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