A ‘What? Me worry?’ mad economy and housing market
In trying to develop a theme for this week’s real estate column that deals with the economic realities facing most Americans on the ground, we were torn between two choices. One theme was based on the “stupid is as stupid does” line from the movie “Forest Gump.” This famous line seems to aptly describe the fiscal irresponsibility and tone deafness – along with a lot of other things – coming out of Washington, D.C. At first, it seemed to be an appropriate theme, highlighted by the ceremony at the White House on Tuesday celebrating the achievement of passing the sweeping new climate, energy and health care spending law known as the “Inflation Reduction Act,” which arguably flies in the face of the Federal Reserve’s war on inflation. The fact that our politicians were touting what is likely to become another in a long line of taxpayer funded boondoggles on the same day that the August Consumer Price Index (CPI) numbers came in hotter than expected, showing a government understated year-over-year inflation rate of 8.3 percent, the irony of it all was not lost on any rationally thinking American. So as “Sweet Baby James” Taylor strummed his guitar and serenaded those present at the ceremony, while the stock market plummeted over the reignited inflation fears, one could not help feeling they were watching a “and the band played on” moment of titanic proportions.
As much as we liked the prospects of that theme, we opted for “What? Me worry?” For the uninitiated, this was the tagline appearing on the cover of MAD Magazine with the satirically unfazed star character Alfred E. Neuman. This seemed to be a better societal fit in what has become a broadening of the unfazed “nothing to see here” mindset from many in the political elitist class in our Nation’s Capital, along with a lot of other self-proclaimed “experts” in this new era of people righteously claiming that “their truth,” whether or not it is based on actual facts, is the only truth that matters. So when we saw a news headline about the August CPI number that stated, “U.S. Inflation Falls for Second Straight Month,” we took a deeper look into the truth. So yes, this headline is true to a point in that the rate of inflation is down in the last two months from its peak of 9.1 percent back in June, but it ignores the fact that a high rate of inflation has become embedded into the U.S. economy. In taking a quick look underneath the 8.3 percent headline inflation number, one discovers that the food index portion of the CPI was up 11.4 percent and the food at home index (grocery store prices) was up 13.5 percent from a year ago. Fortunately, gas prices at the pump fell an average of 10.6 percent in August, but this was mostly due to demand destruction as people cut back on driving because the cost of almost everything else was a lot higher. “What? Me worry?”
So yes, consumers are becoming increasingly worried as their budgets are stretched thin, and rightly so. August was the 17th straight month that Americans’ wages lost ground relative to the cost of living. Following the August CPI report, the yields on 2 year Treasury Notes spiked above 3.7 percent for the first time in 15-years. On the bright side, this means that interest rates on savings accounts and bank CDs should continue moving higher, but savers will still be earning negative real rates of return after factoring in the cost of inflation, not to mention the negative impact of higher borrowing costs on credit cards, car loans and mortgages. According to a Sept. 9 article by Ben Eisen in the Wall Street Journal, the average rate on a 30-year fixed mortgage rose to 5.89 percent a week ago, which topped the highs hit back in June. These are the average mortgage rates from a weekly survey conducted by Freddie Mac and published every Thursday, and they do not include lender fees and closing costs. We are seeing information that mortgage rates have now spiked well above that. “What? Me worry?”
So what does this mean for our local real estate market? With expectations that the Fed will now increase interest rates on the Federal Funds Rate by at least 75 basis points, if not by a full 1 percent, at its meeting on Sept. 21, and again at its November meeting, it is becoming more likely that our market will slow down. At the same time we say that, we note that we have seen some renewed interest over the Internet from more out-of-town buyers recently. This uptick in buyer interest is likely being driven by people who want or need to move here, trying to find a home before interest rates get too high. Some recently updated market numbers are shown below.
The preliminary Cape Coral single-family home sales numbers for the month of August continue to point towards a slowing real estate market with the number of closed home sales looking like they will come in at their lowest monthly level of this year, while also posting the lowest number of sales for the month of August since 2016. There is a possibility that what we are experiencing is a return to the historically slower, pre-pandemic “summer seasonality” in our market and that the sales activity will pick up again as we get back into our “season.” There is also a very real possibility that a continued aggressive series of interest rate hikes by the Federal Reserve will cause a severe recession leading to slower home sales and lower home prices.
The August median home sales price looks like it will come in slightly above July’s number, and some 19.4 percent above the median sales price posted in August of last year, but 8.5 percent below the peak reached back in April. Again, if the Fed actually does what it says it is going to do, we would tend to think that home sales and home prices will optimistically stagnate at best, and pessimistically could easily fall further as higher mortgage rates increase loan costs and eliminate even more buyers from the process.
As of Tuesday, Sept. 13, there were 1,422 active single-family homes listed for sale in Cape Coral through a Realtor in the Multiple Listing Service at prices ranging from $234,900 to $5.995 million. There were 323 homes listed for sale at $400,000 and below, with a total of 17 of these listings priced under $300,000. If we expand our search to include homes priced at $450,000 and under, we have a total of 520 homes listed for sale, which equals 36.6 percent of our active listings in the MLS. At the other end of the price spectrum there were 180 homes in the Cape currently listed at $1 million and above, while the median list price came in at $524,975.
There were 748 homes under contract with buyers as pending sales at list prices ranging from $220,000 to $3.999 million, with 345 homes pending at $400,000 and below, including 20 homes under $300,000. When we increased our search to include pending sales priced at $450,000 and under, it encompassed a total of 437 homes, or 58.4 percent of the pending sales in the Cape. There were 35 pending sales at $1 million plus.
For a quick comparison, two weeks ago on Aug. 30, we also had 1,422 active listings in the MLS for Cape Coral single-family homes at prices ranging from $229,900 to $5.995 million. The median list price was $513,543 and we had 329 homes listed at $400,000 and under, with 177 homes listed at $1 million and above. There were a total of 745 pending sales in the pipeline two weeks ago. So in general, our numbers for active listings, median sales prices, and pending sales, have settled into a fairly tight range for now.
The sales data for this article was obtained from the Florida Realtors® Multiple Listing Service Matrix for Lee County, Fla., as of Sept. 12, 2022, unless otherwise noted. It was compiled by Bob and Geri Quinn and it includes information specifically for Cape Coral single-family homes, and does not include condominiums, short sales or foreclosures. The data and statistics are believed to be reliable, however, they could be updated and revised periodically, and are subject to change without notice. The Quinns are a husband and wife real estate team with the RE/MAX Realty Team office in Cape Coral. They have lived in Cape Coral for over 43 years. Geri has been a full-time Realtor since 2005, and Bob joined Geri as a full-time Realtor in 2014. Their real estate practice is mainly focused on Cape Coral residential property and vacant lots.
To reach BOB and GERI QUINN, please email news@breezenewspapers.com