When you hear the market is falling off a cliff it brings back memories of the past 5 ½ years of a real estate market in free-fall. Anyone reading headlines for the past several years would believe any such headline is another bad story and perhaps would bury their head in despair.

Well SW Florida, a part of the market has fallen off a cliff, and it’s actually good news. Inventory has been eaten up by buyers faster than it has come on the market, and buyers are actually competing with other buyers to buy the best properties. It’s not uncommon for a property to have multiple offers.

For historical reference, I just checked overall Lee County single family inventory numbers for October 2006 which stood at 12,669. They peaked at 16,694 in February of 2008 and basically held firm until December of 2008 when they began to fall. Currently single family home inventory stands at 9,785.

We’ve included inventory charts for Fort Myers, Cape Coral, and Lehigh Acres because overall inventory numbers can be deceiving. You’ll notice there are some minor differences, but for the most part the lines look similar and all three show a steep decline from January 2011 to present.

While national news outlets report the rest of the country could be in for a fall, nationwide analysts fail to recognize SW Florida has fallen for over 5 years and is actually on its way up. All real estate is Local, and our market is artificially priced too low, as much as 40% below replacement cost in some instances. As distressed inventory is shrinking, we’ve seen median sales price increases because the market cannot sustain these artificial low prices forever.

We do expect more foreclosures to hit the market as the legal system has been working through some challenges pertaining to the validity and legal documentation provided by the banks. We don’t believe however there will be enough foreclosures to satisfy buyers’ appetite and we could continue to see rising prices. We don’t believe the next wave of foreclosures will be as large as the first waves, and our market absorbed all those foreclosures just fine.

We’ve seen rising prices, increasing pending sales, and decreasing listing inventory for several months now. The fundamentals point to a recovering market in SW Florida. Wildcards can always influence any market, such as gas prices, terrorism, the United States mounting debt and its effect on interest rates, inflation, Middle East flare-ups, and so on. Last year we had an oil spill that had the potential to influence our market, and in some respects probably did.

Nobody knows for certain what wildcards might present themselves. For instance, not many people predicted a 9.0 earthquake that would lead to a tsunami which would lead to a nuclear crisis in 2011, but it happened. Each event led to and compounded the following event.

Absent any major wildcard events, it would appear that the SW Florida real estate market is on solid ground and mounting a comeback. We’d like to see sustained job growth before we’re ready to see sales prices take off, and this is why we know prices will increase, we just can’t say how fast and how high until more of the picture comes into play.