Data show that Florida's housing market might be in a sweet spot. Prices remain low, as Florida was among the states hit hardest by the collapse of the housing bubble, but prices are on the rise, so a purchase now would appear less risky than it would have a year ago.
But Florida also offers some object lessons. Its volatile housing market demonstrates the importance of thinking clearly about the pros and cons of buying a home when you don't have to. Placing the wrong bet can be very, very dangerous.
A large portion of Florida's housing market is driven by people who don't really need to buy, such as retirees who could stay where they are in other parts of the country and second-home buyers who could wait if conditions aren't right. That makes them more fickle than people who must move for a job or growing family. As a result, Florida home prices tend to swing to extremes.
Because of the market's volatility, anyone considering buying a retirement or second home in Florida should pay special attention to some key questions.
First, how easily can the balance of supply and demand change? On many of the barrier islands off the East Coast, for instance, there's not much room for further development, so it's unlikely a flood of new homes will depress prices in these areas. But in many areas just a few miles away on the mainland there's plenty of undeveloped land. As prices rise, developers tend to break ground on single-family homes and condos, and that new supply slows the price gains or reverses them.
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