Geri and Bob Quinn

There is a line from the classic rock song, “For What It’s Worth,” released in 1966 by the band Buffalo Springfield that says, “There’s something happening here, but what it is ain’t exactly clear,” that seems to best sum up the current state of world affairs. For our part, we will focus on the interest rate policies of the Jerome Powell-led Federal Reserve and their impact on the economy and the housing market, along with some of the wide ranging opinions on this topic.

As we have mentioned in the past, many of the expert opinions being spewed regarding the economy are coming from politically biased “in the tank” economists or from various market analysts “talking their book” on various financial and investment platforms with opinions that benefit their own financial interests. We believe that in reality nobody knows how the current actions of the Fed will ultimately play out, in large part because they are being forced to move away from their lengthy and unprecedented period of loose monetary policies that go back in time for at least 12 years.

For a brief review, coming out of the mortgage-backed collapse of the housing market and the stock market that led to the “Great Recession,” the Fed went to a zero interest rate policy widely known as ZIRP. They combined ZIRP with multiple periods of Quantitative Easing (QE), which included “buying back” a multitude of bonds to infuse large financial institutions and the economy with cash. They put a focus on buying back U.S. Treasury Bonds and mortgage-backed bonds, and eventually expanded the troubled assets held on their balance sheet to include just about everything. In 2018, the Fed tried raising interest rates into a strong and growing economy, but quickly abandoned those plans when the stock market started selling off. Then COVID hit in 2020, resulting in massive amounts of money printing and “stimulus” giveaways, with huge amounts of fraud and wasted money poured down the drain, leading to a period of what they claimed was “transitory inflation.” With inflation already raging, the Russian invasion of Ukraine compounded the existing economic and inflation problems, leading to the Fed being forced to play catch-up on the inflation front by jacking up interest rates at both their June and July meetings.

So after years of the Fed manipulating interest rates and the markets, what happens when they unwind things and take away the proverbial punch bowl? The expert opinions are all over the place on this, with the doom and gloomers saying we are heading into a severe recession, or worse, while the “hopium” crowd says this will barely register as a blip on the economic radar screen and that the worst is already behind us. Since the two most recent interest rate increases to the Federal Funds Rate totaling 1.5 percent, actual interest rates on the Benchmark 10-year Treasury Note have decreased with the hopium crowd claiming it is an indication that the Fed will be back to lowering rates again by early next year. Others point to the recent drop in oil prices, and the resulting pullback at the pump in gasoline prices as a sign of the type of demand destruction usually seen in anticipation of an economic slowdown ahead of a severe recession. Again, nobody really knows where this great unwind will take us or how long it will last.

As for the real estate market, one of the more rational economists we follow recently noted the visible slowdown in the housing market in the second quarter of this year. He then stated that in his opinion the Fed is determined to “create a hard stop” to the housing market in the second half of this year, in their effort to try to regain control of inflation. When we look at our local real estate market, we have seen this slowdown reflected in several ways. About six months ago, it was still very common for sellers to get swamped with showing appointments as soon as their home went on the market and they often received multiple full price or higher offers. About three to four months ago, the showing activity started slowing down and any offers tended to range more from full price to about 10 percent below full price. Homes started to sit on the market longer and more sellers started making price reductions in an effort to attract buyers in a rapidly shifting market. This slowdown is just starting to show up in the market statistics and one would think that if the Fed sticks to their inflation fighting strategy of higher interest rates, the “hard stop” in the housing market will likely lead to fewer sales, a rising inventory and lower home prices. Some of this slowdown is illustrated below.

As of Tuesday, Aug. 2, there were a total of 1,387 active single-family homes listed for sale in Cape Coral through a Realtor in the Multiple Listing Service at list prices ranging from $220,000 for a fire damaged home that came back on the market during its failed inspection period, to $5.995 million for a home that has been on the market for 470 days. The second lowest priced home currently listed for sale in the Cape was at $242,000 and there were a total of 318 homes listed for sale at $400,000 and under, with 21 of these homes priced below $300,000. At the other end of the spectrum, there were 188 Cape Coral homes listed at $1 million and above. So, all told, 22.9 percent of the active listings in the Cape have asking prices of $400,000 and under, while 13.6 percent are listed for $1 million and above.

By comparison, back on June 14, which was the day before the Fed made their first of what are now two 75 basis point rate increases to the Federal Funds Rate, there were 948 single-family homes listed for sale in Cape Coral. So the number of active listings in the MLS for Cape Coral homes has increased by 439 homes, or by 46.3 percent since the June Fed rate hike. Digging a bit deeper into the June 14 numbers, there were a total of 162 homes listed at $400,000 and under, with only four of these homes priced below $300,000. So the number of homes listed for sale at $400,000 and under in our market has increased by 96.3 percent since June 14, while homes listed for less than $300,000 have increased by 425 percent. There were 175 homes listed at $1 million and above in the Cape on June 14, so the number of listings in this price range has increased by 7.4 percent in the past seven weeks.

We have also seen a steady decline in the median list price for single-family homes in Cape Coral, dropping by 8.8 percent from $581,000 on June 14, to $530,000 on Aug. 2. Based on the timing of our weekly market snapshots, the median list price has declined 13.1 percent since hitting their peak of $610,000 on April 19 of this year.

Looking at the number of pending sales in the pipeline, as of Aug. 2, there were 679 homes in the Cape under contract with buyers, and 316 of these, or 46.5 percent of the total, were pending at a price of $400,000 and under. At the other end of the spectrum, a total of 26 homes in the Cape, or 3.8 percent of the 679 homes under contract, were at $1 million and above. Back on June 14, there were 862 Cape Coral homes under contract as pending sales, so we have seen a 21.2 percent decline in the number of pending home sales in the Cape since the Fed’s meeting back in June. A total of 39 of the pending sales on June 14 were under contract for $1 million and above, while 377 were pending at $400,000 and under. Foreclosures remain minimal.

The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of Aug. 2, 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.