Homing In: The Fed’s war on inflation is causing collateral damage
As we were writing this week’s column, the Jerome Powell-led Federal Reserve was in the middle of its two-day November Federal Open Market Committee meeting where it is widely expected it will raise the Federal Funds Rate by another 75 basis points. Most experts are also expecting another 50 to 75 basis point rate increase again in December as the Fed continues to execute its all out war against the abnormally high levels of inflation.
In trying to curb the inflation caused by its own loose monetary policies, which enabled wild government borrowing and spending in a “more of everything!” approach to fiscal policies in Washington, D.C., the Fed is now having to call in the equivalent of economic airstrikes on top of its own position as it is forced to escalate the economic war it helped create. The punishing collateral damage caused by the Fed, along with Central Banks and politicians from around the globe, has been nothing short of enormous with the near-term fate of the housing market remaining in the crosshairs.
With deepening concerns about a potentially severe recession looming in 2023, interest rates on 30-year fixed rate mortgages recently topped 7 percent for the first time in 20 years.
For some perspective on this, a Wall Street Journal article by Ben Eisen on Friday, Oct. 28, pointed out a variety of facts, stating the “rapid climb (in mortgage rates) has all but paralyzed the housing market.” Among other things, Eisen cited that just seven weeks ago the rate on a 30-year mortgage was below 6 percent, and a year ago it was just over 3 percent. The last time mortgage rates were this high, the dot-com bubble had just burst. He also pointed out that a buyer who puts 20 percent down on a median-priced home (based on national numbers) would now have a monthly payment of $2,300 (according to Realtor.com), which is up nearly 80 percent from a year ago, when the monthly payment would have been $1,300. To dollarize this, Eisen gave an example of a real buyer in Tampa who has had to reduce the amount he or she can offer on a new home by $100,000 because of the increase in interest rates. To underscore the market dynamics in play, this rise in interest rates over the past several weeks has been the fastest on a percentage basis in records going back half a century, according to Eisen’s research.
Getting back to our local market, we have the numbers for closed sales and median sales prices for the Cape’s single-family dry lot home segment in the month of September and for the third quarter shown below, which we could not fit in last week’s column. The pattern for dry lot homes followed the rest of our market with the number of closed sales declining sharply in the third quarter, but not down as much as the other market segments when looking at the year-to-date sales in the first nine months of this year. The median sales price for dry lot homes was up from 2021, but it has softened from the peak prices earlier this year.
Dry Lot Homes
In the Cape’s single-family dry lot (non-canal) home segment, there were 276 closed sales in September, which was 29 percent lower than the 389 sales in September 2021, and 11.3 percent below the 311 closed sales in August of this year. There were a total of 954 closed sales in this segment during the third quarter, or 17.5 percent below the 1,156 sales in the third quarter of 2021, and 25 percent less than the 1,274 closed sales in the second quarter of this year. In the first nine months of 2022, a total of 3,411 dry lot homes were sold in the Cape, for a decrease of 2.8 percent versus the 3,511 sales in the first nine months of 2021.
The median sales price in the Cape Coral single-family dry lot home segment was $375,000 in September, up 17 percent from $320,500 in September of 2021, but down 3.8 percent from $390,000 in August of this year. In the third quarter, the median sales price in this segment averaged $386,667 per month, or 23.9 percent above the average of $312,013 per month in the third quarter of 2021, but 2.9 percent below the average of $398,117 per month in the second quarter of this year. In the first nine months of this year, the median sales price averaged $380,594 per month in this segment, for a 32.7 percent increase versus the average median sales price of $286,838 per month in the first nine months of 2021.
The best way to recap our market so far in 2022 would be to break it down into four stages, with stage one running from January through April when most homes received multiple offers, going under contract with buyers in a matter of days and often for above the full list price. Then in May we went into stage two with a transition month when a lot of homes sat on the market unsold for weeks or longer with many of these homes never getting sold. At that time we were writing about a shifting market, as we seemed to be moving rapidly from a red hot, crazy seller’s market to a cooled down buyer’s market almost overnight. The number of showing appointments slowed dramatically, and multiple offers on homes dwindled. Buyers started making offers that were below list price, with many holding their ground with a take it or leave it offer. Sellers were suddenly lucky if they received a full list price offer. Stage three kicked in when the Fed started aggressively jacking up interest rates in mid-June, which resulted in a large drop off in sales and a softening in sales prices during the third quarter of this year. Hurricane Ian has brought us into stage four of our market, combining with the collateral damage to the housing market from the Fed’s continuing war on inflation and the resulting higher mortgage rates, as the new abnormal maintains its grip on the economy.
As of Nov. 1, there were 1,262 single-family homes listed for sale in Cape Coral through the Multiple Listing Service at prices ranging from $209,000 to $4,999,999. To illustrate what has been happening in our market, the current highest priced listing (noted above) went on the market for $5,799,900 on June 21, so its price has been reduced by 13.8 percent so far. The median list price flattened out at $500,000 after dipping to $499,694 on Oct. 25, following a steady decline from $610,000 back on April 19. There are 335 listings priced at $400,000 and under, and 130 homes in the Cape listed at $1 million and above, down 33 percent from July 19 when there were 194 homes listed at $1 million and above. There are 542 pending home sales in the pipeline, which is 47.6 percent less than the 1,034 pending sales back on March 15 of this year. This includes 22 pending sales at $1 million and above, and 353 homes pending at $450,000 and under, with 274 of these homes at $400,000 and under, including 19 homes priced below $300,000.
Here is a quick look at the Hurricane Ian-based market conditions from Sept. 28 through Oct. 31, showing there have been 196 closed sales finalized in the Cape post storm, with another 227 homes going under contract as pending sales. During this time frame, 235 homes have come on the market as new listings, while 279 sellers have withdrawn their listings and 121 other listings were terminated. Another 130 listings expired. The median list price for the 235 homes coming on the market since Ian was $515,000. This does not reflect the “off-market” sales of heavily damaged homes by distressed homeowners selling directly to investment companies at big discounts.
The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, FL, as of Oct. 22, 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 43 years. Geri has been a full-time Realtor since 2005, and Bob joined with 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