americans need 35.7% of the median household income to qualify for a median home—which is 11.4 percentage points higher than the average over the past 30 years.

That's based on the "28% rule," which states no more than 28% of gross income should be spent on a mortgage.

"All 100 of the nation's largest markets currently remain less affordable than their long run averages," the report notes.