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The economic shift and state of our real estate market

By BOB - Homing In | May 20, 2022

Geri and Bob Quinn

Today we are going to take a deeper dive into the state of our real estate market in the face of rising mortgage rates and high inflation, along with the mounting concerns of a looming recession and “stagflation” on the horizon. To top off the economic tank, the Federal Reserve seems committed to unwinding its unprecedented easy money policies and market manipulations of the past 12-plus years, as the tragic events in Ukraine and continued COVID-related issues create added uncertainty. All of this has many pundits talking about asset bubbles in the housing and stock markets, with recent headlines such as “Florida housing market goes absolutely insane,” stoking even more fears.

With that in mind, today we will discuss what we are seeing on the ground in Cape Coral, along with some interesting data and comments about what may lie ahead for our market.

Locally, we are noticing a recent spike in the number of active listings for single-family homes in the Cape through a Realtor in the Multiple Listing Service, as more sellers now seem to want to cash in on the high prices, while more buyers seem to be stepping back. Although we are still well below our “pre-COVID” inventory levels, this sudden upward shift to our supply is most likely tied to the growing economic concerns and seller FOMO. Record high home purchase and rental prices, combined with the rising costs for homeowners and flood insurance, along with sharply higher costs on just about everything else, are among the long list of things contributing to a slumping consumer outlook toward housing.

According to a recent report from Fannie Mae, its monthly Home Purchase Sentiment Index for April dropped to its lowest level since May 2020, which seems to be matching some of what we are seeing on the ground in Cape Coral.

Just to clarify, right now things seem to be slowing from an abnormally rapid pace to a more normal pace in our market. Based on the preliminary results we are seeing for the month of April, the number of closed home sales is coming in lower than they were in both March of this year and in April of last year. However, to put it into perspective, the number of closed home sales in April is still well above any other prior year, so any return to something resembling a more normal market pace will feel like a slowdown.

Median sales prices remain elevated for now, but as we note below, median list prices have been dipping a bit as of late, which could be indicative of some sellers needing to make price reductions to attract buyers.

Here is a brief overview of the recent shift in the number of active listings for Cape Coral single-family homes. On Tuesday, May 17, there were 725 active listings in the MLS, which was up 32.5 percent from the 547 active listings a month ago on April 19, and 68.6 percent more than the 430 active listings from two months ago on March 15. The median list price came in at $575,000 on May 17, down 5.7 percent from $610,000 on April 19, and $20,000 below the median list price of $595,000 on March 15.

A total of 127 of the current 725 active listings were priced at $400,000 and under. This was an increase of 86.8 percent from the 68 homes priced at $400,000 and under on April 19, and it was 108.2 percent more than the 61 homes priced at $400,000 and under on March 15. At the other end of the spectrum, there were 133 homes listed in the MLS at prices of $1 million and above on May 17, which was 29 percent more than the 103 homes listed at $1 million and up posted on April 19, and 75 percent above the 76 homes listed for $1 million and up on March 15 of this year.

Next, here is an update about the 100 most overvalued home markets in the U.S. from the researchers at Florida Atlantic University and Florida International University, led by Ken H. Johnson, Ph.D., and Eli Beracha, Ph.D. They use a formula to compare the current average sales prices of homes to their longer term expected price trend line in specific markets and metro areas, to determine how much of a premium or a discount buyers are paying for a home. As we have noted in the past, we are in their broad based Fort Myers metro area, which also includes Bonita Springs, Estero and Naples.

As of their report on March 31 of this year, the Fort Myers metro area ranked as the 11th most overvalued market in the nation with homes selling at a premium of 50.8 percent above their expected price. This ratio puts our metro area in the top overvalued spot in the state of Florida, with Lakeland in the number two position at a price premium of 50.25 percent, followed by Tampa at a price premium of 49.21 percent. Boise City, Idaho, was the most overvalued home market in the nation, with homes selling at a 75.18 percent premium, while Austin, Texas, was in the number two spot in the nation, with buyers paying a 66.29 percent premium above their long-term pricing trend.

For some perspective, back on July 31, 2006, homes in our metro area were selling at a much larger 90.74 percent premium to the expected price trend line just before the mortgage-backed financial crisis gave way to the housing market collapse during the Great Recession. Home valuations in our metro area eventually bottomed out at a 30.64 percent discount to the expected price trend line on Sept. 30, 2011.

According to an April 26, 2022, press release written by FAU’s Paul Owers, Beracha said he does not expect a housing downturn to be as painful as the one that led to the Great Recession from 2007 through 2009, when some homes lost more than half of their values. He stated that, “At the peak of the last housing cycle, we had an oversupply of housing units around the country. So when prices began to fall, there was nothing to catch them, and we witnessed a monumental crash.” He then noted that, “The current shortage of homes for sale will help put a floor under just how far prices can fall this time around.”

Johnson added, “When the housing market eventually fades, metro areas with minimal to no growth in population could see dramatic price declines despite inventory shortages.” In addition, he said, “Metros with limited prospects for population growth, such as Memphis and Detroit, will be particularly exposed.”

On the potential plus side for us, Johnson stated, “Areas in Florida and Texas with both inventory shortages and increases in population will be at far less risk to price declines, but with that comes a prolonged period of unaffordable housing.”

He then poses the question, “Is it better for you to live in an area with major price declines so housing is more affordable again or in an area with modest or very small price declines that keep homes out of reach for many middle-class Americans?”

As a side note, the Florida Atlantic University Real Estate Initiative has teamed up with our very own Florida Gulf Coast University’s Lucas Institute for Real Estate Development & Finance to co-produce a report titled, “The Most Overvalued U.S. Rental Markets.” In the most recent study, the top five most overvalued rental markets in the country were in Florida, with the Fort Myers metro area in the number two spot nationally with an average rental price coming in at a premium of 18.16 percent to what the long-term trend line indicates it should be. The Miami-Fort Lauderdale metro area topped the list with an average rental price premium of 21.75 percent, and Tampa was third at a rental premium of 17.08 percent.

The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of May 17, 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 42 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.

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