Economic divergence and the Cape’s real estate market
On the anniversary of 9/11, as the year of the pandemic grinds on, the changing shape of the new abnormal continues to unfold right before our eyes in a number of ways, with nothing short of extreme levels of divergence on the economic, social, political and medical fronts. Since our focus is about the local real estate market, we’ll stick to a discussion about the extreme levels of divergence on the economic front and its likely impact on our market.
In following the financial market related news, there has been a widely discussed “V-shaped” recovery in the stock market that has the participants on Wall Street largely giddy with high levels of exuberance about what they see as “the economic recovery.” Fully supported by Federal Reserve Chairman Jerome Powell, Wall Street seems to once again be the primary beneficiary of The Fed’s latest “never-before-tried” bailout through their massive purchases of individual corporate bonds and bond Exchange Traded Funds (ETF’s). This new approach of a corporate bond buyback, went along with a massive and ongoing Fed buyback of some $300 billion in mortgage-backed bonds in March and April, with continued mortgage-backed bond purchases to the tune of almost $100 billion per month since then. In looking at The Fed’s balance sheet, it is estimated that they now own about one-third of all bonds that are backed by home loans in the U.S.
The Fed also ramped up its purchases of U.S. Treasuries while also slashing its ultra-short-term Federal Funds interest rate back to 0 percent back on March 15, in response to the market collapse as the economic realities of the COVID-19 virus shutdowns hit. With the Central Bank stepping in during this crisis to act as the bond market’s lender of resort, they were able to “restore normal market functions.”
Many think these actions by The Fed also sent a clear message to the stock market that it would provide a floor underneath stocks and reinforced the belief that it would be there to backstop the equity markets, thus putting an end to the risk of freefalling stock prices. So what some on Wall Street believe is an indication of a rightful economic recovery, others see as an invitation for rampant speculation driving the market higher. Time will tell who is right.
Our objective in all of this is to point out that while the mavens on Wall Street marvel at their V-shaped economic recovery, other parts of the real economy are either fighting their way through something that looks more like a severe recession, while certain other segments of the economy are more likely experiencing conditions resembling that of a depression. Just look around and you will see the lines at food banks, as they struggle to keep up with the demand. Imagine if you worked in some of the hardest hit industries, such as in travel and tourism, restaurants, or if you owned a small business elsewhere on Main Street. The shaping of the new abnormal will likely be very different and very personal depending upon where one sits financially in the economic spectrum and based on the type of work one does.
We are seeing much of the same sort of thing in the housing market — an economic boom a flatline, and a bust, all occurring at the same time. A number of people are falling behind on their mortgage payments or struggling to pay their rent. In some parts of the country it has become difficult, if not almost impossible, to sell a home, as more people are flooding out of, and not into, major cities. Recent reports are estimating that roughly 950 people per day are moving to Florida from places like Boston, New York, New Jersey, Illinois and California, so in this respect we are fortunate to be on the housing market boom side of this equation.
Another plus for the real estate market is that in an Aug. 27 statement, Fed Chairman Powell made it clear that due to the virus crisis, The Fed intends to keep interest rates at ultra-low levels for “years to come.” This is good news for our market right now, but at some point, the Fed’s manipulation and takeover of the interest rate markets could fuel even more out-of-control levels of debt and inflation, which may ultimately bring back some of those irrational memories of the Alan Greenspan-era Fed of the late 1990s. Kind of the Fed’s version of a wash, rinse and repeat boom and bust cycle. Or maybe, this time it will be different?
Moving past the Labor Day weekend, the activity in the Cape Coral real estate market remains very solid. Anecdotally, when we have posted a new listing for a single-family home for under $300,000 that has been priced correctly to the current market, it is immediately flooded with showing requests and often receives multiple offers within days of being listed for sale. When buyer’s agents call to schedule a showing appointment, even on the first day the home has been on the market, their first question is usually, “Have you received any offers yet?” This is usually followed by them telling us that their buyer has already been beaten out by other buyers on three other homes, or that a recent deal fell through due to a bad inspection, or because of a low loan appraisal.
The activity we are seeing points to a growing shift towards a “seller’s market” in Cape Coral, especially with single-family homes coming onto the market at initial list prices of below $350,000. We have also noticed increased showing activity and buyer interest in higher-priced homes, but since the bulk of the potential buyers in the Cape start out looking for homes priced below $300,000, this has been the segment of our market with the most intense competition between buyers.
One of the growing issues in our market is shrinking inventory due to the strong amount of recent buying, combined with some homeowners hesitating to put their homes on the market because they may have trouble finding another home to buy that is in their price range.
As of Sept. 8, there were 759 single-family homes listed for sale in Cape Coral (762 if we include short sales and foreclosures) at asking prices ranging from a low of $159,000 to a high of $3,995,000. There were 1,204 homes under contract with buyers as pending sales in the Cape (1,224 including short sales and foreclosures), most of which should be finalized as closed sales within the next 30 to 60 days. The preliminary number of closed single-family home sales in Cape Coral is at 538 sales for the month of August, which was 10 percent higher than the 489 closed sales in August 2019. This was the best month of August ever for closed home sales in the Cape, with the 620 sales in July as the top month so far in 2020.
(The sales data for this article was obtained from the Florida Realtors® Multiple Listing Service Matrix for Lee County, Fla., as of Sept. 8, 2020. 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, unless otherwise noted. 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 40 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.)