What’s going on in the market?
My wife and I drove from Destin to Oxford MS last week to check on properties we own and manage there. We ended up leaving in the late afternoon so by the time we hit Mississippi it was dark, cold, and raining. All the weather reports warned of freezing rain and icy roads. In other words, it was tough, stressful driving. Yet we drove on. I almost feel the same way about our current real estate market… it’s hard to see what’s ahead, it’s slow going, and the news is ominous at best, yet we keep going. Here’s the thing, every indication out there tells us that the real estate market is about to fall, and yet it hasn’t. Will it… fall? The truth? Maybe. Probably.
Here are the trends we are watching for guidance this month. We are looking to see if they are going up, down or are they flat and what does that tell us about the market?
Number of Sold Transactions
This will tell us where the buyer’s minds are with regard to the market. If buyers believe that prices are going to go up, they will jump in and start buying up property before prices go any higher and we will see the number of transactions increase. Conversely, if buyers think prices are going to drop, they will sit back and wait which will result in a falling number of transactions.
Number of Pending Transactions
These are the properties that are under contract but not yet closed. Again, they tell us if buyers have confidence in the market. If the number of pending sales is trending up it tells us that buyers are worried prices are going up and they should buy now. If pending sales are trending down, buyers are not concerned about increasing prices and are in fact looking for prices to drop. How severe the trend tells how confident or not buyers are about the future – big difference means a lot of confidence one way or the other.
Number of New Listings
This will tell us where the seller’s minds are at. If the number of new listings is going up that tells us sellers are not confident in the market and they want to get out while the “getting is good.” If the number of new listings is dropping, that tells us that sellers don’t think that prices are going to hold up, so they are not coming on the market at this time. They are going to wait and see what happens.
Median New List Prices
This is where we really see what the sellers are thinking. If new list prices are up that tells us sellers believe the future is theirs for the taking. If they are dropping, that tells us sellers are looking to get out before prices fall out altogether. Again, the bigger the difference the more confidence the sellers have either way.
Days On Market
The days on market gives us a good picture of where the market is at any point. If the DOM is trending up this tells us the market both buyers and sellers are willing to wait it out and see who blinks. If it’s buyers who blink the number of pendings, sales and list prices go up as buyers rush to get their properties before prices jump up. If sellers blink, look for prices to drop and keep dropping as buyers wait to see how low they will go.
Let’s Look At Specific Markets
Destin Condo Trends:
# Sold: Way Down. Buyers and Investors are not believing in the future market prices. They are waiting for prices to come down.
# Pending: Way Down. Same story, buyers and investors are not believing in the future market prices. They are waiting for prices to come down.
# New Listings: Way Down. Seller’s are not confident in the future market prices and are choosing to sit out for now. They are hoping prices go up.
Med List $: UP. Seller’s that are in the market are trying to get a high number before prices drop.
DOM: Flat. Buyers are not confident and Sellers are not sure what to do either.
Conclusion: Prices will start dropping unless something happens to change these trends. Example: Mortgage Rates (we’ll talk about his later in this newsletter.)
Destin Home Trends:
# Sold: Way Down. Buyers and Investors are not believing in the future market prices. They are waiting for prices to come down.
# Pending: Way Down. Same story, buyers and investors are not believing in the future market prices. They are waiting for prices to come down.
# New Listings: Flat. Seller’s are not sure where the market is going and that confusion is causing them to toe the line in a wait and see fashion… for now.
Med List $: Down Some. Seller’s aren’t making a dramatic move but prices are down
DOM: Way Up. Buyer’s are saying… “Hard No.”
Conclusion: Prices will continue to drop unless something happens to change these trends. Example: Mortgage Rates (we’ll talk about his later in this newsletter.)
30A Condo Trends:
# Sold: Way Down. Buyers and Investors are not believing in the future market prices. They are waiting for prices to come down.
# Pending: Way Down. Same story, buyers and investors are not believing in the future market prices. They are waiting for prices to come down.
# New Listings: Way Down. Seller’s don’t believe they can get their price in the current market and are choosing not to list. They are waiting to see where things go.
Med List $: Down Some. Seller’s aren’t making a dramatic move but prices are down.
DOM: Way Up. Buyer’s are saying… “Hard No.”
Conclusion: Prices will start dropping unless something happens to change these trends. Example: Mortgage Rates (we’ll talk about his later in this newsletter.)
30A Home Trends:
# Sold: Way Down. Buyers and Investors are not believing in the future market prices. They are waiting for prices to come down.
# Pending: Way Down. Same story, buyers and investors are not believing in the future market prices. They are waiting for prices to come down.
# New Listings: Flat to down. Seller’s are trying to see if they can catch lightening in a bottle before prices drop but their confidence is fading.
Med List $: Down. Seller’s are starting to capitulate and accept lower prices. There hasn’t been wholesale drops but prices are definitely softening.
DOM: Flat. Buyer’s are saying… “Hard No.”
Conclusion: Prices will drop unless something happens to change these trends. Example: Mortgage Rates (we’ll talk about his later in this newsletter.)
Panama City Beach Condo Trends:
# Sold: Way Down. Buyers and Investors are not believing in the future market prices. They are waiting for prices to come down.
# Pending: Way Down. Same story, buyers and investors are not believing in the future market prices. They are waiting for prices to come down.
# New Listings: Way Down. Seller’s are starting to see that there isn’t a market at the prices they want to sell at and are choosing to wait to see what happens in the coming months.
Med List $: Up. Seller’s coming on the market are taking a last big swing to see if they can get a big sales price before the market drops.
DOM: Up. Buyer’s are saying… “Hard No.”
Conclusion: Prices will drop unless something happens to change these trends. Example: Mortgage Rates (we’ll talk about his later in this newsletter.)
Panama City Beach Home Trends:
# Sold: Way Down. Buyers and Investors are not believing in the future market prices. They are waiting for prices to come down.
# Pending: Flat to down some. Buyers and Sellers haven’t made up their minds yet as to which way the market is going. Both are taking a wait and see approach.
# New Listings: Up. Seller’s are jumping in looking to get a good price before the market turns.
Med List $: Up. Seller are trying to cash in with a big price before bad news hits the market.
DOM: Up. Buyer’s are starting to say, “Yeah, but no.”
Conclusion: Prices will drop unless something happens to change these trends. Example: Mortgage Rates (we’ll talk about his later in this newsletter.)
What else are we watching?
Like with every capital market there is a balance between income and expense and profit and loss… right? The same thing holds true for real estate here at the beach. Here are a few major issues that will impact our balance in 2023 and determine where prices go from here.
Mortgage Rates: The price of real estate typically won’t go up until the price of money (mortgage rates) comes down. This is a simple affordability play for buyers. Buyers and Speculators (Investors) will pay a higher purchase price if their monthly mortgage expense is “affordable” or the numbers “work’. If the numbers don’t work, buyers wont buy and sales prices will recede until affordability shows up. This is exactly what the Fed wants to happen.
How do we know this? Fed Chair Jerome Powell said this about the tight money policy the Fed is pursuing after their February meeting, “We have covered a lot of ground and the full effects of our rapid tightening so far are yet to be felt,” He then went on to say, “Even so, we have more work to do.” What does this mean? Well, he left the door open to further rate hikes in 2023 which does not bode well for anyone hoping for property prices to increase in 2023.
Unemployment: If the Fed does keep on it’s course to bring the inflation rate back down to 2% (and by all accounts they will) by increasing the cost of capital (money) businesses will likely be forced to eat the cost or lay people off. In the profit and loss world companies operate they will almost always lay people off.
Yelena Maleyev, economist at KPMG said recently, “Since the labor market responds to rate changes with a lag, even when the Federal Reserve begins to cut rates at the end of the year, some companies will decrease headcounts into 2024.”
Bernard Markstein, President And Chief Economist, Markstein Advisors said, “Job gains, though in diminishing numbers, will continue into the first part of 2023. Higher interest rates will be taking their toll and job gains will turn into job losses by summer of 2023 and increase throughout the year.”
The fact of the matter is, if people lose their jobs or think they are going to lose their jobs it will put a substantial damper on their plans to buy a place at the beach or even rent one for that matter. We will definitely keep an eye on the unemployment situation for you as we move through 2023.
When will things change?
I think the whole shooting match is tied very closely to what the Fed does with rates. If it keeps it’s tight monetary policy and continues to increase rates I believe we will see higher unemployment, higher cost of money, higher cost to own, higher everything until it breaks “Demand’s” back and people stop buying. When that happens inflation will drop to the level they want and the Fed will begin a period of Quantitative Easing and the cost of money will come down, companies will begin hiring, and both buyers and renters will come back to the beach in droves. At that time the whole thing will start all over again with a new group of buyers and sellers all climbing on to take the next ride.
When is the next ride? We will have to wait and see how things shake out but probably not in 2023.
Our Advice?
If you are a long term investor (not a flipper or someone at the end of their ownership cycle) you can afford to ride out this market. You may even want to get ready to add a property if prices drop far enough.
If you are a short term owner and looking at selling in the next couple of years you may want to sell now while we know prices are pretty high. We saw back in the last downturn that when prices dropped they dropped fast, they dropped deep, and they took a long time to get back. I don’t know how far prices will correct this time, or how deep the correction will be, or how long it will take to get back to the high prices again, but it could be a while. Be careful.
If you are a buyer and plan on holding it for a long time, then go after the best deal you can get, max out your rental income, and ride the market until the time is right to sell and reinvest or cash out. After the Great Recession it took 17 years for prices to get back to the 2005 highs again but… but… if owners invested in 05, and collected an average of $15,000 in annual positive cash flow per year, they would have collected $255,000 in rental income and had someone else (renters) pay off 17 years worth of mortgage cost. Not to mention, tax write offs, deprecation and many cash out refinance opportunities. All pretty good options.
If you are buying to flip and grab quick cash… be very careful.
Bottom Line
We are wealth builders, so our goal (whether you are buying or selling) is to build or protect your wealth – based on your financial goals and the current market conditions. Call us today and lets talk about how you can max out your position as a buyer, a seller or as an owner to continue building your family’s wealth well into the future.
Committed to your success,
John Moran – CEO
The Smart Beach Investor | Keller Williams Realty AT THE BEACH TEAM
Keller Williams Realty – For Your Place at the Beach