Rising insurance costs and Federal Reserve are wildcards
A couple of the big issues still playing out that could continue to impact our local real estate market this year deal with the Federal Reserve’s decisions on the direction of interest rates and their influence on the U.S. economy, along with the more local issue of the rising cost of homeowners and flood insurance in Florida.
Since we are writing this column prior to the Fed’s big interest rate announcement Wednesday of this week, we will hold our judgment on that topic except to say it is widely expected that the Fed is done with raising interest rates. However, the remaining wildcard question will likely continue to revolve around exactly when the Fed will be forced to start slashing interest rates. Some “expert” pundits expect interest rate cuts to begin sometime this year, while others believe lower interest rates will not occur until sometime in 2024. If the Fed holds interest rates higher for longer, some fear it will act like a governor controlling the speed of the economic engine, resulting in slow to no economic growth. Others believe if the Fed starts cutting interest rates too soon, inflation will rage out of control again and hurt the economy. The hope is that the Fed will be able to engineer a not too hot and not too cold “Goldilocks” soft landing in the economy along the lines of what we have been experiencing in our real estate market so far this year.
Insurance, on the other hand, continues to be a big problem in Florida, as well as in places like California, with rising premiums for homeowners, flood and commercial insurance all contradicting the commonly held belief that inflation is abating. According to a news release written by Jim Saunders in a Florida Realtors publication that came out last Friday, it was noted that Citizens Property Insurance Corporation, the state of Florida-backed insurer of last resort, has requested a 12% rate hike through the Florida Office of Insurance Regulation. This request is for all homes covered by Citizens that are primary residences with “multi-peril policies,” which are the most common type of coverage. But it gets even better! It was noted that rate increases could be dramatically higher for homes covered by Citizens that are not maintained as a primary residence based on a new state law that allows increases of up to 50% for those properties. All of this will be on top of a new requirement by Citizens mandating that all of its policyholders will be required to carry flood insurance, including those with homes in Flood Zone X. This has been a developing problem that has occurred over many years and is rapidly coming to a head.
We will plan to dig deeper into the insurance crisis in future columns. This is the type of thing that plays into “the affordable housing” debate, as these costs will ultimately be passed on to the rental market and could ultimately end up hurting home prices.
Switching gears, it has been awhile since we checked in on the monthly rankings for the 100 most overvalued housing markets in the country, which is put together by research teams at Florida Atlantic University and Florida International University. Basically, they use publicly available data from Zillow and other sources to compile and analyze real estate information pertaining to single-family homes, townhomes, condominiums and co-ops in various metro areas. Their data goes back to January 1996, with the development of their “expected price trendline.” This established a baseline for prices, which they then compare the current average of sales prices in each metro area to determine if the prices in a given market are selling at a premium or at a discount to that expected price trendline. This translates into showing by how much on a percentage basis a particular metro area’s housing market is either overvalued or undervalued. You can find their current information, which is updated monthly, by searching for “the 100 most overvalued housing markets.”
Their most current report is through April 30, where they are showing the Cape Coral-Fort Myers metro area as the fifth most overvalued market in the country with an average sales price coming in at $375,453 versus an expected price trendline of $261,913. This translates into our market selling at a premium and being “overvalued” by 43.35%. According to this report, our market recently topped out at an overvalued premium of 53.04% back on Aug. 31 of last year when the average price was at $394,060 versus the expected price trendline of $257,484. The good news is that we are no longer the most overvalued market in the country as our prices have topped out and have declined, but have not “crashed” as they did during the Great Recession some 15 years ago.
An item of interest is that while Atlanta was now the number one most overvalued metro area in the FAU/FIU research, with an average price running 48.5% above their expected price as of April 30, pop star Mariah Carey hit a flat note with the recent sale of her Atlanta-area home. According to an article by E.B. Solomont in a Private Properties feature in the June 2, 2023, Mansion Section of the Wall Street Journal, Cary bought her 12,600-square-foot, nine-bedroom Colonial-style home on approximately 4 acres with a pool and a tennis court in Sandy Springs, Ga., for $5.65 million in 2021. She then listed the home for sale at $6.5 million in September 2022, with Zillow reporting that the asking price was reduced to $4.995 million prior to the home going under contract with a buyer and ultimately selling for $4.3 million. So Carey ended up selling her home for $2.2 million less, or 33.8% below her initial list price and for $1.35 million, or 23.9% less than she paid for the home about two years ago, not including any expenses to get the home sold.
Moving back to our market, we continue to see solid, but patient out-of-town buyer interest looking for “reasonably-priced” mostly move-in ready homes in our market as the inventory continues to rise. As of Tuesday, June 13, there were 1,676 active listings in the MLS for Cape Coral single-family homes at list prices ranging from $269,900 to $3.995 million. The median list price remained at $525,000 based on our weekly market snapshot survey, with a total of 619 homes, or 36.9% of the active listings in the Cape priced at $450,000 and under, including 18 of these homes priced below $300,000. At the other end of the Cape’s price spectrum, 222 homes were listed for sale at $1 million and above, equaling 13.2% of the active home listings, and down slightly from 227 such listings a week ago.
The number of Cape Coral homes under contract with buyers as pending sales as of June 13 edged back higher from 761 pending sales a week ago to 797 pending sales in the pipeline this week. Prices on the current pending sales ranged from a low of $215,000 to a high of $4.15 million, with the second lowest priced at $249,900 and the second highest at $3.45 million, and quickly dropping to $2.3 million for the third highest priced home under contract. The median pending sales price was up slightly to $406,990 this week from $403,900 on June 6. Of the homes under contract earlier this week, 63% of them or 502 of the total of 797 homes were priced at $450,000 and under, including 25 homes below $300,000. At the other end of the spectrum, there were 37 homes under contract at $1 million and above, equalling 4.6% of the currently pending home sales in Cape Coral.
The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of June 13, 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 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 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 GERI and BOB QUINN, please email news@breezenewspapers.com