Coastal: Market Report Q3-2022

Economic Overview Nationally

By: Elliot F. Eisenberg, Ph.D.

Economic Overview

Despite negative GDP growth in the first half of 2022, the U.S. economy remains relatively solid, even as it has been battered by a series of one-offs and bad news. However, factors that drove growth since the start of the pandemic are unquestionably beginning to slow, with individual incomes generally flat, savings rates declining, and most of the pandemic-triggered stimulus having ended. Early forecasts place 22Q3 GDP at 2% growth as net exports improve. All indications are that 22Q3 and 22Q4 should show growth below trend but positive, and that may be enough to offset the bad first half year, so that for all of 2022 we may ultimately have positive GDP growth.

Importantly, the consensus is that by 23Q2 the U.S. will most likely be in a recession as the impacts from rate hikes become increasingly felt throughout the economy. With inflation as public enemy number one, the Fed is likely to continue to raise the fed funds rate through the remaining two meetings this year and probably into next year as well. Currently, the impacts of higher interest rates are mostly seen in the housing market, and increasingly, manufacturing. We have not yet seen similar impacts in the traditionally interest rate-sensitive auto market since the ongoing chip shortage continues to keep supply of autos well below demand. Over time, increased interest rates will broadly impact other parts of the economy, importantly business investment and commercial construction. This situation is not unique to the U.S., as central banks throughout the world are similarly raising interest rates to reduce demand that far exceeds available supply, causing inflation almost everywhere. As we look to 2023, all indications are that this will be a garden-variety recession, not particularly deep and lasting around a year.

Since the beginning of the year, the stock market is down roughly 20% and has been teetering in and out of bear market territory for months. The impact of rate hikes on the stock market is not a bug of current monetary policy, but rather a feature, as the intent of rate hikes is to cool the economy down by reducing household spending. If history is a guide, the stock market will probably fall somewhat further, as we are likely to see lower corporate earnings in 2023, and higher interest rates push down price-to-earnings ratios.

While headline inflation numbers appear to have peaked and are likely to come down, core inflation looks to be more persistent and will ease more slowly. Declines in headline inflation are being led by improved supply chains and the resultant reduction in goods inflation, as well as declines in food and energy prices. However, core inflation, which is made up in large measure of services and rents, is coming down much more slowly, and other highly technical measures of inflation are flat or increasing, making it unlikely that inflation will dissipate soon, or at least soon enough to dissuade the Fed from further rate hikes.

Overall, despite rising rates, the economy remains in surprisingly good health, and it is thus highly unlikely that the Fed will quickly pivot to looser monetary policy. The most important variable to watch is inflation since it needs to fall meaningfully and steadily before the Fed becomes less hawkish.

Housing Market Overview

The Fed’s interest rate increases are having the intended impact as home price appreciation slows meaningfully across the country, and in some markets, prices are starting to decline. Year-over-year price appreciation that was as high as 15-20% as recently as six months ago is now down to single digits. Interestingly, because mortgage rates were so low for so long and so many houses were sold or refinanced since Covid, data show that as of July 31, 2022, 90% of first mortgages have an interest rate below 5%, and more than 66% have a rate below 4%. With rising interest rates, this rate “lock-in” is preventing a big bump in new listings from materializing, keeping supply low, and thus propping up home prices. This lack of new listings is effectively reducing supply, while simultaneously keeping demand down as well, by constricting the normal “move-up” market. On top of that, the shift from the pandemic to endemic nature of Covid and the associated return-to-office policies are dramatically slowing the second home market. Combined, this makes this housing market much different than those of the past.

As we look to the pending recession, there is little chance that this will be a replay of the Housing Bust of 2008. Demographics are still very strong, homeowners have a staggering amount of home equity built up, and there is still an underlying shortage of millions of housing units needed to meet demand. Overall, this remains a seller’s market, though one with more opportunities for potential buyers.

Economic Overview Florida

In Florida, the statewide unemployment rate was 2.7% as of Aug 2022, below the national average of 3.4% and down substantially from the pandemic peak of 13.9% in May 2020; the lowest was 2.7% in Feb 2020. In Hillsborough County, the Aug 2022 unemployment rate was also 2.7%, which compares favorably to the Aug 2019 rate of 3.5% – last Aug it was 4.3%. In Pinellas County, the unemployment rate was just 2.5%, compared to 4.0% last August and 3.3% in Aug 2019. Inflation-adjusted real GDP for the state in 22Q2 was an estimated $1.06 trillion, slightly improved from 22Q1, and meaningfully higher than the precovid peak of $976 billion in 19Q4. Uninsured losses from Hurricane Ian probably total $40-$50 billion including infrastructure damage and cleanup costs. Insured losses are another $65 billion. Lost wages and corporate profits due to closed airports and destroyed facilities probably add another $15-$20 billion. Although GDP ignores wealth losses, the losses due to business closures will knock 22H2 Florida GDP by as much as 4% and national 22H2 GDP by 0.2%, but the ensuing recovery will undoubtedly boost GDP in 2023.

Across the state of Florida, the median sale price of a single-family home in August (the latest data available) rose to $407,000, a 15.0% gain over last year, while the townhome/ condo median sale price rose by 20.8% to $305,000. Compared to last year, closed sales of single-family homes in August were down 15.8% while condominium and townhome sales were down 20.3%. Despite higher prices, declining sales drove overall sales volume down, with singlefamily homes down 5.8% over last August while volume of townhomes and condos was down 11.7%. Inventories of single-family homes continued to rebound and there were 63,859 active listings at the end of August, a 2.4 month’s supply of inventory. Inventories of townhomes and condos, at 25,824 active listings, were up 12.6% from last August and represented a 2.2 month’s supply of inventory.

In Hillsborough and Pinellas counties (combined data), 22Q3

median prices continue to show significant appreciation over last year, with single-family homes gaining 17.0% to $427,950, just slightly below last quarter’s all-time high, and townhomes and condos up 27% to $290,000, a record high. Average prices recorded double-digit gains as well, with singlefamily homes at $544,798, up 19.0% over last year, and townhomes and condominiums at $378,611, up 24%. With high prices and higher interest rates, closed sales of single-family homes during 22Q3 compared to the third quarter of 2021 were down by 26.0% while sales of townhomes and condos were down by 25.0%. New listings of single- family homes compared to 21Q3 were down 7.0%, while new listings of townhomes and condos were down 11%. Despite the lack of new listings, slowing sales allowed active listings to double over last September’s levels. Month’s supply of inventory for both types of property are up dramatically again this quarter with 2.7 month’s supply of single-family homes and 2.4 month’s supply of townhomes and condos. Days on market rose from last quarter’s all-time lows but are still relatively low, with the typical single-family home remaining on the market for just 20 days and a townhome or condo on the market for 19 days, as compared to the 15 (single-family) and 17 (townhome/condo) days properties were on the market last year.

While the rapid run-up in prices in the Tampa metro is heightening concerns that price declines will occur here as they have in other markets that appreciated rapidly (think Boise, Austin, and Phoenix), this may not come to pass given the favorable tax environment and outstanding amenities that the area offers. Inventories remain well below national levels and price appreciation remains around 20% year-over-year. Moreover, the recent devastation brought by Hurricane Ian to neighboring counties to the south is likely to lead some of those residents to consider relocation to the Tampa area, pushing up demand and protecting price appreciation.

About the Author : Elliot Eisenberg, Ph.D. is the Chief Economist of GraphsandLaughs, LLC, a Miami-based firm specializing in national and international macroeconomic consulting and speaking. Dr. Eisenberg earned his Ph.D. from Syracuse University and was formerly a senior economist with the National Association of Home Builders. He is a regularly featured guest on cable news programs, talk and public radio, and authors a daily 70-word commentary on the economy that is available at www.econ70.com.

Inventories remain well below national levels and price appreciation remains around 20% yearover-year.

Pinellas County

Single-Family Homes

In Pinellas County, the median sale price of a single-family home of $438,000 gained 18% over last year but dipped from last quarter’s all-time high of $446,000. The average price of $561,410 was up 15% from last year but also down slightly from last quarter’s record high.

Closed sales during the quarter declined 26% compared to last year, to 2,605, and as a result sales volume declined to $1.5 billion, 15% below 21Q3 levels.

New listings of 3,939 declined by 13% compared to last year, but declining sales still pushed inventories up to 2.2 month’s supply of inventory, compared to just 0.9 months at the end of 21Q3. Active listings rose to 1,693, up 62% from last year and are up just slightly from the end of June.

The most expensive single-family home sold in Pinellas County during 22Q3 was for $5.75 million.

Days on market for single-family homes in Pinellas County bumped up to 21 days during the quarter, compared to 16 days last year and 13 days last quarter. The percent of sold price to original list price of 98% was down from 101% at the end of June and from 99% at the end of 21Q3.

The most expensive single-family home sold in Pinellas County during Q3-2022 was for $5.75 million.

Pinellas County Condos and Townhomes

The Pinellas County median condo and townhome price of $290,000 rose 29% above last year to an all-time high and had the highest level of year-over-year price appreciation across the region. The average price of $395,105 was 21% more than last year and was also at a record high.

Dollar volume of townhome and condo sales during Q2 was down 9.0% to $693 million as closed sales declined 24% to 1,754.

New listings were down 13% to 2,218, and active listings rose to 1,236, a 79% gain over last year. This represents a 2.4 month’s supply of inventory, well above the 1.0 month at the end of September last year.

The most expensive condo/townhome sale in Pinellas County in 22Q3 was $7.3 million.

Days on market for condos and townhomes in Pinellas County increased from 16 days at the end of 22Q2 to 21 days, which was comparable to the 22 days at the end of September 2021. The percent of sold price to original listing price ratio dipped to 98% at the end of September, compared to 100% at the end of June and 99% at September 2021.

Pinellas County median condo and townhome price of $290,000 rose 29% above last year to an alltime high and had the highest level of year-overyear price appreciation across the region.

Hillsborough County

Single-Family Homes

Both median and average prices for single family homes in Hillsborough County dipped slightly below the record highs of last quarter but were solidly above last year’s levels. The median price of $425,000 was up 18% compared to 2021 and the average sale price of $534,546 gained 22% over last year.

Closed sales of 4,221 were down 26% compared to last year, and as a result, overall sales volume of about $2.3 billion was down 10% from last year.

New listings were down a slight 4% to 6,114 and there were 3,415 single-family homes available for sale at the end of September, more than double what was on the market at the same point in 2021. This represents a 3.0 month’s supply of inventory.

The most expensive single-family home sold in Hillsborough County during the third quarter of 2022 was for $15 million.

Compared to the same period last year, days on market rose from 14 to 19, a 36% increase and is well above the 13 days from 22Q2. Percent of sold price to original listing price dipped just slightly to 99%, compared to the 101% from the first half of the year.

Sold Price

Average Sold Price

The most expensive single-family home sold in Hillsborough County during the third quarter of 2022 was for $15 million.

Hillsborough County Condos and Townhomes

The median price for townhomes and condos in Hillsborough County rose 27% to $293,000, just slightly more than last quarter’s previous record of $292,000. The average price of $356,778 slipped below last quarter’s record but was up 29% over last year.

There were 1,325 sales of townhomes and condos this quarter, down 26% from last year and overall sales volume was down 4% to $473 million.

The 1,710 new listings in 22Q3 were down 9% compared to last year, but slowing sales pushed inventories up to a 2.3 month’s supply of inventory. Active listings more than doubled to 835 available units and were well above the 600 listings on the market at the end of June.

In the condo/townhome market, the most expensive home sold during 22Q3 in Hillsborough County was for $8 million.

Days on market for condos/townhomes rose to 17 days, up from 12 days in 21Q3 and from 11 days at the end of 22Q2. Units generally sold for 99% of their original listing price, which was down from 102% at the end of June and 101% at this point last year.

In the condo and townhome market, the most expensive home sold during 22Q3 in Hillsborough County was for $8 million.

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