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‘Luck of the Fed’ runs out as Cape’s market normalizes

By BOB and GERI QUINN - HOMING IN | Mar 16, 2023

Bob and Geri Quinn

Ironically, just about three weeks shy of April Fool’s Day and a week before St. Patrick’s Day, the “Luck of the Fed” seems to have come up a couple of four leaf clovers short in its attempt to engineer a soft landing in the U.S. economy when Silicon Valley Bank (SVB) swiftly collapsed last week. The run on this bank triggered a rout in the value of banks across the country and quickly led to regulators taking over Signature Bank of New York last Sunday as the Federal Reserve made additional funding available to banks “to help them meet the needs of all depositors” through their new “Bank Term Funding Program.”

This “new program” essentially eliminates the $250,000 cap on FDIC insurance, raising it to an unlimited amount to protect these depositors, while providing additional funding to protect the capital of other banks to prevent a “run” on the banking system. The powers that be in Washington, D.C., quickly recognized that the word “bailout” could be damaging to their political careers, and robotically marched forward with their latest rescue plan talking points of “Repeat after me, this is not a bailout. Repeat after me, this is not a bailout.”

In the tumultuous days that followed these seemingly sudden bank collapses, there was not only a massive repricing of yields, but also a dramatic change in the market expectations for the future of interest rate hikes by the Federal Reserve. The yield on 2-year Treasuries posted their biggest three-day plunge since the infamous “Black Monday” back in October 1987, dropping nearly 100 basis points, while rates on the benchmark 10-year Treasury Note declined from just under 4 percent to just a bit above 3.5 percent almost overnight.

In the days prior to these bank collapses, it was widely expected that the Fed would jack the Federal Funds Rate up another 50 basis points at their meeting next week and continue raising rates “higher for longer” from there. Now Wall Street thinks the Fed may be forced to not only stop raising interest rates, but to also begin the “grand pivot” of lowering interest rates later this year. Some think the Fed will be further boxed in to making a bad choice between the risk to financial institutions by continuing to raise interest rates and collapsing the economy that way, or to start reducing interest rates sooner and accept the higher level of embedded inflation in the economy, which will be more damaging to Main Street.

As more details have emerged from the collapse of SVB and Signature Bank, several things are becoming clear. First, these two banks were not your typical “community” bank filled with small business accounts and mom and pop Main Street depositors. It turns out they were loaded with ultra-wealthy, investment savvy, risk-taking venture capital customers who were well-connected donors to the political class. Second, these banks will probably go down in history as the poster childs of the malinvestments that have permeated the financial system as a result of too much “free money” being distributed into the economy through “emergency government programs” and the Fed’s grand market manipulation scheme of 0% interest rates. A Wall Street Journal editorial on Monday, March 13, 2023, probably summed it up best by stating, “You can’t run the most reckless monetary and fiscal experiment in history without the bill coming due. The first invoice arrived as inflation. The second has come as a financial panic, with painful consequences that are only now unfolding.”

Regarding the housing market, for now it looks like this “banking crisis” may put a cap on rising interest rates, which would be a positive for homebuyers needing to finance their purchase with a mortgage. However, a lot of economic uncertainty remains as a looming debt crisis and corporate bankruptcies are likely to be the next shoe to drop with trillions of dollars of debt needing to be refinanced in 2023 and 2024 at these higher interest rates.

On a positive note in the overall Cape Coral single-family home market, there have been a total of 694 closed sales recorded in the first two months of this year. This has us on track for a sizable increase in sales in the first quarter of this year versus the hurricane-impacted total of 861 sales in the fourth quarter of 2022. We have also clearly closed the books on the crazy “post-COVID lockdown” real estate market frenzy which began in June 2020 before winding down sometime between March and June of last year. This means we have settled back into a market more in line with the 689 closed sales in both the first two months of 2018 and 2020 (which was just prior to the COVID lockdowns), and well ahead of the 612 sales in January and February 2019. To help illustrate the abnormally scorching hot post-COVID market, the number of closed home sales in the Cape jumped to 914 sales during the first two months of 2021, for an increase of 32.7% above the 689 sales in 2020, before spiking to 1,062 sales in January and February 2022.

One other area where we are seeing what looks like a “normalization” at this point is with median sales prices, which have averaged $412,000 for our overall market in the first two months of this year. This was up 3.6% from the average median sales price of $397,500 in January and February 2022, and more inline with the increases seen for the first two months of 2018, 2019 and 2020, which had average increases of 3.1% 1.8% and 4.3%, respectively, from the first two months of the prior years. In the post-COVID lockdown boom years of 2021 and 2022, the median sales price for the first two months of those years increased by 23.6%, and 28.9% from the prior years. So the rapid price accelerations of these two boom years seem to be taking a much needed pause and we think we may see negative year-over-year price growth in the coming months.

We are still continuing to see a steady increase in the number of active single-family home listings through a Realtor in the Cape, while the number of pending sales edged a bit higher. As of Tuesday, March 14, there were 1,418 Cape Coral single-family homes listed for sale in the Multiple Listing Service (up from 1,380 listings on March 7) at prices ranging from $240,000 to $4.231 million. The median list price dipped to $525,000 from $534,950 a week ago, and it is up from $509,873 back on Jan. 3 of this year. Currently, 516 of the 1,418 active listings are priced at $450,000 and below, with 19 of these homes priced under $300,000. A total of 182 homes in the Cape are listed at $1 million and above. A year ago on March 15, 2022, there were only 430 active single-family home listings in the MLS at prices ranging from $265,000 to $5.995 million, with a median list price at $595,000. Back then, there were 106 homes in the Cape listed at $450,000 and under, and a total of 76 homes on the market at $1 million and above.

As of March 14, there were a total of 872 single-family homes in the Cape under contract with a buyer as a pending sale at prices ranging from $250,000 to $3.9 million. This was up slightly from the 866 pending sales a week ago, but 15.7% lower than the 1,034 pending sales in the pipeline at prices ranging from $200,000 to $3.4 million back on March 15, 2022. Of the 872 current pending sales, 538 of them are at $450,000 and under, with 34 of these homes under contract below $300,000. There are currently 52 pending home sales in the Cape at $1 million and above, and the median pending sales price was $414,500.

The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of March 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 Geri as a full-time Realtor in 2014. Their real estate practice is mainly focused on Cape Coral residential property and vacant lots.