Projections and the current situation
How will the Clearwater Florida Real Estate Market And Beyond Be Affected?
It goes without saying that no-one has a crystal ball however, there are some interesting statistics and trends which may be painting a picture. Frankly, it is not the best picture. I am not sure that anyone had an idea when the coronavirus started hitting as to what would happen. In my opinion the Governments of the world did not pay enough attention to the only known data that we had. Wuhan China. That is another debate! However, it will give you an idea of where I am coming from.
The most important factor in this unprecedented (in global response) event is time. The clock is ticking, every hour, every day gets us closer and closer to not only getting back to normal but a "new" normal. What will that look like. It appeared to most that we would shut down, wait and open up with a bang. Not so much. Weariness is setting is. The media is doing their best to sensationalize everything they can dig up which creates an atmosphere of uncertainty.
The Unknown Becoming Known
Time, which we all know is not on our side as this is a process so no real end is in sight and uncertainty. We can be most certain about uncertainty in these types of situations! The monster which has raised it's head in the real estate and other industries is the economic uncertainty. At first it was all about the virus. The ensuing fallout has been disastrous. The Govt, through stimulus packages, may be able to slow the bleeding but not prevent the cut.
For some industries and especially real estate, there may be a very different situation which they will be coming into than that from which they came from. Not all of it is bad. Change always happens and progress does not occur without change.
Let's have a look at the current and potential situation in the real estate industry. There may be a national, if not global pattern however, I am going to be more specific about real estate sales in the local, to me, region of Tampa Florida, Pinellas County and the St Petersburg and Clearwater areas.
I predict a slowdown and swing in the real estate market from what has been a strong sellers market for several years and one of increasing prices due to several factors, low inventory a strong economy and historically low interest rates. Since 2012, when the recovery from the greatest real estate crash in history began, prices did not just increase, they climbed at a very brisk pace, some years experienced home prices increasing in the high mid to high teens and only in the last 2 years has it dropped below 10% however not by much.
Is the Coronavirus creating the change?
This is a super interesting question. In short, my answer is no. The coronavirus is the catalyst for a change which was coming as it always does. Cycles always happen in Real Estate and in the economy as a whole. No-one can predict exactly when they will end however there is usually a point which is indicative of the shift.
Is this a catastrophe, I may be wrong but I very much doubt it. The real estate market is in a much, much better position now than it was when the economic crash of 2008 occured. The primary reason is equity. Homeowners are not remotely close to being underwater in the numbers they were in 2008. The years following 2008 saw a 55% drop in home values, especially in Florida, Nevada was affected just as badly. As we all know, they economy took a tumble and the banking system collapsed. Distressed properties became the new normal in Real estate, recovery was brutally slow and people had to rebuild.
How bad is the current situation?
Not too bad actually. How the real estate market will react long term is mostly unknown. We can look at current numbers and those leading up to this moment and garner hope that the market will stay strong. I believe that this may not be the best approach. As in 2007, the real estate sales numbers could not predict the enormity of the crash. I do not believe that the current real estate statistics, as we see them now in the Clearwater Florida region as well as the Tampa Bay and most of Florida predict anything as they are only based off existing data.
If we are looking at pending sales, time on the market and ratio of list price to sales price, there is not a dramatic difference between March, the fist month of the Crisis and January/Feb. This is for several reasons.
- Properties typically stay under contract for around 30 days, depending on the situation.
- Properties under contract all throughout February and some from January were pending from the "normal" market.
- Early March saw no slowdown and, most importantly, most buyers who were in the process of purchasing were and are completing that process.
- April will be the first semi "clean slate from which we can examine data as it correlates to the coronavirus and real estate in Florida.
What factors indicate that we are in a changing market?
There are several. It is not one here and two there, there seems to be a pattern developing which we can point to based on behaviour of those selling and buying real estate.
- Uncertainty is certain to create fear of the unknown. Fear leads to shutdown. It is indisputable that buyers have slowed down due to uncertainty. As a Realtor and after speaking to many other realtors as well as reading threads on social media, the first trend that we are seeing and experiencing is "we are going to "wait and see what happens" Normal human behaviour.
- Mortgage applications are slowing. Data was strong throughout most of March, however, the last week in March saw a 24% drop in mortgage applications nationwide! This will be a telling factor.
- Here is one which, to me is scary. Google searches for homes for sale are dropping rapidly. I have noticed an approximate 40% drop off. The prediction is that searches in April will be down 63% at the current rate!!
- There are a number of people who are grasping the situation early and therefore homes are being listed at a steady rate. That was not expected.
What happens next?
Well, if I had that exact answer, I would make a lot of money wagering. These days you can bet on anything! I can take a stab at what seems obvious but no-one can predict the outcome with any degree of certainty. The word which has been bouncing around in my head is "slowdown" How slow, what happens with prices, how will people react 6 months from now, that is uncertain. I believe that "slowdown" is fairly certain and the reality has begun.
What are the big questions which, when eventually answered will dictate the market reality, mostly in hindsight. I believe that they are these.
- How long will this last before a turnaround in lifestyle begins?
- How high will unemployment go? What will the resulting loss of income mean as far as spending power after we open up.
- How much equity will homeowners dig into in order to stay afloat?
- How will the Government stimulus packages affect the economy over the coming years? Taxes?
- What will happen to interest rates?
- When will investors feel confident in mortgages again? (the federal Govt purchasing should help this situation however certain products are already limited or very expensive)
The tone of this blog may seem negative however, I prefer realistic. I plan to write about the positives which I see longer term for the real estate market and some other industries. There are many.
If you are in the real estate business, you may enjoy the blog focusing on those positives as well as one outlining the steps which many experts believe should be taken NOW to ensure the longevity and future success of your business.
Here is what I see happening. Right or wrong, hopefully it is at least food for thought as far as preparation goes.
- Market "slowdown" which, as Gary Keller pointed out in his book "Shift", I'm paraphrasing; changes in Real Estate happen quickly but take a long time to reach the next cycle. If it is going to happen, then it will become evident in the next 4 - 6 weeks imo.
- There will be a window of time where purchases should continue at close to current market values due to those who've made a decision to or need to move.
- Financing may be affected due to job loss and lack of available funds for down payments and costs associated with closing.
- Thereafter, due to the lack of buyers and sellers coming late to the party, prices will be forced down. If this begins then the hold off will begin.
Essentially, the conditions appear to be favorable for:
- An increase in real estate inventory.
- A drop in real estate prices.
The X Factors
Here is the one which may be the most telling as to the degree which this slowdown will happen. It is the human factor. What is the mood and how will it be two weeks, a month from now? What is your mood concerning your work, real estate or otherwise. How about your family.
Are people who were considering selling or buying in the next 2 to 6 months putting those plans off, if so, for how long? That may be a consideration not taken into account by economists. if those plans to purchase are on hold, we will be coming into a new school year. Will all this be over by then? Will people be ready to uproot and start over or hunker down for another year? These and many other human factors come into play. The bottom line is; how long will the "we will wait and see" period be?
There is a second X Factor which many experts in the market take extremely seriously and amazingly, it may be playing out again.
The Fibonacci Effect
The quote below is taken from an excellent article analyzing the accuracy of the Fibonacci effect. 2021 give or take a year shows the next depression, in whatever form that may be. This is one of of the reasons that I see the coronavirus as a possible catalyst.
"Most importantly, however, if we use these important years of panic and recession and try to predict future pivotal years, it appears that 2021 and 2042 (+ or – 2), show up again and again.
For further confirmation, see the following chart which maps out the Benner-Fibonacci cycles since 1902"
This article was published on December 14th. Well before we had much knowledge of the virus.
Click HERE for the full article
What would I do?
Very simply, if I were considering selling real estate in not too distant future in the Clearwater or Tampa Bay region, I would put my home on the market NOW! Not in a day or so, I would get it listed by tomorrow morning.
If I were a buyer, I would keep an eye on things and find people who need to sell. Soon, they may be dropping their price. I peak not in theory but from actual clients with whom I am dealing. The slamming on of brakes by several buyers and absolute desperation of a seller. I ask myself. Why would someone walk away from a 25k escrow deposit? The only answer is panic. Panic creates change.