Homing In: Are the monetary policies of the Fed coming home to roost?
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A funny thing occurred in August and into early September, even before the euphoric celebrations by many economic experts, media pundits and market analysts had come to an end. In case you have not been paying attention, there has been a big celebration of what these experts believed was the apparent victory over inflation by the Jerome Powell-led Federal Reserve this summer, as the rate of inflation slowed from its record pace of a year ago.
Even though inflation has yet to reach the Fed's declared ideal target of 2% per year, it had come down enough for many experts to declare the Fed had actually pulled off the elusive miracle of engineering a soft landing in the economy and avoiding the severe recession some have been predicting for the better part of the past two years. Some of these experts have been proposing that the Fed should simply raise its long-standing and generally accepted target level for inflation from 2% to 3% and be done with it. Kind of an economic "gimme" in a "close enough for government work, horseshoes and hand grenades" type of scenario, if you will.
Everything seemed to be going along swimmingly on the surface of the economy this summer based on the official economic data coming out of the nation’s capital until the reality set in that the Fed has absolutely no direct control over oil prices. In case you have not noticed, oil prices have suddenly spiked higher in August, and earlier this week the Saudis and Russians both extended their production cuts driving oil prices towards $90 per barrel. Oil market experts are predicting prices will be back over $100 soon, with higher gas prices to follow. Some argue the shift away from America being energy independent a few years ago will continue to come back home to roost in multiple ways, including in the form of very sticky inflation.
What does all of this have to do with the housing market? If inflation reignites and spikes higher, the likelihood that the Fed will keep interest rates higher for longer increases, along with the possibility that they may be forced to continue raising rates. While a lot of experts have been expecting mortgage rates to start drifting lower this year and into next year, most were not expecting the recent surge over 7% on 30-year fixed rate mortgages. With a growing possibility of even higher mortgage rates in the foreseeable future, the risk of an even bigger chill rippling through the housing market seems to be growing.
Locally, as of Tuesday, Sept. 5, the number of active listings for Cape Coral single-family homes in the Multiple Listing Service bumped up 3.9% to 1,887 homes on the market from 1,817 active listings two weeks ago. Current list prices are ranging from $180,000 for a storm damaged home in need of repair to $7.59 million for a newly built home on the river in the Southeast Cape, with the median list price dipping to $519,900 from $525,000 two weeks ago. A total of 452 homes are listed for sale at $400,000 equalling 24% of our active listings, and up from 424 homes two weeks ago. There were 214 homes in the Cape listed for $1 million and up versus 213 homes two weeks ago.
The number of single-family homes in the Cape under contract with buyers as a pending sale dropped by 7.9% to 687 homes on Sept. 5, from 746 pending sales two weeks ago. The current price range for our pending home sales ran from $150,000 to $2.299 million on Sept. 5, compared to a range of $150,000 to $4.5 million two weeks ago. A total of 376 homes are currently under contract at $400,000 and under, down 5.3% compared to 397 homes two weeks ago. The number of homes under contract as a pending sale at $1 million and above dropped by 18.2% to 18 homes on Sept. 5, from 22 homes two weeks ago. The median pending sales price dipped a bit to $395,777 on Sept. 5, from $399,000 two weeks ago.
Based on the preliminary sales results for the Cape Coral single-family home market in the month of August, the number of closed home sales will be coming higher than in August of last year. This marks the first time so far in 2023 that our sales have come in higher than the same month from a year ago, as the total number of closed home sales through August of this year are running about 20% below the 4,509 closed sales recorded through the first eight months of 2022. Last year's numbers were supported by a record-setting first quarter, with the peak in 2022 sales reached in March at 686 home sales for the month. Even though the second quarter of 2022 topped the first quarter of that year, the monthly sales numbers came in below the March peak with sales drifting lower as the Federal Reserve launched its war on inflation in March 2022 by raising interest rates.
The impact of the Fed's shift away from its era of record low interest rates and "free money" towards sharply higher interest rates and tight money came home to roost in July and August 2022, with the number of closed home sales in the Cape plunging 23% from 622 sales in June to 477 sales in July 2022. They dropped another 11.7% from July to 421 sales in August 2022, as mortgage rates started shooting higher.
We were on pace for weak sales again last September before Hurricane Ian barreled through Southwest Florida. Closed sales plummeted to a post-Hurricane Ian low of 223 last October before slowly recovering from there. So the sales comparisons for the remaining months of this year will look favorable to last year and they are also likely to remain in line or better than the pre-COVID market years of 2017 through 2019.
As far as home prices are concerned, we are seeing split opinions out there with some experts believing the housing market has put in its bottom, while others are predicting a more substantial downturn in home prices. As we have noted on a regular basis in this column, in the overall Cape Coral single-family home market, our peak median sales price occurred in April 2022 at $470,000. The peak median list price was $610,000 on April 19, 2022 (based on our weekly market surveys). So far this year, the median sales price from January through July ranged from $400,000 to $420,000 with July coming in right down the middle at $410,000. Based on the preliminary numbers for the month of August, the median sales price weakened a bit, dipping below $400,000 for the first time this year to $396,995. Back in 2022, the median sales price in the Cape's overall single-family home market hit its low of $395,000 in January before spending the next 10 months at $400,000 and above, with this past December coming in at $399,995.
At this point, median sales prices are taking a much needed respite from the peak prices of 2022, while still remaining well above the price levels reached back in 2021. As far as time on the market for new listings, in most cases it has been taking about three to five times longer for a home to go under contract with a buyer this year compared to last year, and roughly five to six times longer than in 2021. We will be watching to see if higher mortgage rates will slow down our market even more.
The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of Sept. 4, 2023, unless otherwise noted. It was compiled by Bob and Geri Quinn and it includes information specifically for Cape Coral single-family homes, and does not include condominiums, short sales or foreclosures. 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 43 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.