We continue to see a lot of conflicting data and analysis about the real estate market, both locally and nationally, which is a very common problem in situations when market dynamics are in the process of shifting rapidly. Trying to make determinations about where the real estate market may be heading over the next 6-12 months and beyond, and how it might compare to past market pauses, corrections or crashes is next to impossible. This is especially true when we are coming out of a period of unprecedented loose monetary policies by the Federal Reserve which has dramatically increased the supply of money sloshing around in the economy enabling unprecedented levels of government spending.

The Fed seems to be in an ultimate Yin and Yang battle as it tries to fight the out of control levels of inflation in the economy by raising interest rates, while the politicians in Washington keep creating new ways to pour more gasoline on the inflationary fires burning on Main Street through reckless spending and total disregard of fiscal restraint.

When it comes to the real estate market, these changes in the trends can be difficult to recognize, or maybe we should say difficult for people to accept, largely because of the lag time and inconsistencies in the data. For example, in a just released report by the Federal Housing Finance Agency, with data based on information gleaned from government-backed mortgages through Fannie Mae and Freddie Mac, known as their House Price Index, it shows that home prices remain strong, with almost all metro areas in Florida ranking in the top 10 nationally for year-over-year price increases. The press release opens with, “It is hard to underestimate the strength of Florida’s current home price increases in the second quarter of 2022…,” which turned into television news headlines of “Florida’s housing market remains strong.” If I am a seller who does not want to accept the fact that the real estate market changed dramatically on June 15 when the Federal Reserve jacked up interest rates, and if I am not willing to accept the fact that I am likely to get a lot less for my home now than my neighbor received for their home 4-6 months ago, this report provides some hopium.

It is easy to understand a seller’s reluctance to accept the current market realities because of the mixed messaging about what is going on in the market. We saw the same thing in reverse with buyers 6-18 months ago when home prices kept rapidly accelerating higher. At that time, the comparable home sales data would indicate a home they were interested in buying should probably sell for “X-dollars,” but that data was usually 2-6 months behind the market, so we would tell the buyer they would probably need to offer well above the list price just to be in the running against other buyers. Now the opposite is true for sellers, in that they will most likely get less for their home today than six months ago, and there is a good chance they will receive even less three months from now than will get today. And very possibly even less in six months than they will get three months from now.

To add to the confusion for a seller, a lot of real estate experts believe that the out-of-town buyer demand will remain so strong in our local market that our worst case scenario is that we may go through a temporary dip in prices of around 5 percent before rebounding to new record high home prices within the next year or two. These optimistic predictions may prove to be correct, and personally, we hope they do. However, they seem to be ignoring the multiple elephants in the room, with the largest such beast being Jerome Powell and the Federal Reserve, followed in size by the growing threats of a potentially severe global recession and Stagflation, not to mention the basic mathematical principles surrounding extended markets and the concept of returning to the mean.

We tend to believe that unless one pretends to know exactly what Powell will be forced to do with interest rates and Quantitative Tightening over the next 1-18 months, making a confident prediction about the real estate market is, at best, a shot in the dark. In fact, the Fed is giving every indication that it plans to “stall out” the housing market, and with some 35 years of experience of researching, studying and tracking the Fed, the economy, and various markets in our background, our hunch is that even Powell isn’t sure what he will be forced to do or not do over the next 3-12 months and beyond.

To help illustrate what we mean by an extended market and a return to the mean, we are going to use the July 31, 2022, data from the FAU/FIU research we have referenced in the past that identifies the 100 Most Overvalued Markets in the country. According to this research, as of July 31, the Fort Myers metro area was the third most overvalued housing market in the country, with the average sales price at $430,131 for a premium of 62.23 percent above the long-term expected price trend line of $265,143. The good news is that the premium buyers were willing to pay in July was only up fractionally from the 61.43 percent premium on June 30, and we would expect this premium to decline over the next three months. If the “extended” home prices in our metro area “returned to the mean,” home prices would decline from the average price of $430,131 to the trend line of $265,143 (will be adjusted for normal price growth). This would be a decline in prices of about 38 percent, which most experts are not expecting to happen.

Looking at history, back on July 31, 2006, this research showed that homes in the Fort Myers metro area were at an average price of $345,129 and selling for a premium of 90.36 percent above the expected price trend line of $181,306 as the market topped out. By December 31, 2009, prices had “returned to the mean” by dropping to an average of $190,019. The average price eventually bottomed out at $140,874 on Sept. 30, 2011, which was a discount of 31.27 percent below the then expected trend price of $204,982. This was a top to bottom price decline of 59 percent and although prices gradually climbed off of the bottom, it took until Oct. 31, 2020, for the prices in this research study to get back above the mean. Just saying.

As of Tuesday, Aug. 30, there were 1,422 active listings in the Multiple Listing Service for Cape Coral single-family homes at prices ranging from $229,900 to $5.995 million, with the median list price dipping to $513,543 from $519,000 a week ago. A total of 329 homes or 23.1 percent of the active listings were at $400,000 and under, with 19 listed for below $300,000. There were 177 homes, or 12.4 percent of the active listings on the market at $1 million and above. The number of homes under contract with buyers as pending sales climbed to 745 from 732 a week ago. A total of 352 of the 745 pending sales, or 47.2 percent, were at $400,000 and under, while only 30 homes, or 4 percent of the pending, were priced at $1 million and above. The difference in the percentage ratios between the active listings and the pending sales shown above is indicative of declining sales prices.

The number of active listings were down fractionally from a week ago on Aug. 23, when there were 1,425 homes for sale in the MLS, with 321 homes priced at $400,000 and below, and 180 with price tags above $1 million. The current inventory, or supply of unsold homes in our overall market, hit 5 months in July, spiking higher as sales have slowed, indicating a shift away from a seller’s market to more of a balanced market that is likely in the process of transitioning into a buyer’s market.

The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of Aug. 30, 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.