Real Estate experts say market will enter transition year, Ian to give SWFL a clean slate

Samantha Neely
Fort Myers News-Press

One thing has become abundantly clear to Southwest Florida real estate experts after Hurricane Ian's hit last September: The future ain't what it used to be.

As founder and senior broker for LSI Cos. Randy Thibaut puts it, they went from being able to forecast what would happen in the future to having all rules go out the window, just like three years ago with the COVID-19 pandemic.

Many would think a nearly category 5 storm that flattened large chunks of the region would spell a grim fate for local real estate. Instead, it boomed for coastal and barrier island communities, like Sanibel and Fort Myers Beach. For those inland, interest rates buckled the market, which experts explained happened before Ian.

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Thibaut and other local real estate experts explained their findings to a record-breaking crowd at the Caloosa Sound Convention Center & Amphitheater in downtown Fort Myers Tuesday night. They delivered data-packed presentations on developments, commercial real estate and residential, showcasing where the region's market has been, where it stands and where it's headed. 

With rising interest rates, industry shifts and the impacts of Ian, Thibaut said we're headed for a chaotic market. Yet, in spite of all these changes, experts say they're seeing the market correcting itself since 2020. Here are some insights:

Not the beaches, barrier islands you grew up with

Gone are the days of grabbing a novelty shirt at a beach shop and walking past the colorful cottages along the shores.

After Ian destroyed the beach towns and battered barrier islands, these locations are said to have been given a clean slate and will allow for more upscale properties to come in. Thibaut said these new available lots quickly brought in "vulture buyers," creating a frenzy of builders wanting to build dream homes in dream destinations.

"It's a renaissance of such because out with the old, in comes the new because it has to be rebuilt," Thibaut said. "There's no choice and what it's being rebuilt with is much higher value real estate, it's drawing a different type of buyer and it's bringing different types of retail and recreational opportunities."

He showcased an $800,000 cottage in Fort Myers Beach that had been torn apart by Ian's 155 mph winds and storm surge as an example. Builders from around the nation are interested in purchasing the lot so they can build a $3 million mansion.

Same goes for luxury condominiums. Developers bought the former Carousel Inn on the Beach for $11.5 million, aiming to turn the property into 12 units to sell for a starting price of $4 million each.

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"The whole game has changed. (Developers) see something that we don't and that's beachfront lawns for $3 million to $5 million that they can build twenty to thirty million dollar spec homes … still half the price and labor costs in Bonita or Naples," Thibaut said. "Like it or not, this is what's going to happen."

He does sympathize with those who may be upset about the loss of the communities they have known for years, but assures it's for the best and will bring some great opportunities for the region.

"We all love the nostalgia for where we've grown up and we love it, but it's simply not in the cards, because it has to be rebuilt. We can't rebuild the same that it was because of hurricane codes, coastal setbacks, a lot of things won't allow that to happen anymore," Thibaut said. "It's a renaissance and rebirth of our market, so it's time to embrace that and look forward to the new stuff that's going to happen, that's going to change the dynamics forever for our market."

Work progresses on Margaritaville on Fort Myers Beach on Monday, March 13, 2023.

Experts also mentioned how one of the silver linings within Ian's recovery efforts was more opportunities for custom builders throughout the region. Thibaut shared that 35,000 permits have been processed for builders throughout Southwest Florida.

Stop waiting for interest rates to go back to 3%

Those still hung up on 2021's interest rate of 3% and aren't primarily focused on reconstructing after Ian will have a hard time, they said.

As of March 14, current interest rates in Florida are 7% for a 30-year fixed mortgage and 6.18% for a 15-year fixed mortgage. Denny Grimes, president of his team at Keller Williams Realty, wants to make it clear; interest rates are never going back to below 4%.

Grimes explained that 2021 was the best market they've ever seen and it won't ever be duplicated. 2022 fell short 20% to 30%, even before Ian. In early September 2022, the market's sales were as slow as they were in March 2020, when the pandemic hit.

"What's causing that shift is the cost of money. They started raising the interest rate … two things happened in 2022 that had never happened before. Number one, interest rates doubled inside of one year. The Fed had eight different rate adjustments and every time they rose, the interest rates go up, sales would drop off. That's what they wanted to happen," Grimes said. "The second thing that happened was we had the largest drop off in sales between 2021 and 2022. Second only to when the bubble burst in 2006, so the market is slowing."

Now, buyers have a sense of FOMO (fear of missing out) and are waiting for that magic 3% again. His advice for buyers now? Jump when rates drop to 5%.

"The buyer population has been awakened. They now know that interest rates are not going to be low anymore. They've seen, they watched them go up and now they have this attitude of 'Give me one more chance,' they promise not to waste it," Grimes said. "Their chances, if it gets in the five range, psychologically that's going to move people forward. If the buyers wait, because of that movement of buyers into the market again, it's going to cause the prices to go right back up, so now they have a lower rate and pay more for the house, like how it was a year ago."

Grimes said the sooner the market correct itself, the better. Which means sellers need to be realistic about their asking prices, he says they can no longer ask for whatever they want and double it.

This also gives renters a chance to enter the market if they can afford it.

Overall, experts believe the market will flatten this year due to the interest rates as well the uncertainty with the economy and political climate, which is slowing the housing market. Thibaut said the market will be on fire once the interest rates come back down, seeing also that the supply chain is balanced and decreases in the construction and labor markets.

"When we see interest rates come in line back down to that 5% or 6%, whenever that happens … we see our economy, we see a presidential election, when all those things align, I think we're going to be off to the races," Thibaut said. "We're going to see a very strong market ahead, but 2023 is going to be a transition year.

Inventory slightly up, location's not a huge factor anymore

During Grimes' presentation, he also shared that inventory is up in the triple digits for Lee, Collier and Charlotte counties. However, this doesn't necessarily mean that there is more inventory, with Grimes explaining that inventory was running on fumes before.

With the volume down and the prices up, the market is currently in the seller's corner. From January to December 2022, each Southwest Florida county sold:

  • Lee - 22,043 homes
  • Collier - 11,583 homes
  • Charlotte - 5,935 homes

For several years, it has been mentioned within their presentations that location has not been a major factor when buying homes here in Southwest Florida but it's more true now. Grimes earned a gasp from the crowd when showcasing two luxury homes that went on sale last year, a $1 million home nestled deep into Lehigh Acres and a multimillion-dollar mansion in Charlotte County.

As Thibaut would mention, it's all about high ground and availability.

"Some of our fastest selling communities are in 'C locations'," he said. "What you consider the C locations previously has nothing to do with it anymore." Babcock Ranch, he said, "is the top-selling community in our entire market ... If you looked at where it's located, you wouldn't think that, but it has nothing to do with location anymore."

Big development in store commercial

After a huge jump in commercial sales heading into 2022, Justin Thibaut, president and CEO of LSI Cos. said everyone was a little nervous about what was going to happen.

"The nice thing is that into 2022, we came down slightly, so we're down about 15% in total sales volume, which is a good thing. That's an indicator that we're stabilizing a bit, we're in a healthy market in that regard, so that's a good check in on the health of the market," Thibaut said.

When looking sector by sector, experts found interesting trends. Starting with industrial, large warehouses are out and flex space is in.

"We've been hearing about the next million-square-foot distribution center, the Amazon (warehouses), all these big players come into the market and the question will be 'How many more of those users can we absorb in our market, how many more do we need?" Thibaut said. "Because there's just been so many, so looking forward, I'm probably expecting a little bit of a drop off in construction numbers for large-scale distribution, and probably a move back to the industrial flex smaller units that are carpenters, millwork, flooring companies that really we need to support our rebuilding."

For those within the office world, it's time to start putting on actual pants and heading out the door to the office, he said.

Justin Thibaut said there's been more talk about moving away from the work from home format and the existing supply of office buildings slowly starting to be leased up again.

"Now over the last year, just about every one of the largest employers in the US has put a return to the office mandate in place, so everybody's going back to the office," Thibaut said. "We always kind of did stay in the office in Southwest Florida but that's happening on a national scale, so occupancy numbers are back up in the office world."

Other exciting trends include the region being more of a medical hub, growth along Alico Road in Estero and higher-end retailers coming in to Lee County.

Will Ian's effects last awhile?

The elder Thibaut said he definitely sees the effects of Ian lasting for several years, but there are plenty of positive aspects in the rebuilding.

"The rebuilding of our area is going to continue on for years but the amount of the acceleration, how fast it's happening is amazing so I think hotels will be up and running on Fort Myers Beach, same thing on Sanibel," Thibaut said. "I think the transition is starting in the next season. We'll be back in business and people will be coming here and staying on the islands, but we'll be rebuilding for the next few years ahead."

Overall, he said he is looking forward to what this next year brings and the rebirth of the region's most damaged areas. A new era has begun for Southwest Florida, whether we're ready for it or not, he said.

"I'm elated to see the billions of dollars that are pouring in to reshape Fort Myers Beach, and Margaritaville was a huge upgrade for Fort Myers Beach," Thibaut said. "I think that's the baseline for what is to come. I think there's going to be luxury hotels, luxury condominiums. The price points are going to triple."