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In looking ahead to next year, there are a handful of things which could influence our local real estate market in 2022. This list includes the potential impact of the ongoing COVID pandemic and how it is dealt with, the supply chain issues, inflation, interest rates and the monetary policies of the Jerome Powell-led Federal Reserve. People remain pretty much divided with their thoughts and opinions about the root causes and effects of just about everything, including when it comes to the economy, to the point that the only thing that seems clear is that there are, without a doubt, a lot of opinions out there.
Today, we thought we would take a dive into a recent research study about the risks of overvalued home prices by professor Ken H. Johnson, an economist with Florida Atlantic University, and professor Eli Beracha from the school of real estate at Florida International University. Basically, Johnson and Beracha have delved into home sales price data through various public sources to compare current average sales prices to estimated long-term pricing trend lines in different real estate markets throughout the country. Through their research and analysis, they have put together a ranking of the most overvalued and undervalued home markets in the U.S., which shows whether homes in a particular market are selling at a premium or at a discount to their historical price trend lines. They update their data monthly with the stated goal of trying to help buyers, sellers, lenders and real estate professionals make more informed home price decisions.
Our area, shown as "Fort Myers" in their study, was ranked as the 23rd most overvalued market in the nation based on average sales prices through Oct. 31, and we were one of four areas in Florida ranked in the top 25 nationally. The professors’ data showed that the average sales price in the Fort Myers metro area was $337,891 in October, which was a 34.64 percent premium compared to their $250,958 long-term historical price trend line for our area, which they refer to as the "expected average sales price." They indicated that back in February of this year, homes in our market were only selling at a 7 percent premium to the trend line, so there has been a rapid rise in the premium buyers have been willing to pay for a home, which they say is not a good sign for our market. But in the same breath they said that we are still a long way from the high for market overvaluation reached back in 2006, when the premium paid for homes here locally hit almost 91 percent above the then expected average sales price, before the now infamous housing market crash and “Great Recession” that followed.
Of note, their research has Tampa and Lakeland, Fla., each coming in as more overvalued than our area, showing market premiums of 39.96 percent and 37.86 percent, respectively, while Melbourne, Fla., was ranked just behind us at 34.13 percent overvalued. Nationally, their ongoing study shows Boise City, Idaho (+80.51%); Austin, Texas (+57.13%); Ogden and Provo, Utah, (+54.46% and +49.18%); and Phoenix, Ariz., (+48.94%), as the most overvalued markets in the country. Honolulu came in as one of the most undervalued markets with homes selling at a discount of 1.63 percent, and Baltimore at a 1.69 percent discount from their expected average sales price trend lines.
Right up front, we will say that we do not doubt the accuracy of this housing market study, which is based on "technical market analysis," in that it involves "plotting the numbers" for average selling prices against the long-term historical price trends in each market. It is largely reinforcing what we already know about home prices here, while also providing us with valuable and concise information about the real estate markets in the rest of the country. However, it still leaves us searching for the answer to the Holy Grail of questions on prices in our current real estate market. How high is too high? And, are we at, or near, a market top?
We have seen what we would describe as an incredible pricing shift in the Cape Coral market in 2021, which is one of the reasons that our average home sales price is up about 32 percent from last year's number, and roughly 23 percent higher than our median home sales price in 2021. Back in 2020, there were an estimated 3,773 homes sold in the Cape at $300,000 and under, while through Dec. 9, 2021, there have only been an estimated 2,433 homes sold in this price range. That is a year-over-year decline in sales of about 35 percent in this widely "affordable" price range. At the other end of our market spectrum, in 2020 there were a total of 78 Cape Coral homes sold at $1 million and above compared to a total of 216 such sales through Dec. 9 of this year. That is a year-over-year increase of about 177 percent in our high-end market. The "technical" changes in these sales numbers were driven by several market "fundamentals," including a mass influx of buyers looking to move here to escape the severe COVID lockdowns, social unrest, crime and high taxes in many northern states. This strong buyer demand combined with an abnormally tight supply of homes listed for sale, and warm winter weather conducive to outdoor activities, along with continued near record low interest rates, have led us to another year of record home sales.
All that said, from a technical market analysis standpoint, one would have to question if it is possible to post another year of outsized double digit gains in Cape Coral home prices in 2022, without it eventually leading to another market catastrophe. A rationally thinking person would expect, and we would even say hope for, home prices to at least stagnate for a while or to level off to small gains at best, and maybe even post a reasonably negative return next year. In essence, to kind of go through a healthy pause to refresh, if you will. The ultimate answer in the search for the Holy Grail questions in our real estate market will likely come down to the influences of broader economic fundamentals. Between the time we have written and you have read this column, we should have received further insights into what the Federal Reserve is planning to do with interest rates, along with its plans for tapering its market manipulation and bond buying programs now and into next year.
A number of experts believe The Fed has itself boxed into a corner with a choice of only bad or worse policy options in front of it, which are likely to result in a lengthy bout of extremely high inflation or stagflation, severe market corrections, low-to-no growth, and/or a significant recession. These pundits believe The Fed is running well behind the curve and that it has already lost control, while others are still of the opinion that the "other side" is blowing everything out of proportion. In short, one side seems to view The Fed as the keeper and savior of the economy, while the other side believes its "rinse and repeat" economic policies do nothing but create market bubbles into which it rides in on its white horses to rescue us all from the problems it created.
We may be about to find out who has it right.
The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of Dec. 9, 2021, unless otherwise noted. It was compiled by Bob and Geri Quinn, and it includes some information obtained from outside sources. 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 42 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.