The new abnormal is about to become more abnormal
Back when COVID first hit in 2020, we were putting our own spin on the often used phrase to describe any seismic changes to the economy, the markets or the culture, which would inevitably be described by the pundits as “the new normal.” Our take was we had entered a period better described as “the new abnormal,” and on just about every front it appears that things are about to become a lot more abnormal.
For all of us in Cape Coral and throughout much of Southwest Florida and beyond, abnormality has now become a normal way of life following Hurricane Ian and will likely remain that way for longer than we all want. As our real estate business has taken us to various areas in Cape Coral and Lee County, to provide eyes on the ground for our out-of-town homeowner clients to help them line-up various storm-related services, what we have seen and heard is nothing short of shocking and sad.
As it concerns our local real estate market, Ian added a huge new wrinkle to the meaning of abnormal in what had been an already slowing market. The debate about our market slowdown had turned into a question of whether it was a return to our normal seasonal summer slowdown, or were the numbers being influenced by the much more aggressive policies of the Jerome Powell-led Federal Reserve? With the Fed now jacking up interest rates in an attempt to try to tame the wildfires of rampant inflation, we have been pointing out that the age old saying of “don’t fight the Fed” should be taken very seriously by those in the housing market, especially since the expectations are now for two more 75 basis point rate increases by the end of this year, likely followed by another 50 basis point increase early next year. With 30-year fixed mortgage rates now hovering in the 7 percent range, the economic stall speed of the glide path from 30,000 feet down to the runway is increasing the odds for a very hard landing in home values.
Admittedly, opinions about the near-term future of home prices vary widely as a lot of market experts continue hanging onto the hope that the Fed will soon “pivot” back to the easy money policies that have caused most of our current fiscal and economic problems. Many believe home prices will, at worst, only suffer through a mild decline. We hope they are right. These same experts tout the fact that there remains a severe shortage of available homes to meet the current demand, but they seem to be ignoring any potential for a hard landing. As an example of this, a headline from Bloomberg earlier this week read, “US Homebuilder Confidence Collapses In October, Future Sales Hope Hits Decade-Lows.”
It would seem that a lot of market experts are relying on historical data and past trends to get their “reads” on the market without considering that we are in the process of being flushed out of roughly 15 years worth of unprecedented, experimental monetary policy and mind boggling amounts of government spending. These abnormal policies by the Federal Reserve became accepted as the new normal.
To that point, looking back at an article appearing in the Florida Realtors magazine in December of last year, Nadia Evangelou, a senior economist and director of forecasting for the National Association of Realtors, said she believed mortgage rates were poised to rise slowly in 2022, expecting the 30-year fixed rate mortgage to average 3.3 percent in the first quarter of 2022, and rising to 3.5 percent for the year. Even Lawrence Yun, the chief economist at the NAR, said back in early August of this year that he felt inflation and mortgage interest rates had peaked. At that time, the yield on the Benchmark 10-year Treasury Note stood at 2.7 percent and he felt the 30-year mortgage rate would get back below 5 percent. Since then, the yield on the 10-year Treasury has increased by 48 percent into the 4 percent range, and as we mentioned above, 30-year mortgage rates are pushing 7 percent. This illustrates the thinking of a lot of experts and how they have been lulled into complacency while ignoring the saying of “don’t fight the Fed.”
Another recent article in Bloomberg quoted Bob Michele, chief investment officer of J.P. Morgan Asset Management, as saying, “When the central bank (as in the Fed) steps on the brakes (meaning they increase interest rates), something goes through the windshield. The cost of financing has gone up and it will create tension in the system.” We would add that the Fed has moved way beyond “tapping the brakes.”
On Oct. 18, we took a snapshot of some market data for Cape Coral single-family homes running from Sept. 28 (the day Hurricane Ian blew through and swamped much of our area) through the close of business on Oct. 17. In this post-storm time frame there were 54 closed home sales ranging in price from $319,000 to $1.375 million. Keep in mind, these were all homes that likely went under contract with the buyers some 30 to 45 days prior to the sales being finalized. These 54 closings included three homes priced above $1 million and 27 homes priced under $450,000 with none under $300,000.
There are some additional pending sales in the pre-Ian pipeline that have had their closings delayed due to waiting for storm damage insurance claims. There have been 85 homes in the Cape that have gone under contract as pending sales in this 20-day time frame, while 74 active listings in the MLS have been terminated and 207 listings have been withdrawn from the market. Of note for our regular readers, the long standing highest priced home on the market which was listed for $5.995 million, has been withdrawn by the seller. Another 67 active listings expired.
This leaves us with 1,268 active MLS listings for single-family homes in the Cape as of Oct. 18, at list prices ranging from $210,000 to $5,299,999. The median list price is now down to $505,556 from $514,950 a week ago and $525,000 a month ago. Based on our once-a-week market snapshots, the median list price for Cape Coral homes peaked at $610,000 back on April 19 of this year, for a decline of $104,444 or 17.1 percent since then.
The most notable change to our active listings was that the number of homes on the market at $1 million and above dropped 24.7 percent from 174 homes on the market four weeks ago to 131 such homes on the market on Oct. 18. This is most likely due to the fact homes in this price range are mostly on canals located closer to the river. The number of currently pending home sales in the Cape stood at 592, with 62.2 percent of these pending sales at $450,000 and under, while 29 homes were pending at $1 million and above.
For a quick summary, in September there have only been 377 closed home sales recorded in Cape Coral, which is the lowest total in the month of September since 2018 when there 356 sales. This compares to 572 sales in September 2021. In the third quarter of this year there were 1,267 closed home sales in the Cape, or 24.1 percent less than the 1,670 sales in the third quarter of 2021, and 31.7 percent below the 1,854 closed sales in the second quarter of this year.
We will have our full September results next week, and our final thought is that move-in ready homes and condos should remain in demand because of so many people being displaced from the storm damage, but homes that were overpriced and not selling prior to Ian, are likely still overpriced now.
The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of Oct. 18, 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.