Written by Dalton Wade REALTOR® Phil Fricke:
Real Estate data for the month of June has been released, and the news appears favorable for home sellers…
- New Pending Sales Up Sharply in June–New pending sales are recorded when a purchase agreement between home buyer and home seller is executed. As such, pending sales represent home buying activity in the NOW time frame. June 2020 new pending sales in Hillsborough Countytotaled 3,594, up 11.3% from a year ago. This was the highest any-month total in the MLS data base going back to July 2010! Pinellas Countynew pending sales totaled 2,911 in June 2020, up 17.4% from a year ago. This monthly total has been exceeded only four times since July 2010.
- Active Listings Plummet in June–Active listings in Hillsborough County fell 35% to 3,507 in June 2020. Pinellas Country active listings fell almost 28% to 3,607 from a year ago. Both data points represent any-month lows going back to July 2010. For perspective, active listings in Hillsborough touched nearly to 12,500 during 2010 while Pinellas listings approximated 14,500. We have heard consistently that “inventory is low.” Nevertheless, the June numbers within the context of data going back to 2010 are staggering!
- Existing Home Prices Trend Higher…Selected pricing data for Hillsborough and Pinellas Counties for June 2020 showed increases. Median home prices increased year-over-year 12.9% and 4.6% in Pinellas and Hillsborough Counties, respectively. Average price per square foot increased 12.9% in Pinellas County and 4.6% in Hillsborough County in June 2020. Now, median price is the mathematical mid-point of a frequency distribution of data and is NOT a price index. Median home price data reflect mix more than price changes for existing homes. Nevertheless, the upward bias in data both for median home prices and price per square foot is, in my opinion, indicative of fundamental strength in home prices.
Key Questions–What Trends Will Emerge, and What Are the Implications for Home Buyers and Sellers?
Most Likely–New Pending Sales Decline, Pricing Softens Measurably, But the Probability That Doomsday Scenarios Play Out is Low
That we are in unusually uncertain times is irrefutable! The impact of corona virus and associated social and political upheaval on the economy is conjecture at this point. A the same time, this former Wall Street economist and analyst offers the following points, insights, and predictions as reasonable.
- Underlying Economic Fundamentals Are Sound–I believe that the fundamental forces that drive economic and employment growth remain in place. Real GDP will almost assuredly show decline for the second quarter. But, real GDP growth for the third and fourth quarters should return, and my bias is positive for a strong economy in 2021. Consumer spending and investment should drive growth. No prolonged recession likely. The key risks in this scenario have to do with developments that would curtail consumer spending and investment (capital equipment, manufacturing capacity, inventory).
- New Pending Sales Will Likely Decline. The substantial spike in new pending sales for the month of June resulted from the return to the market of buyers who would have purchased in March and April. These are the strongest seasonal months of the year for home sales. Buyers went to the sidelines in droves because of Covid-19 fears. They returned in May and June and added to the base demand for those months. This was the impact of “pent-up” demand. The impact of pent-up demand will probably lessen significantly in future months. Hence, look for new-pending sales to weaken. Important to bear in mind, however, is the fact that buyers did return in May and June, and pent-up demand did materialize. This is proof that buyers have the motivation and financial wherewithal to purchase. Bottom line, I anticipate more or less a flattening trend both for pend up and closed sales during the next 6 months, but not a crash.
- Prices Likely to Flatten & Stabilize, But Serious Price Erosion, at Least in the Greater Tampa Bay Area, Does Not Appear Probable–CoreLogic is on record with a prediction that existing home prices, nationally, will decline 6.6% from May 2020 to May 2021. Home buyers, they believe, will go to the sidelines as recession grips the country. Furthermore, they cite many markets as already being overvalued and needing correction on the downside. My perspective (for Tampa Bay, at least) is: 1) no prolonged recession; 2) demand for existing homes flattens but does not crater; and 3) inventory of existing homes does not rise to a level that would destabilize pricing. Remember, pricing is always a function of demand versus supply, and the most significant factor affecting the Tampa Bay area is the extremely low inventory numbers. Furthermore, on the demand side, Florida, and Tampa Bay in particular, should continue to attract refugees (who are home buyers) from the highly taxed/highly regulated states. The supply-demand equation should support prices.
For Tampa Bay: Good Time to Sell–No Obvious Advantage for Buyers to Delay
My recommendation to potential home sellers is to list now if you have strong motivation to make a move. Your negotiating position is not likely to get any better. Buyers are in place, mortgage rates remain at all-time lows, and supply, for now at least, favors the seller.
There are cross-currents for buyers. On the one hand, prices may decline, active listings may increase, and your negotiating leverage may improve. On the other hand, mortgage loan rates may be at their low point right now, and the impact of higher interest rates on a mortgage amortized over 30 years could significantly higher overall cost. Furthermore, if prices do trend just a bit higher over the course of the next year, you will incur additional loss. So, while there is merit to standing on the sideline and waiting to buy, it is not clear that the advantage of waiting outweighs the risk of paying more both for house and loan. If there is genuine motive to buy, be it to downsize, move up to the dream house, or get away from renting, the rewards of executing a buy now should be carefully balanced against the risk of waiting. For many, buy now may be a prudent decision.
Written by Dalton Wade REALTOR® Phil Fricke
Original Blog Post: https://lovetampalife.com/home-buyers-return-to-market-as-inventory-tumbles-prices-rise/