Mortgage-Dependent Buyers Are Being Squeezed Out of the Florida Keys - The Bradenton Times

The housing market in the Florida Keys is increasingly polarized, particularly regarding buyers' financing methods. Cash buyers, often retirees and business owners from outside the state, are significantly influencing the market's performance. In contrast, those who rely on mortgages are facing rising costs that have effectively excluded many potential buyers who once constituted a significant portion of the market.

Lisa Ferringo, a realtor with more than 20 years of experience in the Keys, has observed this trend accelerate recently. Prior to the pandemic, she estimates that about half of her clients came from other parts of Florida, mainly young couples with children seeking vacation homes. During that time, a waterfront property could be purchased for approximately $450,000, resulting in a mortgage payment of around $3,500, accompanied by manageable insurance and tax expenses.

However, that demographic of buyers has largely vanished. “That $3,500 mortgage payment is now $6,500 or $7,000,” Ferringo explained, noting that families who once sought entry-level properties in the Keys can no longer afford to buy a weekend getaway.

The current buyers are markedly different. Ferringo describes them as a diverse group, including retirees, farmers from the Midwest, business owners, and affluent individuals primarily from the Mid-Atlantic region, such as South Jersey, Maryland, and Delaware. A key characteristic of these cash buyers is their financial capability, which is not affected by fluctuating interest rates.

For those purchasing at the higher end of the market, concerns over costs related to insurance are less significant. Ferringo pointed out that Citizens, Florida's insurer of last resort, does not cover homes with replacement values exceeding $1 million. This situation forces mortgage-dependent buyers into private insurance markets, where premiums can be prohibitively high. Many cash buyers at the luxury level, however, often choose to self-insure, particularly for concrete homes they believe can withstand severe weather.

This disparity means that a property can be affordable for one type of buyer while remaining out of reach for another. A cash buyer may simply write a check for a waterfront concrete home, while a buyer reliant on financing must contend with a range of additional costs, including monthly principal, interest, insurance, property taxes, and flood insurance, which inflate the total expense beyond the listed price.

Even buyers who qualify for mortgages are feeling the pressure of high interest rates, which hover around 7 percent. Ferringo remarked that this situation has noticeably dampened the investor market. To assist clients dependent on financing, she often suggests exploring seller concessions, such as requesting that sellers lower mortgage points for the initial years, with the hope of refinancing if rates drop in the future. She advises her clients to “marry the house, not the rate,” emphasizing that while home prices appreciate over time, interest rates can change.

However, this strategy relies on sellers' willingness and does not address the issue of rising insurance costs that accompany mortgages. Many deals are falling through due to the cumulative expenses involved. Ferringo noted that the most frequent reasons for transaction failures include sticker shock when buyers see the total mortgage and insurance figures, as well as issues revealed during home inspections, which are common with second homes that may not be regularly maintained. Buyers in the Keys want properties that are ready for immediate enjoyment, not ones that require oversight for renovations.

The Florida Keys exacerbate the financial challenges faced by mortgage-dependent buyers across the state. The costs of construction are among the highest in Florida, with local builders charging between $700 and $1,200 per square foot for concrete construction. Additionally, the region's stringent wind code, which is the toughest in Florida, drives up material and labor costs. Unlike mainland Florida, there are no nearby suburbs where prices might be lower to provide some relief for buyers.

For those needing financing, the submarkets of Marathon and Key Colony Beach still offer opportunities for vacation rentals, which can help offset carrying costs. Ferringo mentioned that a well-located rental property could be booked for around 46 weeks a year. However, the disparity between potential rental income and actual financing costs is now wider than it was before the pandemic.

Ultimately, the financial implications for buyers are much more intricate than the listing price might suggest. Expenses related to insurance, wind coverage, flood insurance, property taxes, and potential renovation costs can rival the monthly mortgage payment itself. For properties valued above $1 million, buyers may need to plan for private wind insurance that Citizens does not cover, a factor many first-time buyers in the Keys do not consider until they are deep into the purchasing process. It is crucial for those relying on financing to understand these layered costs before finalizing a purchase price.

Lisa Ferringo leads the Lisa Ferringo Group and has been active in the Florida Keys housing market since relocating from Miami. This article is for informational purposes only and does not constitute legal, financial, or investment advice. The opinions expressed here reflect those of the individuals quoted and do not endorse any company, product, or service mentioned. Readers are encouraged to conduct their own research and consult qualified professionals before making investment decisions.