Cape’s 2021 housing market version of a short squeeze
Over the past month or so, if you follow the news you may have heard the term “short squeeze” bandied about in the media almost as much as the words impeachment and insurrection. If the term short squeeze does not ring a bell, you might instead recognize the story we are referring to as one of the most recent David versus Goliath news stories about a loosely banded collection of merry men and women who grouped together via the Sherwood Forest of Internet stock trading platforms to take on some wealthy hedge fund managers.
The overly simplified version of this complex story is that these goliath hedge funds were “shorting” the stocks of some financially challenged companies, figuring they would make huge profits on these bets as the share prices of these virtually bankrupt stocks cratered and went to zero. This was a classic “smart money” play on Wall Street by these hedge funds until this band of individuals started buying up massive amounts of these same stock shares through their online trading accounts. This buying frenzy drove these stock prices higher, attracting a cult-like following in the media to these individual investors, as collectively, the “little guys” turned the tables on the stunned hedge fund managers. This forced the hedge funds to suffer massive losses on what they thought would be a highly profitable “easy money” play, as they had to quickly “cover their shorts” in what turned into a classic short squeeze scenario.
Although there is no way for someone to actually “short” our local real estate market and make large profits by speculating that Cape Coral home prices will decline in value this year, as one can do with a stock in the stock market, we have been experiencing our own version of a growing real estate short squeeze. This short squeeze in our real estate market is being caused by a rapidly shrinking inventory of homes and condos, or in essence, a “shortage” of homes available for sale. This record low level of supply is being driven in large part by a combination of record low mortgage interest rates, and extremely strong demand from out-of-town buyers wanting to move here. This strong buyer demand for homes in the Cape accelerated into what we are calling a short squeeze when Florida was reopened for business after the COVID-19 shutdowns in 2020. This opened the real estate flood gates to the pent up demand from people wanting to escape from various northern states to Florida, where they felt they could return to a somewhat more normalized, lower cost lifestyle.
This short squeeze in our real estate market during the second half of last year led to an all-time record high for the number of closed home sales in 2020, and as the inventory continued to shrink and the median sales prices increased, it seemed to create a negative feedback loop with some potential sellers in our market. By that we mean some sellers have become hesitant to list their homes for sale because they are concerned that they will be unable to find another affordable home to buy in our area quickly enough due to the low inventory levels. This is especially true with homeowners needing to sell their existing home before they can afford to buy their next home, as the logistics of having their current home sell quickly and then trying to buy another home and move within 30 to 45 days can be an extremely stressful process. So the success of our current market is likely preventing some people from listing their homes for sale, creating an even tighter supply of homes listed for sale on our market.
To help illustrate this short squeeze effect, we will take a look at the shrinking inventory of homes for sale, along with the squeeze towards higher median sales prices resulting from the shortage of supply. At the beginning of this week there were only 391 single-family homes listed for sale in Cape Coral through the Multiple Listing Service at list prices ranging from $165,000 to $3.995 million. This means our inventory of available homes is down 22.11 percent from the 502 active listings in the Cape from just four weeks ago on Jan. 18, and down a whopping 53.84 percent from the 847 active listings back on Aug 1, 2020. The low supply of homes has us in a seller’s market, where in many cases a home seller has the upper hand over a home buyer when negotiating the price and terms of the sale. However, a lot of the negotiating advantages for a seller will depend upon their home being in move-in ready condition, along with having at least some updates, and needing few, if any repairs.
Right now, 200 homes, or 51.15 percent of the 391 active listings, are priced at $375,000 and under, with only 5 of these homes, or 1.28 percent of the total number of active listings, priced at $200,000 or less. This has been a major price shift in our market from several years ago, when well over 50 percent of the homes listed for sale in the Cape were priced at $300,000 or less, and there were still a decent number of homes for sale below $200,000. In the higher end of our single-family home market, there are currently 51 homes, or 13.04 percent of the 391 active listings, priced at $1 million or more, with 9 of these homes, or 2.3 percent of the market, listed at prices of $2 million and up.
As we mentioned above, the other component of this short squeeze has to do with the increase, or squeeze higher in median sales prices. In the Cape’s overall single-family home market, the median sales price for the year in 2020 averaged $268,123 per month, which was 9.53 percent higher than the monthly average of $244,804 for the year in all of 2019. Of note, the monthly average median sales price in our overall single-family home market for the year back in 2006, when the market peaked and prices started falling, was $264,417 per month. As a comparison based on an annual average, the overall market low was in 2010, when the median sales price averaged $126,940 per month for the year. This recovery from the market lows to our current market high prices has been completely different this time compared to what we saw back in 2006. During that completely irrational market boom, where it has been estimated that over 40 percent of the homes being built in Cape Coral were actually spec homes being flipped between investors with no end user actually moving into the home, the price increases were insanely rapid. In our current market, the process has been much more rational and drawn out, with the vast majority of homes being purchased by end users moving here to live in their homes, and not by speculators.
At some point, it would probably be healthy for our market prices to take a pause to refresh themselves, but with 1,199 single-family homes currently under contract with buyers as pending sales, and more out-of-town buyers eager to move here, a continuation of rational price increases would seem to be a reasonable alternative.
The sales data for this article was obtained from the Florida Realtors® Multiple Listing Service Matrix for Lee County, Fl., as of Feb. 15, 2021. 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 41 years. Geri has been a full-time Realtor since 2005, and Bob joined with Geri as a full-time Realtor in 2014. Their real estate practice is mainly focused on Cape Coral residential property and vacant lots.