Sellers Adjusting Pricing to Market Value in Southwest Florida Real Estate Market

The single-family housing market in Southwest Florida has continued to see sellers modifying their pricing to match current market value. These modifications to pricing to current market value have resulted in a decrease of the average median home prices in Southwest Florida and have helped to increase pending sales activity. This practice amongst home sellers in Southwest Florida is projected to continue and is expected to continue to boost sales activity in the area as we move forward through the remainder of 2017.

In contrast, the condominium market in Southwest Florida is still showing many units priced high and in need of price adjustments. This has had an impact on the average days on the market for condominium homes. As summer approaches and seasonal buyers are expected to return to the area for the summer selling season, condominium homeowners are anticipated to make the price adjustments necessary to attract buyers who are looking for properties listed at fair market value versus overpriced units.

Housing market reports indicate the number of overall closed sales in the Bonita Springs-Estero area within Southwest Florida, including single-family homes and condos, increased to 2,989 units for the 12-month period ending in April 2017. This is compared to 2,965 units for the 12-month period ending in April 2016. Pending sales for April 2017 were at a 7 percent increase with 3,098 units when compared to 2,902 units in April 2016. Activity narrowed slightly for the Naples area, when compared to the strong end to the first quarter of 2017, as pending sales for the 12-months ending in April 2017 showed a 3 percent decrease. Closed sales showed a 4 percent decrease and inventory, in contrast, showed an 8 percent increase. Again, continued price adjustments and the beginning of the summer selling season are expected to boost the housing market in Southwest Florida in the coming months, offering a positive outlook for the area’s residential real estate market.

Home Sales Forecasted to Top Last Year’s Totals

Lawrence Yun, Chief Economist of the National Association of REALTORS® (NAR) provided his 2017 midyear forecast and was joined by Jonathan Spader, Senior Research Associate at the Joint Center for Housing Studies at Harvard University, and Mark Calabria, Chief Economist and Assistant to Vice President Mike Pence, in presenting at the 2017 REALTORS® Legislative Meetings & Trade Expo. Discussions included the ongoing strength of the United States job market combined with an upward trend in consumer confidence, and how these factors are expected to contribute to a forecasted 3.5% increase in existing home sales for 2017. 

Yun discussed the challenges presented by low inventory and high prices in some metro areas, while Spader discussed the homeownership rate and Calabria discussed the importance of productivity and the labor force participation rate in encouraging the growth of the economy.

The first quarter of this year represents the best quarterly existing sales pace in ten years with 5.62 million sales.  Yun states that he expects activity to remain on this path and finish the year at approximately 5.64 million.  Yun’s projected 5.64 million in sales would represent the best since 2006 (6.47 million) and 3.5 percent above the total number of existing sales for 2016.  “The housing market has exceeded expectations ever since the election, despite depressed inventory and higher mortgage rates,” says Yun.  “The combination of the stock market being at record highs, 16 million new jobs created since 2010, pent-up household formation and rising consumer confidence are giving more households the assurance and ability to purchase a home,” adds Yun.

Despite the fact that the number of home sales for the U.S. is at a decade high, Yun expresses his belief that the strong labor market should be encouraging an even higher number of sales.  Yun says, “There’s little doubt first-time buyer participation would improve and the homeownership rate would rise if there was simply more inventory.” 

Yun foresees new housing construction to increase by 8.4 percent to 1.27 million for this year, but this is still not quite sufficient to make up for the low number of new homes build in the last few years.  New single-family home sales are estimated to total approximately 620,000 for 2017, an increase of 8.4 percent from 2016. 

“There was a lot of uncertainty at the start of the year, but a very strong first quarter sets the stage for a modest sales increase compared to last year,” said Yun. 

Buyers of Second Homes Focus on Investment

 

Investment home sales conquered the second home market in 2016, with a total of 1.14 million units sold for 2016, according to the recently released Investment and Home Buyers Survey results, compiled by the National Association of REALTORS^® (NAR).  However, the number of purchases of vacations homes decreased dramatically by 21.6 percent with a total 721,000 units for 2016.

NAR Chief Economist Lawrence Yun says, “In several markets in the South and West – the two most popular destinations for vacation home buyers – home prices have soared in recent years because substantial buyer demand from strong job growth continues to outstrip the supply of homes for sale.”  “With fewer bargain-priced properties to choose from and a growing number of traditional buyers, finding a home for vacation purposes became more difficult and less affordable last year,” Yun adds.

According to Yun, vacation home sales are now 36 percent below their 2014 peak.  The median price for vacation homes was $200,000, representing a 4.2 increase from 2015.  The portion of all-cash purchases in this sector dropped from 38 percent in 2015 to 28 percent. 

The median price for investment homes was $155,000 for 2016, representing an 8 percent increase from 2015.  The portion of all-cash purchases in this sector remained the same, at 19 percent, from 2015 to 2016.

“Sales to individual investors reached their highest level since 2012 (1.20 million) as investors took advantage of record low mortgage rates and recognized the sizeable demand for renting in their market as renters struggle to become homeowners,” says Yun.  “The ability to generate rental income or remodel a home to put back on a market with tight inventory is giving investors increased confidence in their ability to see strong returns in their home purchase.”

According to the survey, 42 percent of investors purchased a property with the goal of generating rental income, while 16 percent of investors purchased a home to hold onto for potential price increases.  Forty-two percent of those who purchased vacation homes did so in order to use the home for a “family retreat” or vacation property, while 18 percent of those who purchased a vacation home did so for retirement.  A large number of both investment home and vacation home purchasers said they rented the property short-term (less than 30 days).

Majority of Millennials Plan to Buy a Home in the Next Few Years

Over 80 percent of millennials in the United States who do not already own a home, plan to buy a home within the next five years, according to a recent HSBC Group research.

HSBC Group’s Beyond the Bricks, which is an independent consumer research survey of 9,000 in nine countries across the world, including 1,009 respondents within the United States, found that the dream of owning a home is very much still front and center for millennials around the world.

Millennials, who have credited slow wage growth and housing price inflation as obstacles in purchasing a home in the past, still see the goal of owning a home as an important personal aim.

The HSBC report also revealed that millennials have a need for better financial planning.  Among non-owners intending to buy a home in the next two years, 32 percent have no overall budget and 54 percent have only set an approximate budget.  More than half of millennials who bought a home within the last two years said they wound up spending beyond their initial budget. 

David Gates, U.S. Head of Mortgage Origination and Sales for HSBC, says, “This study highlights that young people strongly value homeownership, yet there are significant challenges to making the dream a reality for millennials around the world.  The perfect storm of stagnating salaries and rising house prices, paired with the need for improved financial planning can make buying a home a deferred reality.”

Close to three-quarters (71 percent) of millennials are saving more money for a deposit and waiting to earn a higher salary before purchasing a property, the report finds.

Millennials face some challenges when it comes to housing affordability, with a projected 1.9 percent increase in salary growth expected for 2017 and average property prices rising by 4.8 percent last year.

HSBC research pointed out four actions that millennials can take to help them in accomplishing their goal of owning a home:

·      Please early and consider the importance of having a deposit

·      Include extra costs beyond the purchase price within your budget

·      Consider sacrifices, such as spending less on leisure and going out, to help save more money and at a faster pace

·      Look at the big picture of your finances and shop for a home loan that best serves your needs.

Survey Points to Significant Increase in Florida Consumer Sentiment

Consumer sentiment among Florida residents increased in March to the highest level in 15 years, according to the most recent University of Florida (UF) consumer survey. 

University of Florida’s most recent consumer survey results indicate a consumer sentiment reading of 99, the highest rate since March 2002 and the second-highest rate since November 2000.  The lowest index possible is a 2, while the highest possible is 150.  All components that the index is based on showed an increase.

The current outlook that Floridians have regarding their financial situation increased from 88.1 to 88.5.  The perception of Floridians regarding whether it is a good time to buy a major household item such as an appliance increased from 99.7 to 103.5.  Hector H. Sandoval, Director of the Economic Analysis Program at University of Florida’s Bureau of Economic and Business Research says, “The increase in these two components shows that current economic conditions improved among Floridians in March.”  “In particular, women and those under age 60 displayed more optimistic perceptions.” 

The rating measuring what Floridians expect regarding the standing of their personal finances a year from now increased from 99.5 to 107.3 and participants’ viewpoints regarding the economic conditions of the United States over the next year increased from 92.0 to 99.2.  Participant viewpoints of the United States economic conditions over the next five years also increased from 89.5 to 96.7.

“Overall, Floridians are far more optimistic in March than the previous month.  The gain in March’s index came mainly from consumers’ future expectations about the economy.  Importantly, these views are shared by all Floridians, independent of their demographic characteristics and socioeconomic status,” says Sandoval.  “These expectations are particularly strong among women and those with an income under $50,000.”

Encouraging economic news has likely boosted consumer sentiment in Florida.  The labor market statewide continues to expand, with more jobs added on a monthly basis for over six years.  The unemployment rate in Florida remained at five percent in February.  According to the U.S. Bureau of Economic Analysis, Florida ranked third out of all states in the nation as far as personal income growth, with a rate of growth of 4.9 percent in personal income from 2015 to 2016.