Real estate market searches for the meaning of ‘is’
To continue with our “something’s happening here” theme from last week about the economy, inflation, the real estate market and all else that ails us, the ongoing debate between various politicians and economists seems to boil down to what the meaning of “is” is when it comes to defining a recession. The ultimate result of the definition of the simple word “is” is likely to play a major role in our local real estate market for the foreseeable future as the debate rages over if this “is” a recession right now, or “is” a recession going to hit in 2023, if at all? This leads to the next recession question: “is” it likely to be a mild, well-controlled soft landing recession engineered by the Fed? Or, “is” Main Street about to trade high inflation for a severe, uncontrolled hard landing recession as Jerome Powell “is” forced to deal with the ghosts of Fed chairman past in his attempt to unwind the multiple years worth of mostly artificial, easy money market manipulation? “Is” this going to lead to a crash in home prices, or “is” it just going to be a reasonable pullback and a pause in prices? It turns out that “is” is once again a much more influential word than we tend to give it credit for.
The recently released July jobs report just added more fuel to the fire of what the definition of “is” is, leading some economists and politicians to declare the worst of a recession is already behind us, if it was even there in the first place. On the surface, the creation of 528,000 new jobs in July would seem extremely strong until one factors in that the Bureau of Labor Statistics uses a complex formula based on various government estimates to make “seasonal adjustments” allowing them to manipulate the numbers. That is not to say that we cannot trust what the government tells us, but this report just added to a long list of inconsistent and irregular economic data in an abnormal search for the meaning of “is,” likely leading to an abnormal recession based on what once were generally accepted standard, historical definitions. Confused yet? Maybe that’s the way they want it?
Getting back to real estate, here is a snapshot of some of the recent national and Florida market headlines from a variety of sources to try to give you a better feel for things. One headline reads, “US Housing Inventory Grows At Record Pace As Buyers Slow Down.” While another states, “Shiller Warns of Heightened Risks,” referring to economist Robert Shiller who predicted the 2008 housing bubble. He is saying that a drop in home prices is more likely than not and that a lot of signs are indicating that “we’ll see something, but it may not be as catastrophic” (as 2008). Two other articles written by Kerry Smith for the Florida Realtors magazine on Aug. 9, state, “Growing Share of Listings on Market 30+ Days,” and “Fannie Mae: Buyers Wary of the Housing Market.” Also, a recently published “Mortgage Monitor Report” by Black Knight Inc.’s Data & Analytics division indicated there were growing signs the housing market had peaked with its data showing that the month of June had “the greatest deceleration in home price growth on record,” while also posting “the largest single-month increase in homes listed for sale in 12 years.” In other words, price gains have slowed down. Finally, Rocket Mortgage CEO Jay Farner was quoted in an Aug. 5 online article by Candyd Mendoza as saying, “The mortgage industry has shifted rapidly and is facing challenging times,” while a Bloomberg article written by Patrick Clark had the headline “Zillow tumbles amid housing downturn.” The article stated, “Zillow Group Inc. shares plummeted after the company predicted that a significant contraction in home sales would weigh on the amount of advertising it can sell to real estate agents.”
In our local market, sales have been slowing as buyers have become more price conscious, but homes priced properly to the current market conditions are still being sold quickly, while overpriced homes just sit on the market with very little activity. To give you an idea about what we are seeing with home prices in Cape Coral, the average sales price for single-family homes peaked at $584,874 in April of this year and has steadily declined every month since then. In July, the preliminary average sales price came in at $495,954 for a decline of $88,920 or down 15.2 percent from the peak back in April. In the month of July 2021, the average sales price for a single-family home in the Cape was $421,448. Over the first seven months of this year, the average sales price has averaged $534,421 per month, or 29.6 percent higher than the average of $412,407 per month in the first seven months of 2021.
As of Tuesday, Aug. 9, there were 1,397 active listings for Cape Coral single-family homes listed for sale through a Realtor in the Multiple Listing Service with asking prices ranging from $254,900 to $5.995 million. The number of active listings were up slightly from 1,387 a week ago, and the median list price dipped another 1 percent to $524,900 from $530,000 on August 2. As of Aug. 9, there were 324 Cape Coral homes listed for sale at $400,000 and under, with 20 of these listings priced below $300,000. We have 182 homes in the Cape listed at $1 million and above.
There are currently 707 Cape Coral homes under contract with buyers as pending sales at prices ranging from $219,900 to $2.85 million. A total of 327 of these pending sales are priced at $400,000 and under, with 34 of them below $300,000. There are only 30 homes in the Cape under contract at $1 million and above. So 23.2 percent of the current active listings are priced at $400,000 and under, while 46.3 percent of the pending sales went under contract at $400,000 and below, indicating a larger number of homes are going under contract below the list prices. While 13 percent of our active listings are priced at $1 million and above, with only 4.2 percent of the pending sales falling into this price range.
Looking back a little more than a year ago on July 27, 2021, there were only 483 active listings in the MLS for single-family homes in the Cape at prices ranging from $165,000 to $5.995 million. At that time, there was only one home listed below $210,000 with a total of 74 homes on the market at $300,000 and below, while only 65 homes were listed at $1 million and above. There were 897 pending sales in the pipeline on that date, including 287 homes under contract for $300,000 and below, with 8 of these at $200,000 and under, and 28 home sales pending at $1 million and above.
Interest rates have remained volatile over the past several months as the Fed has become more aggressive in jacking up the Federal Funds Rate to fight inflation, but the average interest rate on a 30-year fixed rate mortgage declined to 5.43 percent last week from its recent high of 6.11 percent back in June. According to the Aug. 6 edition of the Wall Street Journal, the 52-week low for average mortgage rates, as determined from weekly surveys by Bankrate.com, was 3 percent. These rates do not include closing costs. One final note about interest rates is that a portion of the Treasury yield curve has recently inverted to its steepest level since the year 2000. Historically, for what it is worth in today’s world, this data point has been a reliable method of forewarning of a recession.
The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of Aug. 9, 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.