Shift in market psychology may be sign of a market top
It has been a wild 10-day stretch in the economy with both oil prices and yields on the Benchmark 10-year Treasury Note plunging over fears of demand destruction due to a looming recession and the resultant flight to quality in U.S. Treasury investments. As we come out the other end of what was some 12-plus years of unprecedented monetary policies here in the U.S. and across the globe, the expert opinions of what comes next in the markets and in the economy are all over the place.
In our local real estate market, we are clearly experiencing a shifting market and we are likely putting in a market top, if it has not already happened as the buyer’s psychology towards homes has been changing. What comes next will largely depend on what the Federal Reserve does with interest rates and if they can put the inflation genie back in the bottle, with the impact of the Biden Administration’s proxy war with Russia as the most visible wildcard right now.
As of Tuesday, July 5, there were 1,177 active listings for Cape Coral single-family homes in the Multiple Listing Service with asking prices ranging from $250,000 to $5.995 million. A total of 219 of these active listings, or 18.6 percent of the homes listed for sale through a Realtor, were priced at $400,000 and under, with 13 of these priced below $300,000.
At the other end of the spectrum, a total of 193 homes, or 16.4 percent of the active listings, were priced at $1 million and up. The current median list price for single-family homes in the Cape came in at $559,900.
Also on July 5, there were 759 Cape Coral homes under contract with buyers as pending sales at prices ranging from $170,000 to $5.8 million. The pending sale at $170,000 was to buy out and complete a partially built new home in the northeast Cape, while the second lowest priced “normal” pending sale was at $245,000. A total of 334 of the 759 pending sales, or 44 percent of the homes under contract, were at $400,000 and below, with 20 of these homes priced at less than $300,000. A total of 33 homes, or 4.3 percent of the pending sales, were priced at $1 million and above.
The current number of active single-family homes listed for sale through a Realtor in Cape Coral, as shown above, is up 14.2 percent from the 1,031 active listings just two weeks ago on June 21. At that time, the median list price was $579,000. With the continued influx of homes coming onto our market, the number of active listings priced at $400,000 and under has increased by 19 percent from the 184 such listings two weeks ago, while the number of listings for homes priced at $1 million and above has increased by 9 percent from the 177 listings two weeks ago. As the active listings have been increasing, the number of pending sales have been declining. Two weeks ago there were 839 homes under contract with 368 of these pending sales priced at $400,000 and under, and a total of 40 pending sales were in the pipeline at $1 million and above.
To further illustrate how much our market has shifted, looking back less than four months ago to March 15, there were only 430 active listings in the MLS for single-family homes in the Cape at prices ranging from $265,000 to $5.995 million. At that time, there were a total of 61 active listings priced at $400,000 and under, and only 76 listings at $1 million and above. The median list price was $595,000 and there were 1,034 pending sales in the pipeline back then. So from March 15 to July 5, there are 173.7 percent more homes listed for sale in the Cape, with the number of listings at $400,000 and below up by 259 percent, and the number of $1 million plus homes currently listed for sale up by 153.9 percent. Over the same time frame, pending home sales are down by 26.6 percent.
As we have discussed periodically in this column, one of the challenges for buyers and sellers in the real estate market is the fact that placing a value on a home is an opaque process. The “facts” used to support the current value, or price of a home, are subjective and based on sales price comparisons of “similar, but not exact” properties that went under contract at a price often determined some 30 to 60 days prior to the current market. Since home sales prices are not available in real time, such as is the case in the stock market, it can make it difficult to spot changing market conditions, price shifts and the impact of a changing market psychology. So when there is a dramatic change in economic and market conditions along the lines of the Federal Reserve suddenly jacking up interest rates, it usually takes awhile for one side of the real estate market to accept that the game has changed. As home values were rapidly rising over the past year, many buyers had trouble adjusting their thought process to those market conditions, and now as home prices are beginning to soften, many sellers are stuck thinking about prices from three months ago.
Current examples of this dilemma of the lagging effect of home sales prices can be found in widely followed housing market data. For example, we have been providing regular updates on the research by professor Ken H. Johnson, an economist with Florida Atlantic University, and professor Eli Beracha from the school of real estate at Florida International University, which ranks the most overvalued and undervalued home markets in the U.S. Their most recent release covered market data as of May 31, which showed the Fort Myers metro area was now ranked as the sixth most overvalued market in the nation with buyers willing to pay an average price of $421,954, which was a premium of 59.57 percent above what their research shows as what should be the historical long-term expected price trend line of $264,431. Their data blends together and includes the sales prices for single-family homes, condominiums, townhomes and co-ops. Of note, their results for Oct. 31, 2021, showed our metro area as the 23rd most overvalued market in the nation with buyers willing to pay a premium of 34.64 percent above the expected price trend line of $250,958 for an average sales price of $337,891.
Another widely followed index of home prices is the Case-Shiller Home Price Index, which showed in its most recent report that home prices rose 2.1 percent in April of this year compared to March, and that home prices nationally increased by 20.4 percent in April of this year versus April of 2021. This data is most likely stale based on recent economic events.
Going back to our point about the difficulty of recognizing price shifts in the housing market, both of these well-respected pricing and valuation analysis services are providing market data from prior to the Fed’s 75 basis point interest rate increase in June. Because of the lag effect in the reporting of home sales prices, it is likely to be at least several more months before they identify any new and current market shifts.
To be clear, homes are still being bought and sold, but on the ground we are seeing a significant shift in the psychology of buyers, many of whom have become much more willing to wait and watch for prices to come back to them instead of chasing prices higher.
The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of July 5, 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.