Forward looking view to 2021. Look back at 2020.

  1. Forward looking view to 2021.

We are blessed to live in an area which for most of us is well positioned to withstand the aftershock of this pandemic. Fortunately, the number of people moving to Florida has only increased.  The Annual National Migration Study by United Van Lines reported that in 2020 Sarasota was #2 “move in” metro area in the USA.  Further, the State of Florida, and Sarasota and Venice in particular, are perennially on the best places to retire and live on a fixed income list.

The 2020 American Community Survey Census reports that 53% of Sarasota County houses are equity rich, debt free, and that the County is #3 in the State for owner-occupied housing units: 137,028 owner-occupied housing units; 45,814 renter-occupied housing units.

A 2018 study by the Brookings Institution’s Metropolitan Policy Program revealed that the North Port-Sarasota-Bradenton millennial population was increasing over 10% per year.  On a percentage, year over year basis, it was amongst the Top 10 areas in the country where millennials moved to.  #9, in the company of predictable places like Seattle, Houston, Denver, Austin, Honolulu, and Colorado Springs. Millennials are now the largest adult generation in the US.  A demographic larger than the Baby Boomers and they are just beginning their prime home buying years, a trend that will continue for 30 years. 

You cannot argue demographics, population growth, low interest rates and low inventory.  Our demographic and population base is expanding.  The population estimate for Sarasota County is 436,000.  Approximate 2% annual growth.  Safe, warm, sunny, and affordable relative to our feeder markets, this trend will continue. The Federal Reserve has publicly declared its intention to keep interest rates low over the next couple of years or until inflation exceeds 2%.  Inventory levels are at historic lows, ending 2020 with a 1.1-month supply of sold homes based on closed sales.  A tour de force that will continue to send home prices higher through 2021.

A cautionary tale, particularly for senior homeowners who may be relying upon long-term current stock market returns to grow their assets or supplement fixed incomes. Once inflation begins to rise, interest rates will rise, and the equity markets and home values will be challenged.  Further, anticipated changes from a new administration to the capital gains rate, estate and general taxation could become problematic for retirees. 

Further, even with continued price appreciation, in the face of continuing low inventory, this market will be affected by the ability of buyers to sell elsewhere, move here, and when necessary or desired obtain a job.  Our job market is heavily reliant upon tourism, the hospitality and leisure industry. 

What follows are some of the indicators I will be closely following:

  1. The Federal Reserve.  As reported in the December 17th Wall Street Journal, the Fed continues to stump for more economic “stimulus”.  The Fed has increased its purchases of Treasury and mortgage securities, extending the duration of its bond holdings to drive investors into riskier assets.  It is essentially investing in the stock market.   The Fed comes in with piles of fresh money that sends stocks and other assets moving higher. The Fed is propping up the housing and commercial market.  An asset bubble for the stock market and some sectors of the real estate market are at risk.  Real estate is the most interest sensitive asset. The Fed has clearly said that it will continue its asset purchases until there is “substantial” progress towards its targets of low unemployment and inflation above 2% for a “sustained period”.
  • Interest rates.  They will stay low through 2021.   Why?  Because Federal Reserve Chairman Jerome Powell has said so.  The Federal Funds rate is 0.25%, virtually zero.  The WSJ reports, “The Fed will keep buying bonds, far into the future despite what could be a booming economy in 2021 and 2022.  There is no broad consumer price inflation in sight, but asset prices (as I have referenced above) are moving up and the dollar is moving down.  The test for the Fed will come when the post-pandemic boom arrives and signs of financial excess appear”.  Mortgage rates?  I expect them to rise slightly, hovering around 3%.
  • Inflation.  It will rise but the Fed will be flexible until such time that it is confident that it is locked in above 2% for an extended term.  According to Trading Economics, annual inflation rate in the US was unchanged at 1.2% in November, the same as October, and slightly higher than 1.1% estimates.  The rate remains well below pre-pandemic levels of 2.3%.
  • Unemployment.  It will remain high until the surge in the virus subsides and the vaccine is widely distributed.  The Mortgage Bankers Association reported on January 8th that commercial and multifamily mortgage delinquencies rose in November and December due to added stress from the winter wave of the virus.  CoreLogic reported in September 2020 that since the onset of the pandemic serious mortgage delinquencies increased 3.1%, a harbinger, barring continued homeowner CARES Act relief will increase foreclosures by 2022. Until such time as the virus is tamed, there will be continued business closures, temporary and permanent, as the economy continues to turn more “home” based, remote and digital for those who can.

Seven days ago, The Bureau of Labor Statistics of the US Department of Labor reported that 10.7M people were unemployed, 6.7% unemployment rate.  Twice the pre-pandemic levels.  Not included in the unemployment rate are 7.3 million people who are not counted as unemployed because they stopped looking for work during the last 4 weeks or were unavailable to take a job. What is revealing are the sectors in which employment grew, such as warehouse clubs and supercenters which added 59,000 jobs in December.  Nearly half of the 121,000 new  jobs were in retail, while employment in leisure and hospitality declined by 498,000 jobs. 

  • Nationwide eviction moratorium.  On December 20, 2020, the nationwide eviction moratorium was extended one month as part of the recent $900 billion economic recovery package.  According to the Center on Budget and Policy Priorities, more than 14 million Americans are not caught up with their rent.  When the moratorium expires, renters will owe an estimated collective $30-$70 billion, according to the National Low Income Housing Coalition.  And as to those evicted, where will they go?  Homelessness will grow.  The US Department of Housing & Urban Development has just issued its 2019 Annual Homeless Assessment Report. Florida is second only to California with the highest number of homeless, with 6% of the American unsheltered homeless population or 12,476 individuals.
  • Continued business closures.  A massive amount of debt and shift in shopping and dining habits has created a lethal number of bankruptcies and closures.  Coresight Research reported in December that over 30 major retail chains and restaurants filed for bankruptcy in 2020.  These national retail closures are expected to break the 2019 record of 9,302 closures tracked by the firm.  About 17% of the country’s restaurants, roughly 100,000, have permanently closed with thousands on the brink of closing according to a recent National Restaurant Association finding. Yelp data reports that due to COVID, 60% of all business closures will be permanent.
  1. Look back at 2020.

It is remarkable how well the housing market performed in Sarasota County in 2020 despite COVID and the relentless churn of geopolitical/economic/cultural events.  Prices were rising as we entered COVID.  In March and April sales slowed, homes were temporarily removed from the market, others delisted altogether.  Uncertainty led to anxiety and fear.  Internet site and call center interest bottomed.  But it was temporary.  In May, buyers began to come out of hiding.  By June sellers began to test the market, although not in sufficient numbers to meet demand.  Today prices are at all-time highs, inventory is at all-time lows.

The median sold price for single family homes was $330,000 in December, up 17.9% from $280,000 in December 2019.  The average sold price was $495,000, up 31.6% from $376,000 in December 2019.  It’s the highest rate of a appreciation, comparing current month to the same month last year since the Great Recession.  When comparing all 2020 to 2019, the median sold price increased 10.2%.  Rising prices were driven by multiple factors, some mentioned in my forward-looking view above, but in 2020 principally due to:

  1. COVID accelerated the move of buyers to our sunny and less dense Gulf Coast.
  2. Historically low interest rates.
  3. The first group of Millennials, a group larger than the Baby Boomers, entered their prime first- time home buying years. 

Quality of life, low interest rates and demographics are an unbeatable combination.

6-months of inventory is considered a balanced market. Prior to COVID inventory was already low, hovering between 3 to 4.6-months, but nowhere near the 1 to 2-month supply since June.  Although listings increased 7.4%, 839 in December 2020 compared to 781 in December 2019, it was not nearly enough to meet buyer demand. 638 homes went under contract in December, a 43.4% increase over the same month last year.  Similarly, closed sales increased 40.2%, from 854 in December 2019 to 1,197 December 2020.

Consequently, at year end there was only a 1.1-month supply of inventory based on closed sales, a 1.5-month supply based on pended sales.  With limited resale choices, buyers found themselves competing against each other, a virtual race to contract, while simultaneously boosting new home sales. The resultant challenge as we commence the new year, not enough homes for sale, prices rising.