Bob and Geri Quinn

There, we said it. The Cape Coral real estate market has slowed considerably in the second half of this year, slipping into a recession which has been compounded by the damage from Hurricane Ian. The early signs started showing up in the subtle shifts to the market activity that we were pointing out in this column back in April, May, and June of this year, and they continue today. Homes are still being sold, but at a much slower pace, and prices have been softening, requiring sellers to get more aggressive if they want to get their homes sold. We will begin unpacking this in greater detail later in this column and in future columns, but we will begin with an economic update.

This column was written before the Federal Open Market Committee (FOMC) made their announcement about interest rates at the conclusion of their two-day meeting on Wednesday of this week. Most analysts were expecting the FOMC to increase the Federal Funds Rate by 50 basis points, until the release of the Consumer Price Index (CPI) on Tuesday morning showed inflation continued to ease in November, bringing the potential for a smaller 25 basis point rate increase into play. Coming into their December meeting the Fed had raised rates by 75 basis points in each of their previous four meetings, in addition to two 25 basis point increases and one 50 basis point rate hike earlier this year, as they abandoned their earlier view that the record high levels of inflation were simply a “transitory” blip on the screen. In launching their aggressive war on inflation by rapidly jacking-up interest rates, the Fed has brought the economy to the brink of what some say could be a severe recession in 2023. This has led to a number of market experts and economists, most of whom also insisted that inflation was transitory and nothing to worry about, to call for the Fed to abandon their fight against inflation and to “pivot” back to their easy money policies by once again lowering interest rates. Basically, the Fed is trapped in an economic box of their own making as they fear that if they “pivot” away from raising interest rates too soon, inflation will go even more wildly out-of-control, but if they do not back away from raising interest rates at the correct moment, they could plunge the U.S. and the global economies into a deep recession.

In analyzing the November CPI numbers, a smaller group of economists are pointing out that when one digs down into the actual data underneath the surface of the somewhat softer headline inflation numbers, the slight easing in inflation being celebrated by the White House and Wall Street was being driven by lower oil prices and a decline in used car prices. Prices on just about everything else were still high. These economists point out that the recent large decline in oil prices, which has led to much needed price relief at the gas pump, has been driven by the Biden administration’s release of oil from our strategic oil supply and by a huge drop-off in oil consumption in China due to their recent COVID lockdowns and recession. The thought is that when “China comes back on line,” oil prices will once again move higher, thus causing inflation to spike higher. For its part the decline in used auto prices is tied to higher auto loan costs caused by the Fed raising interest rates to slow down consumer demand. Past slowdowns in auto sales have tended to be a harbinger of recessions.

The reason we have seemingly drifted away from the topic of the Cape Coral real estate market, is to point out that aside from facing the hurricane recovery process, the biggest influences on our local real estate market are likely to be tied to the actions of the Fed, interest rates, inflation, the economy, and the level of severity of a looming recession in 2023. A lot of it will be out of our control and nobody knows for sure how it will all play out.

While we are seeing predictions ranging from a slight decrease in home prices next year and a mild recession in the U.S., to an all out real estate crash rivaling the last bear market in home prices, the recent decline in mortgage rates from around 7.4 percent to 6.28 percent has been a positive development. This still leaves rates on the 30-year fixed rate mortgage substantially higher from around 3 percent a year ago, leading to nine straight months of declining home sales nationally, with October home sales down 24 percent year-over-year, according to the National Association of Realtors. Thus a national real estate recession.

Here is why we are saying the Cape’s real estate market is now in a recession. In the first half of this year we averaged 600 single family home sales per month, versus an average of only 356.2 sales per month so far from July through November, for a decline in sales of 40.6 percent. Home sales have been at post-Ian depressed levels in October (220) and November (285), but on a positive note they appear to have put in a bottom. Mostly prior to Ian, third quarter home sales were 22.6 percent lower than sales in the third quarter of 2021, and down 31.4 percent from the second quarter of this year. One might argue that this was simply a return to more normal historical market trends where the third quarter tended to be the slowest quarter of the year, but this market slowdown also corresponds with aggressive, targeted actions by the Federal Reserve and the widely accepted view that we are in a national real estate recession. For their part, median sales prices and median list prices are still holding above their 2021 levels, but they have softened quite a bit from earlier this year.

As of Tuesday, Dec. 13, there were 1,339 single family homes listed for sale in Cape Coral through the Multiple Listing Service at prices ranging from $259,900 to $4,999,999. The number of active listings is up from 1,326 a week ago, but still down from the 1,411 active listings back on Sept. 20 (the week before the storm). The current median list price remains at $500,000 while the overall median home sales price in November dipped to $400,000 after peaking at $470,000 in April. Digging deeper into the active listings, there were 530 single family homes listed at $450,000 and under, with 355 of these homes priced at $400,000 and under, including 13 homes listed below $300,000. A total of 153 homes in the Cape are listed for $1 million and above, up from 140 homes a week ago. Back on Sept. 20, prior to Hurricane Ian, a total of 513 of the 1,411 homes on the market were listed for $450,000 and under, with 312 of these homes priced at $400,000 and below, including 16 homes priced under $300,000. At the other end of the spectrum, 174 homes in the Cape were listed at $1 million and above.

On Dec. 13, there were 592 pending home sales at list prices ranging from 129,900 to $1.5 million in the Cape, with 65.7 percent of the pending sales at prices of $450,000 and under, and 53 percent of the 592 pending sales at $400,000 and under, including 31 homes priced below $300,000 with ten of these homes below $250,000. There were only 18 pending sales, or 3 percent of the market, under contract for $1 million and above. All of these pending sales numbers indicate the likelihood of some additional price erosion below the higher list prices noted in the paragraph above, adding support to the view that we have entered at least some level of a real estate recession in the Cape.

(The sales data for this article was obtained from the Florida Realtors® Multiple Listing Service Matrix for Lee County, FL, as of December 13, 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 Quinn’s 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.)