Geri and Bob Quinn

We wrote this column prior to the results being released from the two-day Federal Open Market Committee meeting about the economy and interest rates, which ended Wednesday afternoon of this week. Coming into this meeting, Fed Chairman Jerome Powell tried to pacify the markets in advance by telegraphing his plans for a 50 basis point rate increase to the Federal Funds Rate as the Fed tries to battle the extremely high levels of runaway inflation.

In the weeks leading up to this meeting Powell had largely ruled out using a “more aggressive” 75 basis point rate increase as a form of anti-inflation shock therapy treatment, instead favoring a commitment to making three separate 50 basis point rate increases in three of their next four meetings this year. But when they took a one-two punch in the form of a “hard right to the face” by a scorching hot Consumer Price Index inflation number last Friday, followed by a roundhouse left to the noggin from the Producer Price Index regarding the continued high inflation rate on a wholesale level on Tuesday, their collective knees buckled as they took a standing eight count.

Sentiment quickly shifted following these near knockout blows delivered by the inflation numbers to new expectations that the FOMC will be forced to raise the Federal Funds Rate by at least 75 basis points (three-quarters-of-one percent), with many experts seeing the need to shock the markets with a full 1-percent rate increase this week, with more to follow. No joke!

A number of economic experts and analysts have been joined at the hip with some of the politicians in Washington, as they pontificated for the better part of the past year that we were “just going through a period of transitory inflation.” Their recent collective mantra, which was proven wrong again, was that inflation had recently hit its peak and that relief in the form of lower prices would soon be on the way to the masses. The opinions about inflation by these largely think tank and in the tank economists, who are often touted by politicians in support of their wild spending sprees, were recently summed up best by Charlie McElligott of Nomura. Regarding these misplaced views about the lasting nature of the current inflation pressures and its looming effect on the U.S. and global economies, McElligott pointed out that what these experts thought was an inflation “light at the end of the tunnel,” was actually “an oncoming train” of economically devastating inflation. No joke!

A smaller number of economists, market analysts and pundits have been on record for a while now saying that they believe Jerome Powell is left with only bad choices and worse choices following multiple years worth of mostly outrageously easy money policies. They believe that the Fed has enabled the fiscal irresponsibility in Washington, and in many state governments, through their lengthy zero interest rate policies and money printing. This artificial manipulation of interest rates could easily result in a significant sovereign debt crisis as the Fed, along with Central Banks from throughout the world, are forced to jack-up interest rates to fight inflation. So as government debt in the form of government bonds comes due, governments don’t have the money to pay off the debt and will end up having to refinance it at much higher interest rates, thereby spending more of the taxpayers’ money to service the interest payments on this debt, instead of on essential items. No joke, man!

Basically, the Fed and the politicians who were supposed to be “the adults in the room” are going to have to “break things” in order to fix what they have caused. This “fix” is widely expected to come in the form of demand destruction, which is unlikely to result in the economic “soft landing” the Fed was hoping to engineer. We are in the early stages of demand destruction right now, as anyone capable of paying attention is noticing an increase in job layoff announcements in a growing number of industries. We have been reading about job cutbacks in the mortgage industry for months now, and this week Compass Inc. and Redfin announced plans to cut their workforces by some 8 to 10 percent due to the growing housing affordability crisis that has now priced millions of potential homebuyers out of the market. This comes as the average rate on 30-year fixed rate mortgages spiked to a 20-year high of 6.28 percent on Tuesday, ahead of the FOMC meeting, from 5.5 percent a week ago. At the beginning of this year, the 30-year mortgage rate was 3.5 percent for a demand destruction rate increase of 79 percent in less than six months. Seriously, that’s no joke man!

Locally, as of Tuesday, June 14, there were a total of 948 active single-family homes listed for sale in Cape Coral through a Realtor in the Multiple Listing Service, which is 30.6 percent more than a month ago. These listings ranged in price from $249,000 to $5.995 million, with the median list price coming in at $581,000. There were a total of 162 homes listed at $400,000 and under, with only four of these homes priced below $300,000. The number of million dollar-plus homes listed for sale in the Cape continued to rise, with 175 such homes now on the market in the MLS. In the prior seven days there were a total of 41 listings making price reductions, with only five recorded price increases. There are currently 862 Cape Coral homes under contract with buyers as pending sales at prices ranging from $249,000 to $2.895 million. A total of 39 of these pending sales are under contract for $1 million and above, while 377 were pending at $400,000 and under. Foreclosures remain minimal.

Looking back a month ago, on May 15, there were 726 active listings for single-family homes in the Cape at prices ranging from $259,900 to $5.995 million, with the median list price coming in at $575,000. At that time, there were a total of 126 homes priced at $400,000 and under, so we have seen a 28.6 percent increase in listings in this price range in the past month. Only five of these 126 homes were listed for below $300,000. At the other end of the spectrum there were 133 homes listed for $1 million and above back on May 15, so we have seen a 31.6 percent increase in listings for our million dollar plus home segment in just the past month. There were 958 pending sales in the pipeline on May 15, so the number of pending sales in the Cape have declined by 10 percent in the last month.

To help illustrate how our inventory has changed in the last year, back June 15, 2021, there were a total of 401 active single-family homes listed for sale in the Cape through a Realtor at prices ranging from $175,000 to $5.995 million. At that time, our pipeline of pending sales stood at 1,002 homes under contract. As we have been pointing out recently, the shift we are seeing so far in our market has been what we would define as a return to more normal conditions from the abnormally frenzied post-COVID shutdown market conditions.

At this point in time, our real estate market continues to hold up well for now, but we are seeing a variety of market opinions about what may lie ahead. We would anticipate a lag time in the local market numbers regarding the impact of higher mortgage rates because most buyers in need of financing probably have their interest rates locked with their lenders at lower rates. We also tend to attract a lot of cash buyers in our market, which should provide a cushion against higher interest rates. However, the potential demand destruction due to rising interest rates causing affordability issues for more buyers, and the potential impact on home sales and prices is a concern. One thing is clear, it will be no joke man.

The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of June 13, 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 Geri as a full-time Realtor in 2014. Their real estate practice is mainly focused on Cape Coral residential property and vacant lots.