Hello, it’s Billee Silva with the Southwest Florida Realty Show. As 2022 comes to an end, the question on everyone’s mind seems to be, what can we expect of the Southwest Florida’s Housing Market in 2023? There’s hardly a day that goes by when I don’t have someone telling me that the real estate market is going to crash in 2023. Not to be argumentative, but I highly disagree. Yes, there is a lot of confusion when people talk about the slowdown. They automatically think the market is crashing, but it’s not. Thank goodness the pendulum is starting to swing towards a more normal market. When people look at houses online, and they see price reductions, they get the mindset that the market is crashing, but what is really happening here in southwest Florida is the market is correcting itself.
When you look at November’s data which is the most recent numbers, it shows that the median sale prices of single-family homes in Lee County are still up 6.2% from November 2021. However, closed sales for the month were down 41.2% from 2021. This is not symbolic of a housing crash or a decline, rather it signifies that the median sale prices of single-family homes in Southwest Florida are on their way to possibly stabilizing.
In 2021 homes flew off the market as buyers rushed to put offers on a home, scared to miss out on lower mortgage rates. Now, buyers have grown more hesitant, in part because they have more to choose from as inventory levels have risen. Higher mortgage rates have pulled some buyers to the sidelines, cooling the frenzy. As of November, we had almost 3 months of inventory compared to only 1 month of inventory in November 2021. While the jump has been significant, it’s still well below the supply of homes on the market in 2019. Granted, Buyers have more options now than they did a year ago, but it’s still nowhere near a balanced market. Generally, a balanced market will lie somewhere between four and six months of supply. So as you can see, we still have a ways to go before we will be considered a balanced market and by balanced I mean neither a seller’s nor buyer’s market.
The current housing market has been driven in large part by low inventory levels due to years of underbuilding, intense demand from families looking to relocate and until recently, record low mortgage rates. The market crash a decade ago was caused by risky lending practices and too much supply on the market. Crashes occur when there is an extreme imbalance between supply and demand. Currently, we have the opposite. It would take an extreme movement in the market to transition from where we are today to a market on the verge of a crash.
Another myth I continuously hear from hopeful buyers is that home prices will decrease due to the impact Hurricane Ian had on the area. Historically, real estate in hurricane-affected regions actually appreciated above the national average following a hurricane. So if you look at the data pre-pandemic the average annual price increase to the housing market was typically around 2 to 3 %. If you add the hurricane premium, you’re now looking at 8-10% appreciation. Think about it, once these hurricane-impacted neighborhoods are rebuilt and everything is brand spanking new, why wouldn’t home prices increase?
Although none of us have a crystal ball, I think it’s safe to say that mortgage rates will likely be a big part of buyer and seller decisions on how to move forward in 2023. When mortgage rates were down, buyers could qualify for more, and sellers could get top dollar for their property. Now that rates are up, buyers have to opt for smaller homes - and sellers contend with fewer buyers. Mortgage rates will likely continue to rise until we start to see data showing that inflation is under control. The whole market right now is sort of waiting for the signal that inflation is subsiding and we just haven’t seen that yet.