If Florida’s real estate industry is the weather, then our Bergstrom Real Estate Center survey is the local forecast. And while the newest forecast isn’t exactly sunny, the skies aren’t dark and there’s even some sun peeking out of the clouds.

In the latest survey of advisory board members, nearly two-thirds of the respondents gauged the real estate outlook as “stable,” while 29% said “weak.” A small percentage rated the outlook as strong and just one respondent labeled it very weak. While not so good to send a postcard home, the results were a bit improved from the end of 2022 when 59% of the respondents viewed the outlook as stable and 36% as weak.

The results put the center’s Market Outlook index at -24 in the second quarter, a dip from the first quarter but up from -31 in the fourth quarter when worries first spiked over inflation and slackening economic conditions (Figure 1). The index is on a scale in which 0 means neither positive nor negative.

Lending some perspective, one respondent wrote: “Most of Florida continues to thrive and grow at a pace that exceeds historical norms. Many are measuring rates of growth in comparison to 2021-2022, which was unsustainable growth, but the market is now back to growing at a healthy, sustainable pace.”

Conducted quarterly, the survey gauges the views of the center’s advisory board members, who participate in virtually all facets of the real estate industry. Roughly half of the 161 board members responded to the latest survey.

The housing outlook was a touch better but also varied widely: more than half of the survey respondents (55%) said their view for the single-family housing market was stable, while 25% said strong or very strong; the remaining 19% said weak (Figure 2).

There was no ambiguity as to the biggest challenge facing the housing market: mortgage rates (Figure 3). Other traditional obstacles — obtaining permits or shortages of labor and materials — barely registered in comparison. Indeed, borrowing costs have become a major concern among potential homebuyers. As of June 1, borrowers faced an average 30-year fixed rate mortgage of 6.79%, more than double from March 2022, though it was slightly improved from 7.08% in November 2022, according to Federal Reserve Economic Data (FRED). Several members indicated affordability was a growing issue not only for buyers but for renters as well.

Respondents said capital availability continued to slide, continuing a six-quarter trend as both equity and debt have fallen from the mid-3s to below 2 on a 5-point scale (Figure 4). At the same time, interest rates have climbed in a big way. Prime rates charged by banks rose to 8.25% from 3.25% since early 2022, according to FRED.

“Bank debt is drying up,” one respondent commented. “Liquidity is king.”

A few of participants (8%) still see an opportunity for new buying in the commercial real estate market. However, over the past year, more respondents shifted to suggest taking a position of selling assets from holding (Figure 5). As the group sentiment shifted, they stayed split on whether the best position was to maintain or to reduce risk (Figure 6). Perhaps the collective objective is to dispose of weaker assets and hold long-term performers. Of course, this will come at a cost if all investors are reluctant to take on more challenging projects.

Despite the uncertainties over buying/selling and whether to maintain or reduce risks, most respondents viewed Florida tenant demand as stable, if not slightly increasing (Figure 7). None of our respondents saw leasing on either end of the spectrum of disappearing or exploding.

This may be a view that is more common in Florida than in other states that haven’t seen a strong in-migration of residents as the Sunshine State has in recent years. If so, Florida investors have the luxury of wading through some capital market uncertainty with solid leasing and income.