The Florida real estate market was driven by investors, with the objective of flipping the property after a few months and realizing strong gains. Due to the increase in prices, the average consumer has been shut out of the market. Since the investors cannot sell the properties they purchased at inflated prices, they have resorted to renting their properties.
At the same time the apartment complexes have been offering incentives to renters, such as free rent and low move in costs. The investors have not been able to compete with the complexes and there is a glut of rentals in the market. Due to this, rental prices have fallen and has forced the investors to rent at a lower price then their carrying costs.
As an example, in my inventory of rental listings, I have clients who are forced to rent their units for $2000, while their monthly payments are $4000. The question is how long can these investors afford to suffer these monthly loses, before they decide to sell their investments at a realistic price or even walk away from them. There were 11 projects slated to be started in West Palm Beach. The five that had started construction are going ahead. The other six have delayed the construction.
The second problem arises from the developers. After they have sold the majority of their properties, they will sell the property at a lower price then the original price that the original buyers purchased them for. The result is that the original investors cannot sell at a profit and either must hold onto the properties or sell them at the current market value, which is less then they paid for them.
Since the average consumer can not afford to buy at the current prices, they will rent the units. The advantage is that they can take the money they are saving each month, put it in the bank and achieve a higher rate of return then they would gain in appreciation in home prices.
The only viable solution is for the market to decline to a reasonable level, where the rent covers the monthly costs of buying. Once this occurs, the market will pick up and prices will appreciate.