Home prices and inflation have peaked, but remain ‘sticky’
Tuesday of this week, the Consumer Price Index numbers for January came in hotter than expected at 6.4 percent, and while inflation on the consumer level remains well below the peak rate of 9.1 percent from back in June 2022, it continues to remain “sticky” at an alarmingly high level. This raises the possibility that the Fed will continue to move interest rates a bit higher than many experts are expecting, and they will likely need to hold rates at a higher level for a longer period of time in their attempt to bring inflation under control.
As we have discussed on a regular basis, with mortgage rates more than doubling last year as the Federal Reserve jacked up interest rates, the most widely accepted opinions about the real estate market indicate that on a national level the housing market is currently in some form of a recession. This housing market recession has been marked primarily by a fairly sharp decline in sales, along with median sales prices that have come down from their peak levels in more of a softening price correction.
Locally, median home sales prices seem to be mimicking the consumer inflation trends in that they are well below their red hot peak levels from last year, while remaining “sticky” and not crashing. To illustrate this, the median sales price in the overall Cape Coral single-family home market peaked at an all-time record high of $470,000 in April of last year, and has now spent the last three consecutive months (November through January) at $400,000. On a quarterly basis in 2022, median home sales prices averaged $405,750 per month in the first quarter, before reaching their peak at an average of $456,667 per month in the second quarter, followed by a decline to an average of $421,667 per month in the third quarter, only to finish the fourth quarter at an average of $415,000 per month.
One other view that reflects the slowing in home prices is a comparison of the median sales prices for the month of January. As noted above, the $400,000 posted this January is 14.9 percent below the peak of $470,000 from back in April 2022, but it was only 1 percent higher than the $396,000 from January 2022. Looking back two years ago to January 2021, that month the median sales price was $306,700 for a single-family home in the Cape, so prices appear to be taking a much needed pause, but still remain above last year’s levels.
As our market shifted from the post-COVID shutdown boom, which began in the second half of 2020, to a rapid deceleration in sales in the second half of 2022, we have seen a dramatic change in our median list prices, active listings and pending home sales. These negative market shifts were a direct result of the Federal Reserve aggressively raising interest rates, and then they were compounded when Hurricane Ian hit our area on Sept. 28.
To illustrate the changes in the Cape Coral single-family home market, a year ago on Feb. 15, 2022, there were only 416 active listings in the MLS at prices ranging from $225,000 to $5.995 million and the median list price was $582,450 (it hit a peak of $610,000 on April 19, 2022, based on our weekly market surveys). A total of 79 homes were listed for $1 million and above, while only 34 homes had list prices of $350,000 and below. At that time, there were 1,053 homes in the Cape under contract with buyers as pending sales at prices ranging from $200,000 to $3.2 million.
Compare that to earlier this week on Feb. 14, when there were 1,321 active listings for single-family homes, for an increase of 217.5 percent from a year ago, at prices ranging from $265,000 to $4.275 million. The current median list price came in at $519,000 and there were 180 homes listed at $1 million and above, or 127.8 percent more than a year ago, and there were a total of 158 homes listed at $350,00 and under, or 464.71 percent more than a year ago. As of Feb. 14, there were 765 pending home sales in the pipeline, which was 46.6 percent higher than the 522 pending sales on Jan. 3 of this year, but still 27.4 percent below the 1,053 pending sales back on Feb. 15 of last year.
The other dramatic shift that occurred in our market was the change in buyer attitudes we started to see last April and May, when seemingly overnight the number of seriously active buyers dropped off from the frenzied pace in the first quarter of last year. Suddenly, the buyers who were still in the game became comfortable making below list price offers and they were willing to walk away if the deal did not go their way. Instead of paying virtually any price for any home, buyers started to “price in” the cost for repairs, updates and remodeling, by subtracting these costs from a sellers list price. Many sellers were slow to adjust to this new market reality, thinking that the peak prices reached in April 2022 were still in place during the second half of last year. In a broad generalization, it is fair to say that most sellers are not getting as much money for their homes as they once thought they would get, and it is often taking much longer to get a “good” offer on their home than they expected.
So what are we expecting for the rest of 2023? First, we have seen a nice uptick in seasonal activity, but as we have noted above, the market dynamics have returned to something that more closely resembles our pre-COVID market patterns. Based on that assumption, a seller probably has a couple more months of “season” remaining to get their home under contract with a buyer. In the past, that has meant that a seller probably needs to get somewhat more aggressive with their pricing to separate themselves from the competition to attract a buyer before the market enters its historical “postseason” slow down.
We are also seeing some buyers making very low offers on homes, hoping for a great deal, while a growing number of “looky-loos” are doing Internet home searches in the background waiting for another housing market crash. Many of these buyers are still priced out of our market and will need a larger price correction before being able to afford a home here, so they are on a scouting mission.
This brings us to the million dollar question about the direction of home prices. The expert opinions continue to be all over the place and we think it will ultimately come down to what the Fed does with interest rates and whether we have a mild-to-no recession or severe economic recession. Right now, we think it is likely that Cape Coral home prices will remain flat or move somewhat lower in a market correction tied to the recession in real estate. In order to see a larger drop, or a “crash” in home prices, we think it would take a “surprise” external shock to the economy, such as the start of World War III or China deciding to wreak havoc on our economy by squeezing the supply chain. Barring that, we may muddle along.
Along these lines, mortgage giant Fannie Mae recently noted that its financial results in 2022 were indicative of a housing market in transition, as it saw its net profits decline substantially in a shifting housing market. In a news release this past Tuesday, its CEO, Priscilla Almovodar, forecast further economic headwinds for homebuyers in 2023, noting that “housing affordability would remain a challenge for many homebuyers.”
It is forecasting a 4.2 percent decline in home prices in 2023, followed by another decline of 2.3 percent in 2024. Others are predicting anything from modest gains to severe home price declines.
The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of Feb. 14, 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 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