Pensacola’s Real Estate Market Faces Challenges as Military Buyers Struggle With Underwater Mortgages

Written by:

Steve Marcinuk

Date:

21 Oct 2025

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A new challenge is emerging in Pensacola’s military housing market, where service members who bought homes during the 2021-2022 surge are now underwater, unable to sell without significant financial loss. Christina Leavenworth of Levin Rinke Realty, a veteran real estate professional with nearly a decade in the Pensacola market, says this situation is having a noticeable impact on military relocation patterns.

“We are seeing a lot more rent, which is more than we’ve ever seen,” Leavenworth says. “We’ve seen a lot that bought in 2021 and they paid inflated prices, and then there is a VA funding fee on top of what they pay. So a lot of them are underwater. They can’t sell, they can’t walk away without having to bring money to the table.”

This issue results from a combination of market conditions. Military families who purchased during the record appreciation of 2021-2022 now own homes that have not maintained those peak values. Many also carry VA funding fees that were included in their original loans. With current interest rates, their Basic Allowance for Housing often falls short of what is needed to purchase in today’s market.

Market Dynamics Causing Pressure

Leavenworth, who leads a top-performing real estate team in Pensacola’s MLS with six agents selling approximately 200 homes annually, identifies several factors contributing to the current military housing dilemma. The timing is especially difficult for service members facing Permanent Change of Station orders.

“We really recommend somebody try to hold on to a home for five to seven years,” she says. “We saw unprecedented appreciation for a while, where people were able to buy in 2019 and sell in 2021 and make a killing. However, 2021 or 2022 to 2024, it’s not the same. The prices are about even or slightly higher, but for them to cover their closing costs, plus that VA funding fee that got wrapped into the loan, that makes it a little tough.”

As a result, military families are turning to strategies that were not commonly needed in past cycles. Leavenworth’s team is working with affected service members on alternatives such as temporary rentals and VA loan assumptions.

Creative Solutions for Military Sellers

One solution gaining momentum is the use of assumable VA loans. “If they’re at a two and a half percent interest rate, saying, hey, you know, come assume their interest rate, and then it’s off their debt. It’s not on their name anymore. The other military member has it. So that’s a creative way we’ve been able to try to fix that solution,” Leavenworth says.

This method allows military buyers to take over existing low-rate mortgages from other service members, offering an exit strategy for those underwater and providing favorable financing for new buyers in a higher-rate environment.

The effects of this shift extend beyond individual transactions. Military families represent a substantial part of Pensacola’s real estate activity, given the area’s proximity to military bases. As more military families choose to rent instead of buy, ripple effects are felt throughout the local housing market.

The Importance of Planning

Leavenworth stresses the value of proactive planning with military clients. “We have those conversations with them, saying, okay, you know, how long do you think you’re likely going to be here? If you move and your home hasn’t appreciated the way you hope, what would be your plan? We talk about all those different things.”

This challenge highlights a broader issue in markets with a large military presence, where rapid appreciation followed by stagnation can trap service members who cannot control the timing of their moves. Unlike civilian buyers who can choose when to sell, military families must relocate when ordered, regardless of market conditions.

The current environment underscores the need for realistic expectations and careful planning in military real estate transactions, especially in markets that experienced sharp price increases during the pandemic. Military buyers and their advisors must now navigate a more complicated landscape, balancing the realities of required moves with the financial implications of changing market conditions.