Report: Home prices on West Coast of Florida to fall sharply in a recession

Homeowners in Tampa, North Port and Cape Coral might be in trouble.

A new study out from Redfin, the Seattle tech real estate brokerage, finds the three cities on Florida’s West Coast are among the localities in the country where housing prices will take the biggest hits if — or when — a recession hits.

According to the study, the three join Riverside, California, Boise, Idaho and Phoenix as cities where homeowners are “most likely to see the effects of a housing downturn amplified and home prices decline year over year.”

Cape Coral is No. 3 on the list, North Port is No. 4 and Tampa is No. 9.

To make its determination Redfin looked at 98 U.S. metro areas and considered common indicators such as home-price volatility, average debt-to-income ratio and home-price growth. Each area was then given a score based on those factors. The higher the score, 100 being the highest, the better the chance for a downturn in the housing market and year-over-year declines in housing prices.

Cape Coral scored 76.7, North Port 75 and Tampa 70.7.

Miami scored a 56.3 and came in No. 25. The markets where homeowners are most likely to retain home values are Montgomery County, Pennsylvania, 31.4, which is west of Philadelphia; Philadelphia, 30.4, and Akron, Ohio, 29.6.

The one factor each of the localities at the top of the list shares is big migration after the pandemic that helped drive housing prices up. But now, as interest rates have begun to go up, potential buyers are being sidelined.

The ones likely to suffer most are those who bought homes when prices were at their peak. These are the people who will, when the comes to time to sell, face completely different market dynamics from when they bought. Gone will be the multiple offers and escalator clauses that helped get them into their homes.

Redfin’s senior economist, Sheharyar Bokahri, says in the study that “a recession — or even a continued economic downturn that doesn’t reach recession levels — would impact some local housing markets more than others, and there are a few factors that put certain areas at risk.

“First, what goes up must come down.”

Bokahri says that during the pandemic home prices rose at an “unsustainable rate in many pandemic homebuying hot spots” as people took advantage of low interest rates to buy second homes and for remote workers to relocate. In North Port, home prices increased 30.5% from 2021 in May, the fastest in the country, followed by Tampa, which saw home prices rise 28.1%.

And in early July, Redfin reported that year-over-year second home prices rose at the highest rate in the country in Cape Coral, 38.2%.

The demand pushed the prices up, he says, and with it gone, the prices will adjust, “a trend that has already begun.”

Another factor is that in markets where people have high debt there are more foreclosures or homes sold at a loss.

The news isn’t all worrisome, though, says Bokahri.

“If the U.S. does enter a recession, we’re unlikely to see a housing-market crash like in the Great Recession because the factors affecting the economy are different: Most homeowners have a fair amount of home equity and not much debt and unemployment is low.”