July 5, 2024

One of the best measurements of current market conditions is pending sales. It reflects market activity in “real time,” before sales close. It is a clear signal of future sales activity, the number of homes getting offers, price point, percentage spread, days to pending.

According to Altos Research, in Sarasota County, for the week ending June 28, 2024, the median price of all new listings was $535,000, the median price of new pending listings was $495,000.  That 7.47% spread is an indication of the difference between homes that are currently under contract and those that are not.  It also indicates a softening in the market. It is an important variable in positioning your home for sale. 

You may be surprised to know that Sarasota County and the Florida Gulf Coast are leading the nation in price reductions. Why? Property taxes and insurance costs are way up. These costs weigh heavily on people with fixed incomes, an outsized demographic group in Sarasota County. I believe it is a primary motivator for sellers who delayed selling during the pandemic to do so now.

Currently, 55% of all homes in Sarasota County are having price reductions. The total US market is at 36%. The historical average is 30%. As more homes have price reductions, the supply of homes for sale grows, demand weakens, mortgage rates stay elevated, and prices trend lower. Because of the huge run-up in prices over the past few years, affordability is at its lowest level ever. It is legitimate to ask if a housing crash is coming.

The data is clear. No. Notwithstanding higher mortgage rates and more homes for sale, it is remarkable that prices are down only 10%. There is no data to support a crash. Comparisons to the housing crash of 2007 are without merit. The fundamentals are worlds apart.

The housing crash of 2007 began as a credit bust recession in 2005 and matriculated to a job loss recession in 2008.  Unlike the housing crash of 2007 – 2011, today, according to CoreLogic, only 1.8% of mortgages have negative equity. More than 46% of homeowners are “equity rich”, meaning the owner owns at least 50% of the home outright.

In Sarasota County days on the market have increased nearly 50% over the past year, from 45 to 70 days, contributing to prices softening.  But that is a far cry from the housing crash years when homes were on the market for 130 days. In 2009, during the belly of the housing crash, there were over 5,000 existing single-family homes for sale in Sarasota County.

Today there are 2,800 homes for sale in Sarasota County. The last time we had 2,800 homes for sale was in 2018/2019.  It was, like today, a balanced market.

An impending recession seems unlikely. The Federal Reserve is cautious about cutting rates too soon and dousing the flames of inflation. Accordingly, a further cooling of the economy, chilled by the harshness of a job loss recovery is what the Federal Reserve wants to see before it cuts rates.

The US Bureau of Labor Statistics reported last week that job openings were unchanged at 8.1 million. The current rate of unemployment is 4%, only 0.3% higher than last year at this time (Florida’s rate of unemployment is 3.3%, 0.5% higher than last year). Excepting a possible ¼% rate cut in September, I do not believe the Federal Reserve will begin to cut rates until the unemployment rate reaches 4.5%, the “natural rate of unemployment”, a more likely post-election 2025 event. Follow the unemployment data.  It is the “red flag” indicator for rate cuts.

Last week the average 30-year conforming mortgage loan was 7.11%. If there are no rate cuts in 2024, mortgage rates will stay in the 7% range, with a concurrent softening in prices.  If there is a small rate cut in September, mortgage rates should dip into the high 6% range, and prices will be flat. As the Federal Reserve gets more aggressive with rate cuts, prices will begin to rise.