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House prices in some areas in California and Florida declining fast, up to 40% reduction

Growing interest rates and an insurance crisis affecting both states have led to a significant decline in house prices in some areas of California and Florida in recent months. This downturn in housing costs may appear beneficial for those looking to purchase homes; however, the dream of homeownership remains elusive for many, further fueled by the spike in property taxes, particularly in California.

Climate change

Florida and California are the two states most impacted by severe weather as a result of climate change, with Florida facing yearly hurricane devastation and California grappling with wildfires that render vast areas nearly unlivable. This has led to a huge property insurance crisis. Insurance companies are leaving these markets at a faster pace because insuring properties in such high-risk areas is becoming unprofitable for them.

Insurance companies are leaving California

In a span of just a few weeks, two major insurance companies in California announced they were either leaving the state or reducing operations. The Texas-based American National announced its departure from California, citing profitability issues. They informed the California Department of Insurance of their plans to cease selling home insurance by the fall and not renew policies from August onward, according to Insurance Business.

A few weeks later, Illinois-based State Farm General revealed its decision not to renew policies for 30,000 residential and 42,000 business properties in California. This decision affects just over 2% of their California policies, but it is noteworthy given State Farm General’s substantial share of the state’s home insurance market. This step is anticipated to significantly disrupt the home insurance market, affecting both prospective homeowners and the industry as a whole.

Interest rates and insurance crisis affecting both states have led to a decline in house prices in some areas of California and Florida
Credit: Unsplash

House prices in California decline

In some regions in California, people are cutting down their home prices drastically—up to 40 percent off—as they move away from the rapid rise in property values seen during the pandemic era. One such example is a five-bedroom residence in Oakland, California, which had a $4.1 million price tag in March 2022 and is now back on the market at Redfin for $2,550,000. This marks a significant drop—over 40 percent in its price.

The hype of the red-hot market

The Oakland house was previously on the market for $2,995,000 in February 2022, and it was sold for more than $4 million within a month. A local San Francisco Bay Area realtor, Matt Castillo, offered his insight, suggesting that the buyer “got caught up in the hype of the red hot market (pre-interest rate hike) and paid 1.1 million over asking [price],” he wrote on X. “Now Oakland is having a moment and interest rates are high.”

Interest rates and insurance crisis affecting both states have led to a decline in house prices in some areas of California and Florida
Credit: Unsplash

This is not a general trend

The Redfin listing also shows that the property taxes have seen a steep increase, surging by 125.3 percent from 2022 to 2023. The taxes jumped from $26,319 to an astonishing $59,307. While most homes in Northern California are being traded for less than their peak prices from 2022, homes in other parts of California are regaining their value, with Southern California in particular showing a rebound in prices over the past year.

Florida house prices go down

Recent figures from Zillow suggest that, in certain parts of Florida, house prices are falling more rapidly than in other areas of the nation. The latest statistics for February, shared by the real estate company, indicate that 33 percent of listed homes in the Tampa metro area saw price drops—the highest rate among U.S. metropolitan areas. This is a 3.7 percent increase from the previous year. Across the country, 20.1 percent of listed homes experienced price reductions, which is a 2 percent rise compared to last year’s figures.

Other areas in Florida

Zillow’s February market report points out that a number of cities in Florida saw a sizable proportion of listings with discounts. In fact, Ocala saw a 28.9 percent rate of price reductions in February; Palm Bay’s rate increased to 30.9 percent; and North Port spiked to 35.5 percent. In Naples, 29.6 percent of listings saw price cuts, while Port St. Lucie had 29.1 percent, Lakeland came in at 28.6 percent, and Cape Coral at 26.9 percent. In Orlando, the figure was 25.2 percent with Miami at 23.8 percent of listings getting price cuts.

Texas and Florida have most units constructed

The trend of reducing home prices might be attributed in part to the fact that the prime season for home buying is in full swing, and there’s also been an influx of property listings. Florida, alongside Texas, has been leading the nation in constructing new housing units in 2023, aiming to alleviate the ongoing affordability crisis that stems from a historic shortage of homes in the United States.

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