We just pulled new numbers from MLS and found that housing inventory grows most in the higher price ranges since March.

Overall single-family home market inventory in Lee County grew to a 1.18 month’s supply, up from .82 month’s in March.  Where we see the most differential between the two graphs is in the $300k price and up. Housing inventory grew the most as the prices go higher. The spread in each subsequent price range grew higher.

Housing Inventory Grows Most in Higher Price Ranges
May 2022

This explains why we are seeing price reductions again in the housing market. Some sellers got a little ahead of the market, and that was OK while the market was rising rapidly. Today, the market is price sensitive again. Sellers must be priced correctly in this market.  Competition from other sellers is coming as more listed properties hit the market each day.

March 2022 housing inventory
March 2022

It is still an excellent time to sell your home, but you must be competitive in the market. Overpricing your home in this market may not accomplish what you want.  We are not saying prices are headed down. That would depend on how many more sellers choose to list compared to how far and fast interest rates rise and how that affects demand.

Marketing and Pricing Crucial

What we are saying is marketing your home extensively and pricing it correctly are critical. Gone are the days you can just list it in MLS and post on some portal websites and it will sell. To receive Top Dollar, it takes marketing and correct pricing. especially when housing inventory grows most in higher price ranges..

If you follow this advice, we think you will be happy with the result. Sellers that do not do this will not receive top dollar for their home, and worse, might miss the market altogether.

The Ellis Team has been through changing markets many times in our career.  If and when the market does change, there will be some sellers that look back on 2022 and kick themselves because they missed one of the greatest opportunities in their lifetime.

Maybe the market isn’t as hot as it was 6 weeks ago, but it is still excellent. Throughout the history of real estate markets most sellers would kill to have a 1.18 month supply of homes on the market as competition. This is an opportunity for current sellers, and perhaps those wondering when the market would top.

We cannot say for certain if the market has topped and where it will go from here. Rising inventory levels and price reductions tell us it has at least paused, which markets sometimes do. Markets don’t always go up or down. Sometimes they meander awaiting direction from buyers and sellers.

We have so many factors pulling and tugging at this market, and it will be interesting to see which forces win out. Rising rates usually cools the market, as does fear of recession. However, Florida is still a popular destination that many would like to relocate to.

Thinking of Selling?

If you are thinking of selling your home, please reach out to Brett or Sande Ellis 239-310-6500. We can guide you through the market and help you explore your options. We can even help you find your next home which is easier not that inventory is rising. Or visit www.SWFLhomevalues.com for a Free instant home valuation online.

If you are looking to buy, our buyer specialists are here to help guide you as well. Just call 239-489-4042 or visit www.LeeCountyOnline.com to begin searching the MLS like a pro.

Good luck and Happy Selling!

Ellis Team Weekend Open Houses

Open House Saturday 12-3 PM

Eagle Reserve Lakefront Pool Home
Open House Saturday 12-3 PM

3951 Spotted Eagle Way

3 Bed 2 Bath Pool Home on Lake

 

Open House Saturday and Sunday 12-3 PM

Waterfront Pool Home Gulf Access
Gulf Access Pool Home

2519 SE 22nd Ave

4 Bed 3 Bath Home Direct Access Waterfront Pool Home

 

Open House Saturday and Sunday 12-3 PM

Pool Home on Golf Course
Cape Royal Home

3 Bed 2 Bath Pool Home on Golf Course

11849 Lady Anne Cir

See Listing Inventory Rose 40% Since February published just a few weeks ago. Since that article, inventory has now risen 64% since February.

Is Real Estate a Risky Investment with Inflation and Possible Recession?

 

Finally, we have some good news for home buyers in 2022.  This article will spell out some facts that are benefitting home buyers right now and a scenario that may help in 2022.

Good News for Home Buyers

For the past several years home buyers have been competing with other home buyers in addition to personal investors and investment companies seeking return. Yields in the bond and stock market have been hard to come by in recent years, so Wall Street money started flowing into real estate.

With bond yields rising some money is starting to flow into bonds even though that is risky in a rising interest rate market. When rates rise, the price of bonds falls, so investing in bonds is risky until rates settle out. Just the same, some money is going in on bonds.

For stocks, the price multiples were so high it was hard to get any yield and investors were simply banking on higher prices in the future. Now that the stock market has been correcting in 2022, we may see money start flowing into stocks later this year.  Yield is much easier achieved at lower price multiples, and we are seeing that.  The only wildcard is future earnings and their impact from inflation and possible recession.

2 Scenarios

If money starts flowing into stocks again it could do one of two things.  It could take money out of main street and back into Wall St.  Or it could further fuel Wall St money and make its way back to main street via increased shared investment into real estate.  The answer probably depends on how far the stock market eventually falls and what the opportunity is there.  We didn’t see Wall Street money come over into real estate big time until stock valuations became quite high.

These investment companies have been scooping up homes and placing them in rental programs by the bunches.  All these sales are competition for home buyers and essentially take inventory off the market. If this trend slows, it could help home buyers in 2022.

We are seeing increased inventory on a weekly basis.  This past week single family inventory grew another 81 homes in Lee County while pending inventory dropped 38 homes.  That is a difference of 119 homes in one week. Not only is current inventory increasing, but future inventory may too if investors slow down their purchasing.

Wall St Vs Main St

The decline of stock market value may lead to this.  If investors start selling funds like Blackrock (BLK) whose stock is down 17.13% in the past month there may be less future investment in homes.  If Wall Street determines that real estate is about maxed out in price due to rising interest rates, they will simply evaluate their purchases on total returns of rent vs price and leave out expected future price appreciation due to almost free money.

Buyers have been getting hit by rising prices and rising interest rates. Rates are still probably headed higher, but price increases could slow down as inventory grows. Not only is inventory growing in SW Florida, but it is also growing in many markets across the country.

If the US enters a recession as interest rates continue to rise, it could further slow home buying. In this case, home buyers will have more choices to choose from, and perhaps lower home prices to offset those rising rates.

We believe in almost any scenario home buyers are better off getting in now before rates rise higher. Mathematically, if rates rise another 1.5% to 2%, it will take a drop of about 20% in home prices to make up for that, and we do not see that happening.

If you are trying to buy or thinking about buying, we may have more options for you than a month ago. Simply go to www.LeeCountyOnline.com to see All the inventory updated in real-time. Or call 239-489-4042 for a buyer specialist.

If you are thinking of selling, go to www.SWFLhomevalues.com to see your home’s current value online, or call 239-310-6500 for a Top Dollar Specialist!

Weekend Open House

Open House Saturday 11 AM-2 PM

2519 SE 22nd Ave, Cape Coral FL

Direct Access Waterfront Pool Home Cape Coral Florida

 

Southwest Florida listing inventory rose 40% since mid-February as interest rates have also been rising.  Are the two numbers correlated? We’re not sure, but they could play a factor.

Listing Inventory Rose 40%
SW Florida listing inventory rose 40% since February 15th

We do know that many builder homes that have been under contract for a while are coming back on the market because buyers no longer qualify for the home they purchased many months ago. Home buyers are scooping them up, but that also means those buyers are not buying a resale they might have otherwise purchased.

Local Buyers Feeling the Pinch

Some local buyers have been squeezed out by out of state buyers and institutions buying property in SW Florida at a rapid pace. Not only are interest rates rising, but so are home prices and insurance. All combined it is pricing many out of the market. Many Realtors are noticing homes taking a little longer to sell and not quite so many offers on each property.

Another thing Realtors are noticing is the quality of offers has changed. A few months ago a property might receive 20 offers of which 7 were cash. Today that same property might receive less offers and none or few are cash.

Some properties are still in high demand and generate cash offers while others not so much.  Overall listing inventory is still very low, but it is climbing a bit. Back in 2019 we had over 7,000 homes on the market. Today we are at 1,503. Back in February we were at 1,071.

There is a difference between official numbers and MLS numbers we pull. I am pulling inventory every Tuesday compared to the official numbers pulled the last day of the month.  We believe we will spot trends before the official numbers are released 3 weeks later. In essence, we won’t receive official April numbers until about May 22nd or so.  Because we pull those numbers internally every week, we can report to you before the media does.

Latest Information

Ellis Team clients always have the latest information, and News Press readers of this article are not far behind. Opportunity is best realized when markets make a move and being the first to spot emerging trends maximizes our client’s ability to capitalize on that opportunity.

We are not saying the market Is changing today.  The best characterization would be slight shifts in the market, but still very strong.  I remember several times over the last 34 years we have seen a major shift coming and we were able to advice our buyers and sellers accordingly. By being the first to spot the trends we were able to save our clients a lot of money and change their lives.

Not every client comes to us before the market changes.  People must buy and sell at various times, and they are just in the market we are given at that time. In that case, we bring our considerable marketing and expertise to bear to bring them the best outcome for them. Best outcomes come from experience, wisdom, and marketing muscle given the circumstances. Rest assured, as the market changes, we will always put our clients in the best possible situation for them.

50 Basis Point Rise Expected

As we write this article the Fed has not announced their decision yet. We expect 50 or75 basis point change to rates, and mortgage rates have already baked that in to current rates. We will be looking at the outlook for future hikes in June and how the market reacts to the Fed decision and inflation.

All these factors affect home affordability, and eventually it can affect home prices here in SW Florida. You can always speak to Brett or Sande Ellis at 239-310-6500 and we can discuss your situation. Or visit www.SWFLhomevalues.com to get an instant analysis on your home and track future direction of prices.

If you are thinking of making a move in SW Florida, call the area’s top team in real estate. We’ve sold over 5,000 homes locally and we study the market like nobody else. Listing your home with someone else could cost you thousands, and it could cost you a sale altogether. You don’t want to miss this market, because it’s the best one we’ve seen in our career.

Good luck, and Happy Selling!

Weekend Open House

Open House Saturday 12-3 PM

2519 SE 22nd Ave, Cape Coral FL

Direct Access Waterfront Pool Home Cape Coral Florida

 

Lately it seems everybody wants to know how long this market will last.  Thankfully, we developed an indicator for that years ago that predicted the changing market. It is called the Ellis Team Current Market Index Indicator or Market Direction.

Current Market Index Indicator of Market Direction

We analyze a series of numbers and from that it spits out a number. The lower the number, the better the real estate market is for sellers.  As the number changes significantly, it signifies a shift in the market.

Past Current Market Index Indicator Performance

Look back at the current market index indicator from 2005. Back in 2005 we went on air and told people the market was about to change.  While this chart shows 2005-2012, we were taking readings years before that showed a change was coming.  After the TV story broke, agents and consumers thought we were nuts. They commented that the current market back then was like a train on the tracks, and nothing could stop it.  Fast forward a year later and nobody was questioning what was happening in the market.

In September 2005 the CMI number was 2.11 but headed up.  That’s when we knew the market was headed for trouble. Today the number stands at .51, so it shows you how much healthier our market is today versus back in 2005.  We knew the market was not healthy in Fall of 2005, but few agreed with us. When the money is pouring in and people were flipping homes making $100k per transaction, sometimes you don’t want to see reality.  Greed is an emotional reaction. We are not saying greed is bad, but it is not always hatched from data or logic.

Numbers Not Based on Emotion

Fortunately, we study the numbers so we can impartially see what is really going on.  If you ask an agent how the market is, the answer you get will be in direct relation to how many sales they have the past month.  But that wasn’t the question.  The question is, how is the market, not how well are you doing in this market.

You see, the agents answer is also born out of emotion.  It is a feeling, and they feel good about the market when they are making sales.  When a client is paying you for real estate advice, they aren’t paying for how good you feel as an agent. The agent doesn’t mean any harm by it, it’s what they know.

We will report our CMI numbers from time to time, but we do reserve this data in real-time for our current clients.  Our clients are the most informed about what is going on in the market.

Gary Keller

Gary Keller runs the nation’s largest real estate franchise operation in America, and we can tell you what he watches. Gary looks at three indicators. 1. # of Homes sold. 2. Change in median price 3. Change in inventory.

We also look at these metrics as we agree with Gary, they are excellent indicators.  They are not the exact same as our index, but you can never go wrong with advice from Gary who looks at the national picture. There is more than one way to analyze a market, and many are worth studying.

So where is the market headed?  We have some headwinds to contend with, but we also have some things in our favor in Florida as well.  It seems everybody wants to be here, and demand is high. How high and how long that continues is the question.

See the Trend and Move Before the Market Moves

While the answers may not be apparent just yet, we can say we will see the trend before the market feels it. Closed sales are a lagging indicator in a changing market.

The last several market changes we were able to advise our clients and make their move before the change was felt. When our market changes again we hope to do the same.

If you’re considering making a move in this market, call Brett or Sande Ellis 239-310-6500 or visit www.SWFLhomevalues.com to get an instant idea of your home’s value in today’s market.

If you need advice and want to plan your next move, it pays to talk to us!

Good luck and Happy Home Selling!

 

Where are home prices going as the Fed raises rates? https://video.foxbusiness.com/v/6305514610112

Many homeowners have no idea how much an agent’s experience matters when selling their home. Home sellers believe all agents do the same thing because they all sound alike. If all agents do the exact same thing, why not select the least expensive agent? It stands to reason the less you pay in commissions and closing costs the more will end up in your pocket, right?

Experience Matters When Selling Your Home

Big Difference in Agents

The truth is there is a big difference in what certain agents do, how they act, negotiate, advertise, and present your home. The result could be a difference in tens or hundreds of thousands of dollars, not to mention keeping the sale together.

We all know some famous attorneys win more cases than the average attorney. This is because they are persuasive, knowledgeable, experienced, and know what to say and when. They also know what not to emphasize to a jury, and they certainly wouldn’t want to make a legal argument that is not applicable in their case, even though they may be very good at that argument.

The same is true in real estate. We watch agents answering objections with their go-to script because they are good at it even when it does not apply.  This tells us they are not listening to the customer, and they do not have enough experience to understand or answer the true objection, so they go with the one thing they know.

I guess if you know one or two things well you will make some sales. The question is, are you truly serving your clients? A seller may be hiring you to sell it for all it is worth. The agent feels great because they sold it in one day in a really hot market. Did the agent sell it, or did the hot market contribute to the one day?

Agents without business or experience will often discount what they charge because they must. They may not be in business next year anyway, so why not make what you can now? This is not necessarily in the best interests of the client, but the seller doesn’t know any better and neither does the agent.

This has been one of the best markets we’ve seen in our lifetime, and it may never come around again. It would be a shame to waste it away with an inexperienced agent who could cost you a sale and net you less than all it’s worth.

Almost always experience matters when selling, and perhaps now more than ever.  We do not have enough space to write about all the ways inexperience can cost you when selling. Obviously negotiating experience matters when selling. Knowing what to say, how to say it, and when to say it. Avoiding key phrases that sound good but only turn a buyer off is another.

What’s Your Definition of Marketing?

Most agents do not market a home. Sure, they stick it on MLS, place a sign on the property, and pray that someone else sells it. By placing home in MLS, it goes out automatically to Zillow, Realtor.com, Trulia, etc.  This is not marketing.  This is the same old thing all agents do because it is free. It does not make your home stand out, and it will not bring you Top Dollar!  If everyone, does it, how does it make your home stand out?

An open house flyer and a Free online open house ad is not marketing. It is an opportunity for an agent to pick up buyers for Free! Paid targeted advertising for open houses is another matter entirely.

Paid advertising is when an agent spends money on your home. Knowing where to spend, how much, and when is critical. Unfortunately, we have thousands of agents whose only experience is taking the first offer or two in a hot market. If that is all you’ve ever known, you don’t know how to extract information to get Top Dollar!

Experience Matters When Selling

Experience matters when selling your SW Florida home. Call Sande or Brett Ellis at 239-310-6500 We’ve both been selling here locally for over 34 years, and we’ve seen a thing or two. We’ve worked in up, down, and sideways markets and know all the right questions. Chances are we have all the right answers. Or visit www.SWFLHomevalues.com to get your home’s value online instantly.

Register for our Ellis Team Mother’s Gift Package 2022

The Florida insurance crisis threatens home ownership by pricing many buyers right out of the market.  Most people do not realize what has happened in the last year, and they are about to find out.  Current homeowners will be affected at policy renewal, or upon policy cancellation.

Florida Insurance Crisis Threatens Home Ownership

Already we have a home affordability crisis. The Florida insurance crisis threatens to make the affordability crisis even worse. Let’s break this down into two areas. Flood insurance and property insurance.

Flood Insurance

The National Flood Insurance Program upgraded their program to Flood 2.0 What this means is properties that were previously in flood zone x and other non-required flood insurance areas have been reclassified.  Flood insurance may now be required.  The other startling fact is most properties that were in X paid an even $677/yr.  We are now seeing X properties with premiums over $3,000.

We have seen some flood zone A policies more than $6,000/yr.  If you already have a NFIP policy, they cannot raise your rates more than 18% per year.  However, after six years you will be maxed out at the new rate.  I just looked up a property that was $677 last year and now it is $6,4000 this year.  That is $533/mo, just for flood insurance. Now we must add in homeowners’ insurance, and we haven’t even gotten to that yet.

We would suggest calling your insurance agent to see if your property has changed.  There are some private flood policies available, but when they fill up, they stop writing policies.  If you have a NFIP policy, do not cancel it without taking to your insurance agent first. It may make your home difficult to sell without it.

Property Insurance

7 insurance companies have recently filed bankruptcy and three others have stopped writing new policies altogether. If you have a tile roof over 20 years old, some are cancelling policies. Others are doing it at 30 years old. Shingle roofs are between 10-20 years. We are losing options. If you are selling a home, you may be required to replace a roof. Even if you’re not selling, you may have to replace your roof.  Insurance for older homes is increasing rapidly as well.

Insurance companies are looking for any reason to not cover the home, and any reason to charge a higher premium. They lost a lot of money, and insurance companies do not like losing money. Insurance companies are risk adverse going forward, so anything that looks like it could have an upcoming claim is being excluded.

They are checking age of water heaters, plumbing valves, air conditioners, roofs, truss tie downs, etc.  Some homeowners are seeing their rates doubling or tripling, while others are being canceled.

 

Triple Whammy

Home buyers are being hit with rising flood and property insurance along with rising rates. It is limiting how much they qualify for. In fact, some buyers on new construction are cancelling contracts because the interest rates are higher now than when they signed contract and they no longer qualify for the loan. Same with the flood insurance on some lots. Homeowners insurance on new homes is still affordable.

Typically rising interest rates curtails prices because it affects affordability. We still have strong demand and a low supply of homes on the market, although it is rising. Listing inventory today is at the highest it has been all year.

Future of Real Estate Prices?

The question is going to be, will the number of people moving to Florida offset or exceed the number of people priced out due to rising rates? The answer to that question will determine the future of real estate prices in Florida. Marketing to out of state markets will be crucial to getting top dollar for your home.

If you have real estate questions, call Sande or Brett Ellis 239-310-6500. Or you can get an instant and Free online home valuation at www.SWFLHomevalues.com Be informed. Rates are expected to climb rapidly in the coming months. The choices you make today could determine your future!

 

Should I buy Real Estate Now or Wait for Prices to Drop?

Loan experts forecast 6% interest rate coming to the US housing market in 2022. Currently rates have risen to about 4.75%. We have witnessed the fastest rise in mortgage rates in US history the past 4 weeks.

Forecast 6% Interest Rate Coming
6% interest rates coming in 2022 according to forecasts

Mortgage rates skyrocketed 24% in the past four weeks, and they are not done yet. We have been warning readers that rate hikes were coming.  It is not too late to make a move, but those that begin the process now will benefit over those that wait.

Save Money by Buying Now

Buyers are better off buying now. Even if a buyer believes home prices will fall, mathematically they are still better off buying now at lower rates than waiting.

Home sellers are better off acting now because rising rates dampens buyer enthusiasm, not to mention the amount they can afford to pay for a home.  The real question is, how will rising rates affect homebuyers up North flocking to Florida but needing to sell their home first? This is where we could see an impact. Many of these buyers turn into cash buyers, but if they face a difficult time selling their home up North, it could affect us here in SW Florida.

There is no question people still want to move here. The question is, how much can they afford when they get here, or can they get here? Many locals have tapped out because prices have risen so much and priced them out of the market. Rising rates have already lowered the price point they can afford, so it cuts into demand.

Builders are losing contracts from buyers who no longer qualify for the mortgage since the construction contract was signed. The good news is there are still buyers out there willing to scoop the property up. Builders appreciate the fact they are losing buyers because many of those deals were signed at year ago prices. The builder can now sell to a different buyer at today’s prices.

Rates Affect Affordability

Just the same, rising rates are limiting how much buyers can pay for homes, and when enough buyers are affected, it will affect the overall market. With forecast 6% interest rate coming soon to our market we are watching its effect on home prices.

The other thing we are watching is inventory levels. Daily levels are rising a bit. Overall housing inventory levels are very low in Southwest Florida. It is still a good time to be a seller, but the future becomes a little less settled later in the year.

Most economists are predicting a recession later this year or next. The yield curve has inverted which signals an upcoming recession.  See our article on February 10th at https://blog.topagent.com to read up on how that metric has predicted every recession since the fed began publishing it in 1976.

Rising Rates Will Cost More Than Benefit of Falling Prices

Prices may continue to rise. They could fall back a bit. Nobody knows exactly where prices will go except that we don’t anticipate large swings one way or the other. What we do anticipate are rising rates, and that will not be fun for buyers or sellers. Our team has experience working in up, down, and sideways markets so we will be with you every step of the way with best guidance. Many Realtors have only worked in one cycle and don’t know what to do if the cycle changes.

I remember back in 2005 when I went on TV and told everyone the market was about to change. Many Realtors told me I was crazy and didn’t understand the market we were in.  I am not calling for a change like we saw back in 2006.  I am saying things are about to change. It will not be as fun for a seller as the last 2 years have been, but goals can be accomplished, and we’ll have to work a little harder to find buyers and keep deals together.

If you have questions about the market, call Brett or Sande Ellis 239-310-6500 or visit www.SWFLHomevalues.com to see the value of your home instantly.

Good luck and happy selling!

 

Current homeowners watching interest rates are contemplating whether to make a move in this market. Potential sellers are worried about where they would move to. They are also worried about financing their next home and how much more it might cost if they wait.

Homeowners Watching Interest Rates

 

We’ve talked a lot recently about how rising interest rates can dampen future prices. Rising rates not only hurt first-time buyers, but they also hurt move-up buyers.  Lateral and move-down buyers are hurt too if they are obtaining a mortgage.

The advice we give is look at your current situation. Do you love your home? Does your current home meet your future needs? If you love your current home and it meets your future needs, moving isn’t necessary. If your current home needs some expensive repair items like roof, air conditioner, water heater, etc. are you prepared mentally and financially to make that investment? Insurance companies are requiring these improvements, so they will not be optional.

6% Rates

Interest rates could increase another 2% or more this year. Waiting might seal your fate in your current home, so asking yourself these important questions are crucial right now. As agents, we are not here to sell you anything or convince you to do anything. These are questions you should ask yourself and answer yourself.

We are here to answer your real estate questions. When a homeowner comes to us with an idea, we help structure a plan to make that idea a reality. Or we point out potential deficiencies in the plan. There is nothing worse than starting a plan and not having it thought through.  We have talked some people out of selling because the back end of the plan didn’t have a realistic end game and we did not want to make the homeowner homeless.

On the other hand, we have helped some sellers devise a plan to accomplish their end goal in ways they didn’t know were possible. For instance, we have some lenders that will lend money at today’s current rates and allow the seller time to sell their existing home, all while only paying one mortgage payment.

Other times we have negotiated lease-back terms favorable to the seller to give them time to make their next move. The point is, there are options current homeowners may not have considered.

We Can Talk

If you are trapped in a home that doesn’t work for you, call Sande or Brett Ellis at 239-310-6500. We can sit down and talk about your situation.  We’ve helped many homeowners in the past because we listen to your situation and provide answers.  Sande and Brett have built their reputation on giving sound advice and not selling outcomes just because we want more sales. When you start with the consumer in mind first, everything just seems to work out the way it should.

Homeowners also like our home valuation website www.swflhomevalues.com because it gives an instant value of your home. It is fun to track the value each month as the system gives you a new number over time, because the market changes. Many homeowners are not aware of how much their home is worth.

Do not make decisions based off a computer number though. The Ellis Team has been selling homes for far more than appraised value lately, so selling it for appraised value in one day might be leaving tens of thousands of dollars on the table. The Ellis Team uses advanced marketing to reach the greatest number of buyers, not just the ones looking at national portal sites. We can target buyers looking for homes locally and from out of the area. Marketing is more complicated than ever. Anybody can sell a home in 1 day in this market. Few can sell for Top Dollar, and that’s where we come in.

Give Sande or Brett Ellis a call. Interest rates are rising in 2022 so this is the time to ask yourself an important question. After that, you know who to call. Sande or Brett Ellis 239-310-6500

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.

Home Affordability Dictates Prices

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?

Is the SW Florida housing market priced correctly in 2022?  Let’s take a deep dive and analyze some key statistics.

Housing market Priced Correctly in SW Florida

Keller Williams has been analyzing the national market for years. In their estimation, 4% annual appreciation is the standard.  When the market surpasses the 4% appreciation rate for an extended period, it can get in trouble. Beginning in about 2002 the market began eclipsing 4% cumulative appreciation. It continued to eclipse that rate for 6 years and on the 7th year it corrected to the norm. What happened after 2008 is a result of prolonged riding above the line for an extended period.

We not only rode above the line, but we also rode high above the line. We then proceeded to ride below the line for 12 years.  Had we ridden just a little bit above the line the correction wouldn’t have been so great.

Fast forward to today. 2021 was the first year we exceeded the line. We are expecting price gains in 2022, and if they pan out as anticipated we will once again be above the line, but not by too much.  Again, the line is a guide, and it is OK to go above or below the line.  The chances of being exactly on the line are slim, although for 12 years on this graph we were right at the line.  The line is scary accurate over time.

How long can we ride above the line?  That depends on how high we go above the line.  So far, we haven’t gone over by much. With the Fed expecting to raise interest rates in 2022 combined with rising gas prices, each can work to slow the rise of home prices. Each eats the purchasing power of buyers by eroding their spendable disposable income.

Another factor we like to track is inventory levels. Nationally inventory sits at 2.3 months, and the average line is 5.9 months. Both nationally and locally inventory levels are below where they should be. This tells us it is more fun to be a seller than a buyer. We are closely monitoring inventory levels. When we see a significant rise in levels, we need the upward pricing pressure will abate.

 

So far, we are not seeing that yet. However, we do have headwinds with rising inflation, interest rates, and fuel prices. The market can still rise in price, and most experts are predicting it will.  We are saying there are limiting factors on how much higher they can go, and how fast.

If there would be a future correction, it would not have to be much.  Unlike 2006-2009 here locally, we have not overbuilt relative to demand. In fact, we have graphs showing we are underbuilt, and therefore inventory is lacking.

Builders are doing their best to catch up.  They will not catch up anytime soon. The question becomes, will sellers decide to cash out in enough quantity to affect the market? Nobody knows the answer to that.  Our bet is rising rates will temper the market, but no correction will be necessary, at least not in 2022. We would need to see prices rise substantially to warrant a correction in 2023. If prices rise enough, they could come back to today’s price plus or minus a few percent. If prices rise as expected, perhaps no correction will be necessary.

A lot will depend on how far interest rates rise, how persistent inflation is, and if incomes keep up with inflation.

Politicians talk about inflation being transitory and how inflation will moderate later this year. All we can say is it will have to, because if it doesn’t, Americans will be priced out of their standard of living. Incomes simply cannot keep up, and inflation hurts the little guy the worst.

If you are thinking about selling in the next year, we should talk and come up with a strategy for you. Financial planners meet yearly with their clients. We believe 2022 should be a year you meet with your Realtor to update your plans. We’d love to be your Realtor. Call Sande or Brett Ellis 239-310-6500, or visit www.SWFLhomevalues.com to track your home’s value going forward.