Economic uncertainty holds the key for real estate in 2023
Uncertainty is likely to be the key driver in 2023. With the volatility of the year that was 2022 now behind us, the reality of the New Year is that no one really knows how things will play out in the economy, the stock market, the housing market, inflation, interest rates, oil prices, the war in Ukraine, etc. To be clear, there is no shortage of overly confident expert opinions about what will happen next with the economy, the stock market, the housing market, etc. These opinions seem to range from a “nothing to see here,” everything is fine view of our economy and markets, to expectations of a mild downturn in the first half of this year quickly followed by a Fed policy pivot back to lower interest rates and a recovery in the second half of 2023, to being on the verge of a cataclysmic economic collapse of the “everything bubble.” We should know which expert predictions have it mostly right soon enough.
What we do know for sure is that the stock market just had its worst year since 2008, the bond market took it on the chin and the housing market slowed dramatically in the second half of 2022. All of this was because the Federal Reserve finally took away its “free money” zero interest rate punchbowl and started aggressively raising interest rates in their war against the record high levels of inflation that proved to be anything but “transitory.”
This major policy shift by the Fed set off a chain reaction leading to rapidly rising mortgage interest rates, which combined with the already record high level of home prices to create an even more severe affordability issue in the housing market. This, in turn, cut deeply into the buying power of homebuyers, forcing a number of them to the sidelines at about the same time as more sellers decided to pile into our market and list their homes for sale at peak prices after the market had already started softening. We were pointing out this subtle downshift in the housing market in this column and to our clients as we saw it happening on the ground back in April, May and June of last year, before it accelerated even further.
Back in the first quarter of 2022, we were commenting about the continued crazy pace of the market and as we moved deeper into the second quarter and beyond, we were noting that the multiple offers above list price craziness had all but stopped. The urgency of buyers was quickly fading as more new listings sat on the market longer and buyers became comfortable taking their time and making offers below list price. To illustrate this, back on Jan. 19, 2022, there were only 470 single-family homes listed for sale through a Realtor in the Cape at prices ranging from $221,000 to $5.995 million. The median list price was $519,495 and there were 933 homes under contract as pending sales at prices ranging from $179,900 to $4,299,999. List prices then surged higher with the median list price hitting $610,000 on April 19, 2022, while the number of active listings rose to 547 homes on the market and there were 998 pending home sales in the pipeline. By June 21, as the Federal Reserve started jacking up interest rates, we had 1,031 active home listings in Cape Coral through the MLS and the median list price was $579,000. Pending sales had declined to 893 homes.
Now, as of this Tuesday, Jan. 3, there were 1,330 active single-family home listings in Cape Coral through the MLS at prices ranging from $274,900 to $4,849,999 (there was also a manufactured home priced at $120,000). The median list price edged higher to $510,000 from $499,999 two weeks ago. There were 151 homes in the Cape listed at $1 million and above, while 358 homes, or 26.9 percent of the active listings, were priced at $400,000 and under. A total of 522 homes were under contract with buyers as pending sales ranging in price from $129,999 for a fire damaged home to $3.29 million. The second lowest priced pending sale was at $170,000 and the third lowest was at $215,000. A total of 23 homes were pending at $1 million and above, while 270 pending sales went under contract at $400,000 and below. As painful as it may be for some agents and sellers to acknowledge, the market has shifted dramatically from a year ago.
Historically, our market usually has a large number of “seasonal sellers” who put their homes on the market in January and February. If that happens this year, it could result in a higher inventory and put added pressure on home prices in an already slower market. The good news is that home sales, list prices and median home sales prices have seemed to have stabilized for now, but at lower levels than we have all become accustomed to.
Also, the fact that Forbes’ magazine has recently ranked Cape Coral as the third best place in Florida to live, it is likely to create a lot of new interest in our area. In addition, we have seen a surge of potential buyers from around the country contacting us through our Internet advertising, and while some of them are very active buyers planning to come down here this winter to look for a home, a lot of them tell us they are monitoring our market in anticipation of lower prices.
Along with actively tracking market data and trends, we often comment on some of the anecdotal things we see that can provide us with additional insight and confirm what the numbers are telling us. One thing we have noticed over the past six months is a dramatic change in real estate advertising messages. First, we are receiving far fewer marketing postcards in the mail from Realtors touting their recent sales and their “ability” to get your home sold in a matter of days with multiple above list price offers. We just received one agent postcard in the mail that a year ago would have had 10 photos of the agent’s pending and “just sold” homes on it. Today, not a single photo of a home or a mention of any pending sales or “just sold” homes. Another regularly running Realtor ad we saw six months ago that implored sellers to list their homes with them because the agent would get you “a crazy high offer” on your home, no longer contains that wording. These are ads from well-established, successful local agents, and it is an anecdotal message about the slowdown in our market.
One other anecdotal sign about the softness in the Southwest Florida real estate market was contained in a marketing email we just received from a major national builder who is very active in our local market. The message was about their new homes in a development in Estero, where they are offering bonuses to Realtors who bring them buyers who can close on home purchases by certain dates. They are also offering various incentives and discounts to buyers of up to $50,000 to $300,000 on “select quick delivery homes,” along with advertising a dozen other homes being offered at “closeout pricing and open to offers on any remaining inventory.” One example of this inventory is a home listed for $820,000 that is now discounted by 17.7 percent to $677,000. Another is for a home listed at $1.85 million now discounted by 24.3 percent to $1.4 million, followed by “make me an offer” in bold print. New home builders do not make these types of offers, discounts or concessions in a strong market, so home sellers may want to take heed of what may be a “canary in the coal mine.”
The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, FL, as of Jan. 3, 2023, 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 Geri as a full-time Realtor in 2014. Their real estate practice is mainly focused on Cape Coral residential property and vacant lots.