The natural law of economics tells us that supply and demand will determine the price, but there are limits as to what a buyer can afford. Home affordability dictates prices in the real estate market. Individually one buyer may pay out of the norm for an item or house, but in the macro the market determines the overall value.

On average about 20.3% of a homeowner’s income goes to cost (principal, interest, taxes, and insurance) of owning a home. In 2021 that number was down to 16 which tells us there is room for growth in prices.

Rising Headwinds

This is the point in the party where the music stops, or at least skips a beat. Three out of the four items that affect affordability are rising. Principal is going up because more people are paying more for housing, so they are borrowing more.  Interest is rising and expected to climb much higher. Insurance is rising too as many insurers are pulling out of Florida and they are raising rates. The only thing not going up today is tax rates, but then again property taxes go up as the value increases.

If 3 out of 4 factors go up, there is a limit to how far each one goes up before people stop buying because they cannot afford anymore.  I would argue that rising interest and insurance costs are one day going to zap the upward pricing pressure right out of the market.  The question is when?

Interest rates fell from 4.46% in 2018 down to 2.74% in January 2021.  Since January 2021 rates have stayed low until this January where we’ve seen rates march higher.  Today rates are back up over 4% and going higher.  We have seen a runup in prices since those rates began to decline.

Real Estate Price Driver

In October of 2018 the median price of a home was $246,995 and the average was $327,081. In February 2022 the median was $410,000 and the average was $569,697. That is a 66% increase in median prices 39 months, and a 74.18% in average price.  This was possible due to interest rates declining like they did.

Today is the opposite.  Rates are going up quickly, and on top of rising rates we have rampant inflation also eating away at buyers’ income. Add to that rising insurance costs and we’ve got a recipe for home affordability rising. Can the line go above 20.3%? Sure it can, and it has before.  Each time it has it was followed by pressure on prices. Home affordability dictates prices, so we keep an eye on that going forward.

There is a limit to what people can afford. We are graced here in Florida that more people are moving here.  This is helping with demand. What happens when rising rates affect their ability to sell their homes up North? Will they be flush with cash like they have been the past few years? You see, these same economic forces work up North too, and when they are affected, it can eventually affect us down here.

We Have a Great Market

Nobody is saying the sky is falling or prices are going to decline anytime soon. In fact, many experts predict a 9% rise in home prices in 2022.  Experts sometimes get it right, but they rarely get the timing exact.

If you are a seller and your home isn’t working for you like it once was, you might consider taking advantage of this opportunity.

The Ellis Team marketing is still generating multiple offers and Top Dollar.  We do things a bit differently than most Realtors and we’ll be glad to show you how we do it. It is more fun to sell when you have multiple offers to choose from. What if one day in the future you don’t? Remember the days when sellers would be glad to just get one offer?

If you are wondering what your equity position is, we should talk. It is wise to review your equity position and determine if this asset still works for you.  Brett or Sande will be glad to help. Call us at 239-310-6500  for or visit www.SWFLhomevalues.com for an instant and Free online home valuation.

Good luck, and we’ll keep an eye on the market for you!

Where are Real Estate Prices Headed?

See Last Week’s Article “Housing Market Priced Correctly in SW Florida?“

For the past year we have been talking about how rising interest rates harm buyers by eroding purchasing power. Today we would like to focus on how the housing market correction risk harms sellers more than buyers.

In this example we have posted before, we illustrate a $350,000 home that falls to $300,000 in a correction. That is a 14.29% correction. Also shown was a 1.25% rise in interest rates.  The net effect to the buyer was only a $2 savings per month in payment. The seller on the other hand suffered a $50,000 loss by waiting to sell.

Housing Market Correction Risk

This is one of those times where it can cost a home buyer to wait because interest rates are expected to increase in 2022.  A market correction can really cost a seller to wait. Both can be hurt, but in this example the seller is hurt the most.

Next week the Fed is expected to meet to begin their interest rate hikes. It is almost certain they will hike rates .25% and some believe it may be .5% Inflation is rampant and may only get worse as fuel prices spike. Inflation hurts the low to middle income earners the hardest, so the US government is determined to slow inflation, even if it means slowing the economy.

As rising rates, rising oil prices, and rising inflation eats into consumers pocketbooks it can eventually eat into people’s ability to afford a home. Home affordability is an essential ingredient for rising prices. As homes become less affordable there is less upward pressure on prices. Remember, a 1% rise in interest rates robs buyers of 11% purchasing power.  If you rob enough buyers, eventually it will hurt the market.

Florida in a Good Position

Florida is better insulated than many states at is tax friendly and a desirable place to live. More people are moving to Florida than leaving, so we are a net migration state. Other states, primarily high tax states, are losing residents to states like Florida.

Which force wins out is anybody’s guess. The point of this article is that if a buyer waits and prices go down, they are no better off.  But if a seller waits and prices go down, a seller is definitely worse off. Since nobody can tell for sure how the economy will go and where housing prices will go, waiting to sell could be at the seller’s own peril.

We are not making a market prediction.  We can see scenarios where prices could still rise, and others where they could correct a bit.  The point is, it is not our money, and sellers are asking the question. If your home is not working for you, give Brett or Sande Ellis a call 239-310-6500. We can talk about your circumstances and discuss if now may be right for you to sell.

Nobody is Predicting a Crash

Markets do not go up forever, and corrections are not a bad thing.  Crashes on the other hand are bad, and nobody I know is throwing around the crash word except for hopeful buyers wishing they had bought years ago.

To find out what your home may be worth instantly, go to www.SWFLhomevalues.com Not only will you get a pretty good idea of your home’s value, but you can also track it to see the direction of your home’s value.  Each month it will send you a new value and it is fun to see if your property is appreciating or declining and by how much.

Need a place to go. We can share some creative ideas other sellers are exploring that might be a way to cash out at today’s high prices. Give Sande or Brett a call.

See last week’s article “Inflation Home Affordability Perspective”

 

Home Seller Workshop

Register online at www.seller-seminar.com 

Home sale prices rose sharply in December climbing to a median price of $402,000 and an average price of $605,784.  Median prices rose 27.6% versus December 2020 while average prices rose 32.9% The number of homes closed dropped 13.2% from December 2020 primarily because there is less inventory.

Cash sales accounted for 37% of all single-family home sales in December. We did see a 3.5% rise in new listings in December, so some homeowners have decided to sell while the getting is good. There were only 5 foreclosure home sales in the county and only 1 short sale. For those so-called experts that were predicting distressed sales hitting the market in 2021, they were sadly mistaken.

Sellers Wondering When Market Will Top

Many homeowners are concerned about rising interest rates, as they should be.  Traditionally rising rates limits home sale prices. While many financial gurus have predicted 5-6 Fed rates hikes in 2022, we are not so sure. Many experts believe the Fed will have a difficult time raising rates as drastically amidst a rapidly falling stock market.  While we have seen stock market volatility, it remains to be seen how the market will fare throughout 2022.

The stock market, and the real estate market’s future may be tied to inflation and what the Fed must do to get it under control. Taming inflation through the Fed is the toughest way to go and takes the longest. Typically, there is a lag between rising rates and slowing down the economy to fight inflation.

The president has so many other tools he could use than just using the Fed, but we doubt he will go that route so here we are. Today the 10-year note stands at 1.784. Keep your eye on that number.  Some believe it could go to 2.5 or even 3. Thirty-year mortgages are pegged to this number, so the higher it goes, the higher mortgage rates will be.

Marketing Muscle Leads to Multiple Offers

Last weekend we sold 3 properties. Both homes sold over asking price.  We attracted buyers both locally and targeted buyers in high tax states. Many open house attendees were from those high tax states we advertised in.

We plan to do a future article on how to properly evaluate multiple offers and how to negotiate them. Most people believe it is as easy as picking the highest price. Agents are getting very creative in writing their contracts. Financed offers are disguised as cash in hopes of winning the bid. It takes a savvy agent with experience to sort out true facts of the buyer which are critical in selecting the best offer. It does no good to select the highest offer only to find out buyer is getting financing and does not have money to cover an appraisal deficiency.

Some agents are writing ridiculous offers only to win the bid and knock the price down later when they can’t perform.  If they can catch the seller days or weeks down the road, perhaps they will be in a position where they must take less.  While this tactic is less than honest, it pays to verify facts before accepting an offer.

Strong Listing Agents

Real estate agents can be very pushy trying to get their buyer’s offer accepted. You need a strong listing agent to stand up for you. One that knows the local customs and has relationships with local agents. Nobody is going to push our sellers around. An inexperienced agent with less confidence might buckle when the other agent is demanding answers on their time frame instead of yours or demanding to know how high they must go to win. They know this is unethical and yet we saw it happen many times this past weekend.

Rest assured, when you list with the Ellis Team at Keller Williams Realty, you are in good hands. We are not saying all agents operate this way, but a few hungry agents desperate to get a deal did this past weekend.

Please call Brett or Sande Ellis 239-310-6500 or visit www.SWFLhomevalues.com for an instant home value of your home.

Good luck and Happy Selling!

 

Market Update

New Listing-Open House Sunday 11-2

Mild inflation is a good thing because it means the economy is growing. Rapid inflation suppresses real estate and the economy and is not a good thing. The fed’s target for inflation has been around 2 percent the past several years.

Currently we are experiencing rapid inflation. Many US employees woke up to a 3% rise in wages on January 1^st, and they are excited about that.  The sad thing is, prices are rising at 7% overall, and some things are much worse than that. Inflation is like a hidden tax in that consumers just lost 7% purchasing power on their money.

Everything is going up in price, from food, gas, clothing, cars, construction, etc. If you have a rise in wages, you are further behind because of inflation. Seniors will be hit the hardest because they live off social security and investments. They are not even enjoying the 3% raise workers are.

If you own a house, you might think that’s good because rising home prices will help protect you.  That may seem true right now, but it’s what comes next that might alarm you.

To combat inflation the Fed must slow things down.  There are too many dollars chasing too few goods and services in the economy. The Fed will be forced to halt stimulus. In addition, the Fed is ending bond purchases to take money supply out of the market. When that is completed in March, they will begin the process of raising interest rates.

You may have noticed rates have already risen. This is because the Fed has already begun tapering of the bond purchases. Many are now expecting 4 rate hikes this year instead of 3, and the rate hikes might need to be bigger than .25% The last time we saw inflation at 7% was back in 1982. To combat inflation the Fed raised interest rates in chunks of .5% to1%

Mortgage rates are closely tied to the 10 Year Treasury Note. As of today’s writing, the 10-year treasury note stands at 1.716%. Lenders use this as a baseline and add a percentage to determine today’s 30-year mortgage rate.

Rising interest rates temper consumer spending. If there is less stimulus and borrowing costs rise, consumers must spend less. When consumers spend less, businesses make less, and consumers have less in their pockets. Taxes may rise to pay for last year’s spending spree by the government which will serve as a double whammy to consumer pocketbooks. We will have an increased tax bill plus the hidden inflation tax leaving you with less money to spend. This is exactly what the government wants. They need to slow down the too many dollars chasing too few products and services. The economy feels like it is doing well now, but the bad medicine is coming.

There are other ways to tackle inflation. This government has not done that, and they will not use those tools, so unfortunately monetary policy will be the only tool they will use, and only reluctantly. Had they enacted the other tools or acted sooner we would not be in this mess, but now here we are.

It will not do any good to complain or worry about it. The bad medicine is coming. The fed may try to sweeten the medicine with more stimulus, but that is like giving pain pills to an addict. It is what helped cause inflation in the first place.

For every 1% rise in interest rates buyers lose 11% purchasing power. As the economy slows you eventually run out of people who can afford to pay rising prices. Back in the 80’s we had over 18% interest rates, and selling real estate was tough. Back then, home sellers had to pay thousands of dollars in buyer’s points just so buyer could get a loan that was legal. The US has usury rates which were the maximum rates allowed by law a lender could charge.  Because market rates were higher than usury rates, buyers had to pay points to buy-down the rate.  Buyers did not always have the money to buy-down the rate, so sellers had to do it to unload their property.  It was simply a cost of doing business in inflationary times.

Rising rates and a slowing economy will eventually catch up with the housing market. Using monetary policy alone is the toughest way to fight inflation and takes the longest. Rising rates are a lagging component of slowing the economy.  Monetarily, the sooner the fed tapers the balance sheet and raises the rate the sooner we will slow the economy.  Doing it slowly can lead to a recession.

Of course, if the government did this the correct way we could have avoided much of the pain that will come from doing it only monetarily. This administration caused inflation, so asking them to correct and reverse course does not seem likely.

Some people believe the economy will slow in 2^nd half of 2022. Whatever happens, rates will rise, and the economy will slow for rates to be held in check.

To find out your home’s current value, go to www.SWFLhomevalues.com or call Brett or Sande Ellis 239-310-6500 We can help you sell at today’s high prices. If you are a buyer, call us at 239-489-4042. Let’s get you in before rates go up.

A recent study shows a mass exodus to Florida according to a United Van Lines national migration study for 2021.  Florida saw 13,201 inbound shipments which was the most in the country followed by Texas at 12,358.

As a percentage, Punta Gorda was the #2 destination in the country and Fort Myers-Cape Coral was #7. Judging by the traffic on our roads you wouldn’t need a national study to confirm what you have already witnessed. Local housing numbers back up the premise that we have more demand than supply in SW Florida.

The top 5 states people are moving out of in the study were 1. New Jersey 2. Illinois 3. New York 4. Connecticut 5. California  United Van Lines asked people why they were moving.  Florida was #1 on the list for retirement and #2 on the list for a lifestyle change. Florida was ranked #9 on the list for health/personal reasons.

Mass Exodus to Florida

Approximately 900 people per day are moving to Florida. Last year we saw 211,000 people move to Florida.  The reasons we hear people move here are numerous. Of course, we have low taxes, moderate temperatures, abundant sunshine, water, boating, golf, and beaches.  Add in the ability to work remotely and Florida becomes supremely attractive. Others like the fact that Florida has stayed open during the pandemic while other states have suffered lockdowns and business disruptions.

We hear that more companies are making the decision to relocate to Florida.  Corporate relocations take time and planning and do not happen in a day, or year.  Some plans already in place have not occurred yet, so expect to see more companies announcing relocation to Florida.

Economy Improving in Florida

While tax rates are low in Florida and Texas, tax receipts are going through the roof. Florida has no income tax and low property taxes.  So how is it that tax revenues are increasing? Simply out, more people wish to be here, and they are bringing their wallets.  They are buying houses and spending money and tax revenue to the state is expanding.  States losing residents will continue to see decreasing tax revenue.  High tax states will be forced to cut spending or increase taxes which further exacerbates their situation.  If people are moving to Florida due to high taxes where they come from, raising taxes on the ones that are left will not help them retain those residents.  Rising taxes simply makes more people want to move to low tax states.

The same is true at the national level.  Rising taxes force companies to produce goods elsewhere. Lower taxes bring those jobs back home.  The national government could learn an economics lesson from the states.

Inflation

Inflation is a real thing, and it is making housing less affordable.  Many people woke up to a 3% raise in 2022, but the things they buy may have increased by 10% or more.  That is like taking a 7% plus pay cut.  Even though wages rose, people lost purchasing power. We are seeing this in housing. Because so many want to live here it is not hurting our market. It is hurting people at the middle and low end as they are finding it difficult to live where they work.

Affordable housing has once again become an issue, and it will continue. Rising real estate prices makes current homeowners happy and makes affordability an issue for those renting.  Rents have risen along with home prices, so it is increasingly difficult to escape the affordability issue.

In many cases it is less expensive to buy than rent.  When interest rates go up in 2022 it will make purchasing more expensive, so if you are getting squeezed on your rent, call us and let’s see if we can get you into a home.  To purchase, our buyer specialist line is 239-489-4042.  To sell, our listing specialist line is 239-310-6500.

Good luck and happy house hunting! To find your home’s value, go to www.SWFLHomevalues.com

Southwest Florida sales prices climb to highest levels of 2021 in November.  Official sales numbers were just released and the median price of a rose to $376,500 while the average price rose $533,697.  This represents a 18.0% and 26.3% price increase respectively.

The median price last November was $319,150.  In October 2021 it was $368,000.  The median price rose 2.31% last month alone.  The average price last November was $422,452.  Average price rose over $111,000 in the past year and it rose 6.56% in the past month.

Sales Prices Climb to Highest Levels

As you can see, prices are still appreciating rapidly.  Inventory is down 38.6% from last year and declined 5.08% in the last month.  Sales are doing well, inventory is falling, and prices are rising rapidly.  Our market couldn’t be hotter, and yet it seems somebody said something like that last month.  The truth is, the market is hot, and it could get hotter.

Florida is where everyone wants to be.  We have always been known for sun, sand, beach, palm trees, and moderate year-round temperatures.  Who wouldn’t want that?  Lately Florida has also been known for low Covid numbers, low taxes, and low government mandates which is enticing to people who want to enjoy their lives or run a business.  We are seeing customers move here from practically every state.  Of course, some states stand out more than others.

What Will 2022 Bring?

We don’t see much change coming in 2022.  People love how Florida is run, and that looks to remain.  What we cannot predict is how other states will govern in the coming years.  Florida will continue to see a tax and climate advantage.  For the reasons and the leadership reason we expect the Florida real estate market to continue its journey in 2022.

Of course, we will keep our eye on the overall economy, interest rates, and political changes.  All these factors have led to a Florida advantage, and any changes would need to be evaluated. If the phone calls we are receiving from out of state buyers are any indication, 2022 is going to be another good year.

We are also hearing that people are flying into SW Florida in masses again.  In fact, the airport has released statements that there are no parking spaces available. People are having to drive in circles until spaces open.  This tells us more people have moved to SW Florida in the past year as I don’t recall this issue before.  It makes sense because the roads seem busier this year too.

Best SW Florida Real Estate Online Search Engine

We don’t have to prove how great things are in Florida.  The numbers speak for themselves.  If you are interested in buying, now would be a great time.  Prices are doing well, and as interest rates rise the mortgage payments will only go up.  The best website to search for new listings is www.LeeCountyOnline.com It is updated every few minutes and has the latest listings, unlike some of the other websites.

It is also a good time to sell.  Prices are at their highest.  Many sellers do not even realize how much their home is worth.  One of the best websites to check your value is www.SWFLhomevalues.com.  It has the most accurate data we have found.  While no computer estimate will ever be 100% accurate, this website is one of the best.  Regardless of the price, it will remind you of your new price going forward, so you can keep track of the direction of the market.

If you have questions about the market, give Sande or Brett Ellis a call at 239-610-3500  We can show you how we get Top Dollar for our listings.  If you are a buyer, we might have a new listing coming on the market you might want to know about.  Our team is a great resource in SW Florida.

Happy New Year!  Let’s make 2022 your year!

Each week we give you our insight and analysis on the housing market and the economy. We talk about the factors that will influence the Southwest Florida real estate market.  This week we thought it would be fun to research top housing expert predictions for 2022 on the national level.  Keep in mind, local markets may vary, and our sources are from a wide range of experts and data sources.

The National Association of Realtors conducted a study of 20 top economic and housing experts and issued a report.  We will use this report and several other expert predictions and hopefully a consensus will form.

The NAR report from 20 experts predicts home prices will climb 5.7% in 2022 while inflation will tame and settle in at 4% for the year. The group predicted the Fed will raise their rates twice in 2022 by .25% each time.  Just this past week the Fed announced it is looking at increasing rates three times in 2022.  If the Fed follows through with three rate hikes, this will exceed this group’s predictions. Lawrence Yun, chief economist for NAR predicts 30-year mortgage rates will rise to 3.5%.  We have seen other predictions that suggest 3.6% to 3.7% recently.

Yun predicts about 6 million sales in 2021 and about 5.9 million in 2022.  Rising rates may stall home sales, but they are still predicting price gains.

Another article from Fortune Magazine studied 7 forecast models for 2022.    The article quotes Zillow predicts a 13.6% price gain from October 2021 to October 2022 while Goldman Sachs predicts 16% between October 2021 and December 2022. Additional article from Forbes Magazine with Top Housing Experts Predictions for 2022.

The reason for their rosy outlook stated demand outpacing supply and no letup in millennial home buying growth. Fannie Mae and Freddie Mac are predicting 7.9% and 7% price gains respectively.  Redfin and CoreLogic see price gains of 3% and 1.9% in 2022.

More articles quote more sources, so there seems to be no shortfall of predictions.  The consensus seems to be more price gains in 2022 to varying degrees, increased interest rates and borrowing costs for buyers, and inflation.  Builders are still going to build, but not fast enough.  Hopefully supply chain issues will abate in 2022.

All these articles sort of prove the point that now is a good time to buy or sell.  Prices are likely to go up along with borrowing costs, so it is definitely advantageous for buyers. Sellers may finally have enough equity to move on to their next home.  Prices have risen enough to make some sellers want to move.

No matter whether you’d like to buy or sell, or both, the Ellis Team at Keller Williams has tools to help you.  I met with a seller the other day that needs to sell before he can buy, but he’s afraid of being homeless and not finding a property.  I told him about a program that allows him to purchase a home first, then put his home on the market and only pay one mortgage payment.  This way he can find a home that suits his needs and purchase it without having to sell.  He can then move in a relaxed atmosphere and have time to sell his existing home, all with one low payment.

If you are thinking of selling, there are solutions.  For other sellers we have been able to negotiate delayed occupancy after closing to allow time to purchase a different home and move out.

If you are contemplating selling but don’t know how you could do it, call Sande or Brett Ellis 239-310-6500.  If you are just curious as to your home’s value, check out www.SWFLhomevalues.com for a fast and free computer estimate.

Good luck and Happy Holidays!