Decelerating price appreciation or a looming market crash?
Continuing with our “something’s happening here” theme from the past two weeks, today we are going to focus on what may be next for the housing market. There is a raging debate going on about the direction of the real estate market from this point forward, both within the industry itself, and also with various economists, market analysts and the media, all of whom have a wide variety of “expert” opinions. We tend to think that no one really knows how this will ultimately play out over the next year or so, in large part because of the unprecedented level of outside economic influences on our real estate market and the wide range of wildcards currently in play. So we are just going to lay it all out there and keep you updated with as much information from as large of a variety of reliable sources as possible.
But first, here is a quick look at our market. As of Tuesday, Aug. 16, there were 1,443 active listings for Cape Coral single-family homes for sale through a Realtor in the Multiple Listing Service at prices ranging from $270,000 to $5.995 million. Of these active listings, there were 341 homes, or 23.6 percent of our market, priced at $400,000 and below, with 20 of these homes listed for less than $300,000. A total of 179 homes, or 14.4 percent of the active market, were listed for sale at prices of $1 million and above. The median list price for the 1,443 active listings was at $515,000. There were a total of 722 homes in the Cape under contract with buyers as pending sales, with 47 percent or 339 homes pending at $400,000 and under, including 33 homes priced below $300,000. A total of 32 homes, or 4.4 percent of the currently pending sales were at prices of $1 million and above.
To get an idea of how much our market has changed since June 14, which was the day before the Federal Reserve’s first of two 75 basis point interest rate hikes to its short-term Federal Funds Rate this summer, our median list price has dropped by $66,450 or 11.4 percent from $581,450 on June 14. Over this same time frame, the number of active listings in the MLS for single-family homes in the Cape has increased by 52.2 percent from 948 listings, while the number of listings for homes at $400,000 and under has gone up by 110.5 percent, and the number of homes listed below $300,000 has increased by 400 percent. At the same time, the number of homes listed for $1 million and above has edged 2.3 percent higher, while our overall pending home sales are down 16.2 percent from 862 on June 14.
Getting back to the debate about the direction of the housing market, there seems to be two primary schools of thought. One side believes that home prices in the U.S. are in a major asset bubble and therefore, we are on the verge of suffering through another crash, while the other side believes we are in something more reminiscent of a deceleration in price appreciation. This side sees more of a pause, or leveling out, in home prices with a reasonably minimal downside at the worst and certainly nothing even close to a crash. The belief that we will only experience a deceleration in price appreciation or a mild pullback in home prices is a very popular theory in our area because we have had such strong demand from out-of-town buyers eager to move to Southwest Florida and not enough supply to meet that demand. They also cite the lack of foreclosures in our market as another sign there is no housing crisis or crash looming, although we tend to think this point is probably flawed logic.
In fact, this lack of housing supply argument has been the main premise behind the belief held by many real estate experts that there is a solid floor underneath the record high home prices because there is not enough new home construction to come anywhere close to meeting the demand for homes. This side also points out in hindsight that the last crash in home prices that brought on the Great Recession was a house of cards built on top of mostly fraudulently obtained mortgages and home flippers looking for fast profits. While our current market has been built on stringent lending practices, record low interest rates, and end users actually moving into the homes they are buying. These are all factual points and reasons why some believe housing market crashes in Southwest Florida are a thing of the past.
The other side, often viewed as perpetual doomsayers by the media, believes home values are in a massive asset bubble built upon a weak foundation through the Fed’s outright artificial manipulation of interest rates. They argue that with the Fed now taking away the punchbowl by raising interest rates and moving away from Quantitative Easing to a policy of Quantitative Tightening, it’s time to “look out below” as the party in home prices is not only ending, but about to end very badly. For its part, “the markets” do not seem fully convinced the Fed will stick to the new, tighter monetary policies and its efforts to bring inflation under control by “breaking things” through “demand destruction.” However, the Fed has indicated it is targeting home prices as a part of the fight against inflation, which brings us back to the old market saying, “Don’t fight the Fed.”
Based on recent economic data points, these two theories about the housing market may get put to the test, even as the politicians and the politically motivated think tank economists, along with various media personalities, argue over the definition of the word “recession.” Anecdotally, on a local level we have noticed that some of the national homebuilders working in our area are now offering bonuses in the form of higher than normal commission payouts to Realtors for bringing buyers to them. Also, some home builders are now offering additional financial incentives and “throw-ins” directly to buyers in an effort to sell them their newly constructed homes. Home builders do not generally do these things in a strong market.
According to the most recent economic reports, the data is suggesting that nationally the housing market is being pushed into a recession, although this can vary by locality. If the housing market, which is a major driver of economic activity, is dipping into a recession, one would think it doesn’t bode well for the overall economy. Along these lines, the National Association of Homebuilders is citing concerns over cratering levels in homebuilder and homebuyer confidence surveys, which builders are seeing confirmed by a sharp drop in buyer traffic on their websites and in their sales offices, declining to levels not seen since 2012. This is leaving some home builders reeling with a glut of unsold homes, as NAHB market analysis showed that there were 824,000 single-family homes under construction across the U.S. in June, which was the most at any time since October of 2006. Also, in July the number of housing starts and permits fell on a national basis, while mortgage applications plunged, all of which is leading to job layoffs in the real estate industry. Another troubling sign was that some 63,000 home purchase contracts were canceled nationally in July, equalling about 16 percent of all homes that went under contract that month.
Finally, according to a recent article in Newsweek, the number one searched term on Google Trends data in July was “housing crash,” which reached its highest number of searches since back in 2007 and 2008. Taking that for what it’s worth, homes in our market are still being sold, but the game has changed dramatically for sellers in the past several months.
The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of Aug. 16, 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.
To reach BOB and GERI QUINN, please email news@breezenewspapers.com