Geri and Bob Quinn

Our theme in last week’s column was about the “state of confusion” we are seeing with what seems to be conflicting data points about the economy, inflation, interest rates and the real estate market. These various data points continue to be interpreted in a wide variety of ways by various pundits and market experts, which just seems to make things more confusing to everyone on Main Street, especially those who are trying to buy or sell a home. This confusion leaves the front door wide open for the real estate spin doctors to go to work, so today we will be discussing the state of confusion we are seeing in our current housing market as the growing competition between various homesellers heats up.

Even though most things have slowed down in the Cape Coral real estate market, it is important to note the market has not come to a complete halt. Homes are still being sold, but at a much slower pace that is proving to be a bit more uncomfortable than expected from a seller’s perspective. Most of the Realtors we talk to are seeing the same things in the market, with the hope that this drop off in activity is just a return to the normal “pre-COVID years” late summer, early fall seasonal market lull, before “the season” kicks things back into high gear.

Time will tell if hope springs eternal, but it is clear that more than a few things are a bit different this time around compared to the past.

The first obvious difference to the current real estate market compared to markets over the past 10 to 15 years is the wildcard regarding the impact of higher interest rates. The recent spike in mortgage rates to upwards of 7.5%, with talk of rates eventually climbing above 8%, is bringing an early arriving winter chill to the housing market. If rates stay “higher for longer,” a growing number of potential buyers will be frozen out of the market due to worsening affordability issues. This means that at some point something will have to give, or “break,” if you will. Either mortgage rates will need to get back down below 7%, or home prices will likely need to drop.

How serious of a problem is it? Based on an Oct. 10, 2023, article written by Candyd Mendoza in the Mortgage Bankers Association daily newsletter, according to the MBA’s data, mortgage rates are at their highest levels in 23 years. This has led the MBA to join forces with the National Association of REALTORS, and the National Association of Home Builders in forming a coalition that has approached Fed chief Jerome Powell over what they describe as “the deep-seated uncertainty” about the direction of the Fed’s interest rate policies. They pointed out that the Fed is making “an already tricky housing market even more challenging.” This coalition also stated that, “the speed and magnitude of these rate increases, and the resulting dislocation in our industry, is painful and unprecedented in the absence of larger economic turmoil.” In asking the Fed to back off from further rate hikes, they note that housing activity accounts for nearly 16% of the U.S. GDP and that millions of households are now being “priced out” of the real estate market.

Translating the concerns of this coalition to what we are reading about on a national level regarding new construction “spec” homes being built in new developments, builders are seeing a combination of “reduced traffic” looking to buy homes combined with an abnormally high level of canceled purchase contracts. This is leading to reports of a “shadow” inventory in some locations where new builds are still showing up as vacant lots in property tax records, as builders hold back on completing their growing stock of mostly built homes hoping for a buyer to come along. We are also seeing reports where a growing number of “second,” non-homesteaded Florida homes used by their owners as a seasonal winter home are becoming unaffordable for their middle class owners due to rising property taxes, higher insurance costs and increasing HOA fees, etc. In some cases where there is a mortgage involved, homeowners are seeing huge increases in their monthly payments due to their lenders increasing the escrow amounts to cover insurance and taxes.

All of this is adding to the competition between various types of home sellers. The average individual homeowner in Cape Coral who is putting their home on the market is competing with new home builders trying to sell their spec homes. In their attempt to attract a buyer, new home builders are offering a lot more incentives than a regular person trying to sell their existing home. For example, we receive emails everyday from new home builders offering to pay Realtors higher commissions of 4 to 6% for bringing a buyer to them who buys one of their homes. They are also offering incentives to the buyer, including price reductions, below market rate mortgage loans, numerous builder upgrades, cash towards closing costs, no HOA fees until 2025, etc. This competition from new home builders is showing up in the sales numbers in our market, as noted below.

Basically, about the only things going up in our local real estate market right now are the number of active listings on the market and the number of price reductions being made to list prices by sellers, as they hope to attract showing appointments and an offer. In fact, the number of new listings coming onto the market and the number of price reductions on existing listings are the top two daily statistical categories in the MLS, with the number of daily pending sales and closed sales lagging well behind.

As of Tuesday, Oct. 10, there were 2,139 active listings in the MLS for Cape Coral single-family homes, which included 597 new construction homes built in 2023. The active listings were up from 2,042 listings a week ago, as a steady stream of homes continues to come on the market. The current list prices ranged from $215,000 to $11.9 million, with the second lowest priced listing at $249,900 and the second highest priced listing at $7.59 million. The current median list price came in at $512,999 with a total of 827 homes, or almost 39% of the active listings priced at $450,000 and under. The number of Cape Coral homes currently listed at $1 million and above rose to 242 from 227 homes a week ago.

Also as of Oct. 10, there were 603 single-family homes in the Cape under contract with buyers as pending sales at prices ranging from $175,000 to $3.395 million, with the second lowest priced pending sale listed at $250,000. The median pending sales price came in at $399,900 with 403 of the 603 pending sales, or 66.8% priced at $450,000 and under. A total of 19 pending sales were priced at $1 million and above. Of the 603 pending sales, a total of 275 of them, or 45.6%, were on new construction homes built in 2023, with 204 of these homes priced at $450,000 and under. Four newly built homes were pending in the Cape at $1 million and above.

The reality of the current market is that sellers will likely need to get more aggressive in lowering their list price more than they would probably like, in order to attract a buyer and an offer. The one thing that could change this current market dynamic would seem to be a sudden decline in interest rates, or a commitment by the Fed towards moving away from their language of higher rates for longer. Also, if history is a guide, we would tend to expect an influx of additional homes coming onto the market in January and February when the “seasonal sellers” show up.

The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, FL, as of Oct. 10, 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 44 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.