A hurricane-ravaged part of Florida now is the country's most overvalued rental market and has the highest annual rent growth, while increases across the rest of the country have slowed.
The Cape Coral-Fort Myers metropolitan area, which suffered a direct hit by Hurricane Ian at the end of September, supplanted Miami for the top spot on the "Waller, Weeks and Johnson Index" produced by researchers at Florida Atlantic University, Florida Gulf Coast University and the University of Alabama. The index measures rent growth and whether renters are paying a premium or a discount based on historical averages.
Those renters paid a 17.37% premium in October, a bump up from the 16.86% premium they paid in the Cape Coral area in September. Rents rose 17.16% compared to October last year, which is slightly down from the previous month’s 17.69%. Rents rose 1.76% from September to October in the Cape Coral area, the second-highest increase behind Spokane, Washington.
Rent increases nationally, however, continued to ease in October. The index, which tracks the 100 largest rental markets, is a month behind because of the time needed to complete the analysis. The number of markets with falling rents month to month grew from 38 to 70. Springfield, Massachusetts, had the steepest drop with 2.38%, followed by Las Vegas at 1.81%.
Florida's dominance of the top 10 highest premiums diminished some in October. While Cape Coral and Miami are the top two markets, the total number dropped from six to five in the top 10, with North Point, Tampa and Orlando making up the other three spots.
“It seems that an increase in supply helped relieve the pricing pressure on rental units around the country — and that’s exactly what had to happen,” Ken H. Johnson, an FAU economist, said in a statement. “The added supply appears to have come from delivery of units under construction, an increase in unit density and the conversion of many Airbnb-type units to long-term rentals.”
Cape Coral and Spokane were among five markets where rent increased more than 1% between September and October. Fresno, California; North Port, Florida; and McAllen, Texas, round out the top five.
“The significant rise in Cape Coral-Fort Myers is very disheartening, though not surprising,” Shelton Weeks, with Florida Gulf Coast University's Institute for Real Estate Development & Finance, said in a statement.
The researchers had predicted the possibility that rents in the Cape Coral-Fort Myers area could rise because of the number of people displaced after their homes were destroyed by the Category 4 hurricane.
Weeks said that “there are signs of a recovery, but affordable housing should remain an issue in this market for months to come.”
Demand had been outpacing supply before the hurricane struck, though narrowly as development was closing the gap. There are 3,326 units under construction now, equal to roughly 11.6% of all existing units.
The market added 448 apartment units in the third quarter. CoStar data projects 676 units will be added this quarter.
Meanwhile, officials in Lee County where Cape Coral and Fort Myers are located reported in October that more than 5,000 homes were lost and 13,000 had major damage from the hurricane.