Coastal Q 4 Market Report 2022

Economic Overview Nationally

By: Elliot F. Eisenberg, Ph.D.

Economic Overview

As we look back on 2022, it would be fair to tap classic literature and say that 2022 was a tale of two economies. In the first half of the year, the economy was somewhat terrible, with negative GDP growth in both quarters, while the last half of the year we saw very strong GDP. 22Q3 growth was about 3.2%, and while we don’t yet know what 22Q4 will look like, early estimates suggest 2.5% - 3.0%. However, the important thing to remember is that the economy was not nearly as bad in the first half of the year as the numbers suggested, while similarly the second half of the year was not nearly as strong as the numbers may imply. When taken together, the picture is of an economy that is slowing somewhat, not disastrously, but certainly starting to moderate from the frenetic post-Covid pace. We see this in a number of measures; for example, job creation has steadily declined throughout the entire year, wage growth appears to be slowing and the manufacturing sector is slipping into recessionary territory.

It’s important to remember that this economic slowing is a feature and not a bug of Fed monetary policy. High interest rates are intended to slow inflation by decreasing consumption, and how long the Fed keeps rates at these higher levels will depend on how quickly and how much inflation declines. We’ve already seen some inflationary pressures start to ease. As fuel prices have come down, shipping and trucking costs have declined, and the percentage of household income spent on gasoline has eased. Generally, increases in the cost of goods have slowed, so, for example, new car prices and used car prices are both falling. Consumer electronics prices and availability have stabilized as the chip shortage ebbs, and food prices, with a few exceptions, are generally not rising. Goods prices are expected to contribute to deflation going forward. The larger problem now is services inflation, a majority of both GDP and consumer spending. The shortage of available workers continues to plague the service economy and push the cost of services up; everything from airline tickets to haircuts. To address continuing services inflation, the Fed is likely to increase rates further in the first quarter of 2023, and then keep them at that elevated level through all or most of the year and see how services inflation responds.

Given the current economic trajectory and the fact that interest rates will remain elevated well into 2023, it certainly seems likely that the economy will continue to weaken, the big questions are by how much and how quickly does that happen? Will we see a “soft landing” or a recession, and if we have a recession, will it be a mild one, or one that is relatively deep? While most economists expect a recession in 2023, some are predicting the hoped-for soft landing. That said, the difference between these two alternatives is likely to be small. Those expecting a recession anticipate a mild one, with unemployment rising two to maybe two-and-a-half percentage points and no calendar year 2023 GDP growth. Those forecasting a soft landing see unemployment rising by one percentage point and GDP growing anemically.

To understand just how much the housing market changed over this past year, consider this: as recently as February 2022, month-overmonth home prices appreciated 1.9%, and they rose by 2.1% in March 2022, the two strongest months on record. Then appreciation rates slowed to 1.7% in April, 1.3% in May, and 0.2% in June. Starting in July, prices fell 0.5%, in August they declined 0.9%, and in September they dipped 0.7%. The housing market went from scorching hot to stone cold in six months. We see the slowing in both new home construction and existing home sales. Of course, the overarching cause of the slowing is that thirty-year fixed mortgage rates literally doubled over the course of 2022, from roughly three percent in early 2022 to over six percent in late 2022, with a short period in late October and early November where rates were over seven percent.

The combination of high home prices and high interest rates have shifted many potential buyers from the ownership to the rental market. We’ve also seen slowing in the home improvement/home renovation market as rates on home equity lines of credit increase and home price appreciation slowed or started to decline, and the refinance market has ground to a virtual standstill. The multifamily and rental markets remain fairly strong but are also subject to some slowing as rates continue to rise, and in some areas new apartment construction may be reaching the saturation level. Again, it’s important to remember that this slowing is the goal of tighter Fed monetary policy, not some unintended consequence, and is intentionally designed to slow down inflation by dampening demand.

In terms of existing home prices, the most important story to watch is housing inventory. At the national level, we have a bit more than three months of inventory on the market, which is still well below the commonly accepted healthy level of about five to six months, and that is why prices have stayed at historically high levels. If inventory levels start to rise suddenly, that could be a sign of trouble, but most experts don’t see that as likely, mainly because of the mortgage “lock-in” phenomenon. The vast majority of homeowners with a mortgage have a fixed-rate mortgage that is well below current market rates, making it highly unlikely that they will sell or upgrade by choice. Moreover, the job market remains surprisingly strong, and most homeowners are flush with equity that they accumulated over the last several years in the skyrocketing housing market, making a wave of foreclosures or forced sales unlikely. Finally, the top-to-bottom redesign of the home mortgage market resulting from Dodd-Frank and regulatory updates culminated in substantially tighter credit underwriting standards. It would now take a 40%-45% decline in home prices to cause damage comparable to the 2006-2009 Housing Bust, and even back then, the average price decline was 28%.

Housing Market

By: Elliot F. Eisenberg, Ph.D.

National and Florida Overviews

In terms of new home construction, on the single-family side, activity has already slowed significantly in response to higher rates and recession fears. A combination of higher borrowing costs for multifamily developers and declining rents will undoubtedly start to slow apartment and condo construction. In fact, the most recent quarterly survey of apartment market conditions done by the National Multi-Housing Council showed the index has declined from a spectacular 95 to just 20, one of the weakest readings in decades, over a 15-month period.

In summary, in terms of a forecast for the housing market in 2023, I think we will start to see improvement toward the end of 2023 if inflation continues to slow to the point where the Fed can begin signaling a true pivot to lower rates. Home prices may well decline for several more months, but it’s hard to see the declines going much longer and should be relatively shallow, perhaps an additional four to five percentage points.

IN FLORIDA , the statewide unemployment rate was 2.6% as of 11/22, well below the national average of 3.6% and down substantially from the pandemic peak of 13.9% in 05/20; the lowest was 2.7% in 02/2020. In Hillsborough County, the 11/22 unemployment rate was also 2.5%, which compares favorably to the 8/19 rate of 3.5%, last November it was 3.1%. In Pinellas County, the unemployment rate was just 2.4%, compared to 2.9% last year and 3.3% in August of 2019. Inflation-adjusted real GDP for the state in 22Q3 was an estimated $1.074 trillion, a new record, and meaningfully higher than the pre-covid peak of $976 billion in 19Q4. Across the state of Florida, the median sale price of a single-family home in November (the latest data available) rose 9.6% year-over-year to $400,000, while the townhome/condo median sale price rose by 12.3% to $307,000. Compared to last year, closed sales of both types of properties in November were down around 38% and dollar volume declined by just over a third. Inventories continued to rebound and there were 69,692 active single-family listings at the end of November, a 2.8 month’s supply of inventory, more than double compared to last year. Inventories of townhomes and condos, with 29,450 active listings, were up 47.4% from last November and represented a 2.7 month’s supply of inventory. Median percent of list price received at sale is 96.1% for single-family and 96.6% for townhomes and condos, and median time to contract for single-family homes is 29 days (up from 11 days last year) and 27 days (compared to 15 days last year) for townhomes and condos.

In Hillsborough and Pinellas counties (combined data) 22Q4 median prices show solid but slowing year-over-year growth. On the singlefamily side, both median and average prices rose 11% compared to last year, to $415,000 and $523,565, respectively. Price appreciation in the condo and townhome market was much higher, due in large part to several high-end condo developments that came online in 22Q4 that brought both median and average prices to all-time highs. The median price for a condo or townhome rose 19% year-over-year to $294,900, while the average price rose 28% to $418,708. Year-over-year closed sales are down by about a third for both types of properties, as are pending sales, an indication that activity will not soon pick back up. With slowing sales, overall sales volume of single-family homes was down 24% compared to last year while multifamily volume was down by just 13%. New listings of single-family homes are down 16% from last year while new condo and townhome listings are down 11%. Active listings are about three times higher than they were at the end of December last year, and there is now a 2.6 month’s supply of single-family homes and 2.8 months of condos and townhomes. While the ratio of sales price to original list price continues to decline slightly, it remains at a relatively solid 97% for single-family homes and 98% for townhomes and condos. Days on market for single-family homes rose to 34, up from 20 days at the end of September and from 18 days at the end of last year. Days on market for condos and townhomes rose to 36, up from 19 last quarter and 17 last year.

While year-over-year price appreciation remains very strong in Hillsborough and Pinellas Counties, month-over-month prices started declining in August of 2022, an indication of a mild weakening in the Tampa market. We are seeing slowing in most markets across the country and given how large the increases were in the Tampa during the pandemic (consistently in excess of 20%, among the largest nationwide), it is not surprising that we are beginning to see some slowing here as well. Some other areas with similar run-ups in home price appreciation as Tampa experienced have seen Y-o-Y price declines compared to the gains that Hillsborough and Pinellas counties are seeing. Additionally, census data continues to show that Florida in general and Tampa specifically continue to see strong net in-migration. Dr. Eisenberg notes: “Florida, in percentage terms, is the fastest growing state in the nation, and in raw numbers, is second only to Texas. With population growth of over 400,000 in the last yearly update, I do not foresee any prolonged decline in Tampa home prices on the horizon and expect that overall price declines will be under 10% from their peak. Further, I anticipate that the market will pick up again in late 2023 as the Fed prepares to lower interest rates.”

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.

Pinellas County

Single-Family Homes

In Pinellas County, the median sale price of a single-family home of $435,000 improved 14% over last year but dipped slightly from last quarter’s $438,000 and from this summer’s all-time high of $446,000. The average price of $573,025 was up 12% from last year but also down slightly from 22Q2’s record.

Closed sales during the quarter declined 34% to 2,251, and as a result year-over-year sales volume declined to about $1.3 billion, a 27% decline.

New listings of 2,621 fell by 15% compared to last year, but declining sales still pushed inventories up to 2.5 month’s supply of inventory, compared to just 0.5 month at the end of last year. Active listings rose to 1,837, up 182% from last year and also up compared to the end of September.

The most expensive single-family home sold in Pinellas County during 22Q4 was for $13 million.

Days on market for single-family homes in Pinellas County rose to 33 days, compared to 20 days last year and 21 days last quarter. The percent of sold price to original list price dipped to 96%, down meaningfully from 98% at the end of September and from 99% at the end of 2021.

median sale price of a single-family home of $435,000 improved 14% over last year.

Pinellas County

Condos and Townhomes

The Pinellas County median condo and townhome price held steady at a record high of $290,000, flat compared to last quarter and up 14% from last year. The average price of $398,222 was 11% more than last year and was also at a record high.

Closed sales declined by one-third to 1,552 and dollar volume of townhome and condo sales during the quarter was down 26% to $618 million

New listings declined by 15% to 2,018, and active listings rose to 1,599, not quite three times as many as at the end of December 2021. There is a 2.9 month’s supply of inventory, well above the one month’s inventory at the end of last year.

The most expensive condo/townhome sale in Pinellas County in 22Q3 was for nearly $4.2 million.

Days on market for condos and townhomes in Pinellas County increased to 41 days at the end of 22Q4, compared to 21 days during 22Q3 and 19 days at the end of last year. The percent of sold price to original listing price ratio dipped to 97% at the end of the year, compared to 99% at the end of last year and 98% for 22Q3.

The Pinellas County median condo and townhome price held steady at a record high of $290,000 ... up 14% from last year.

Hillsborough County

Single-Family Homes

The median and average prices for single family homes in Hillsborough County remain solidly above last year’s levels though they dipped somewhat from the end of September. The median price of $405,000 was up 9% compared to 21Q4 and the average sale price of $494,143 gained 11% over last year.

Closed sales of 3,784 were down by 30% compared to last year and 22Q4 overall sales volume of nearly $1.9 billion was down 23% over last year.

New listings were down 17% to 4,067, which was, by far, the smallest number of quarterly new listings since at least the start of the pandemic. There were 3,208 single-family homes available for sale at the end of December, more than double what was on the market at the end of the year last year. While this represents a 2.6 month’s supply of inventory, well above the 0.6 months at the end of last year, it declined slightly from the 3.0 months at the end of September.

The most expensive single-family home sold in Hillsborough County during the fourth quarter of 2022 was for $6.7 million.

Compared to the same period last year, days on market more than doubled from 17 to 35 and are well above the 19 days from 22Q3. Percent of sold price to original listing price dipped to 98%, compared to 100% last year and 98% last quarter.

The median price of $405,000 was up 9% compared to 21Q4 and the average sale price of $494,143 gained 11% over last year .

Percent Sold Price to Original List Price

Hillsborough County

Condos and Townhomes

The median price for townhomes and condos in Hillsborough County rose 22% to $295,000 a record high, while the average price of $446,043 was up 57% from last year and also at a record high. These new records can be attributed to two high-end condominium projects that completed this quarter, with 78 units selling between $1 million and $7 million.

There were 1,163 sales of townhomes and condos this quarter, down 29% from last year. However, the aforementioned high-end condo sales pushed overall sales volume up 12% to nearly $519 million.

There were 1,386 new listings in 22Q4, down 4% compared to last year. Active listings compared to last year more than quadrupled to 922 available units and were well above the 835 listings on the market at the end of September. This represents 2.6 month’s supply of inventory, well up from 0.4 months at the end of last year and up from 2.3 months at the end of September.

In the condo/townhome market, the most expensive home sold during 22Q4 in Hillsborough County sold for $7.1 million.

Days on market for condos/townhomes rose to 29 days, up from 14 days in 21Q4 and from 17 days at the end of September. Units generally sold for 98% of their original listing price, which was down just slightly from 99% at the end of September and 100% at the end of last year.

The median price for townhomes and condos in Hillsborough County rose 22% to $295,000 a record high ... the average price of $446,043 was up 57% and also at a record high.

Percent Sold Price to Original List Price

5823 BOWEN DANIEL Drive #201

Tampa, Florida