Brad O’Connor directly addresses the camera:
The red-hot resale market for housing in Florida finally showed some legitimate signs of cooling in April, based on the latest monthly housing statistics from Florida Realtors.
Let’s start by looking at closed sales of existing single-family homes, which were down over 15% compared to April of last year. That’s a significantly larger decline than we saw in March, when closings were only down a little over 6% year-over-year. “What happened in April?” you ask? Well, it’s not so much what happened in April so much as what was happening in February and March.
Remember, most home sales that close each month particularly the majority that are purchased with mortgage financing actually went under contract one or two months prior to closing. So the closed sale statistics reported each month are always impacted by market conditions from one or two months prior, as well. And what was going on in February and March when so many of April’s closings were going under contract? The answer, of course, is a rapid rise in mortgage rates.
At the beginning of every week, Freddie Mac surveys mortgage lenders across the U.S. and reports the average national rate for the 30-year fixed-rate mortgage on Thursday. For most weeks in 2021, they reported an average rate between 2.8 and 3.2%. These consistently low rates were essentially rocket fuel for the housing market and led to one of the best years for home sales of all time. But mortgage rates started rising in earnest in 2022. At the beginning of February, Freddie reported an average rate of about 3.6%–a little higher than the 3.2% rate it reported at the beginning of January. But by the beginning of March, the average rate had reached 3.8%, and by April, it was up almost a full percentage point further, to 4.7%. It was this huge increase during March in particular that really had a significant impact on closings in April.
Our new pending sales statistic, which is simply a count of how many homes went under contract each month, is typically a good leading indicator of closed sales a month or two down the road. This statistic has been showing double-digit year-over-year percent declines since February, so it’s not just the theory that rising rates dampen housing demand that has led us to expect lower levels of closings this spring it’s been present in the numbers, as well. New pending sales are not a perfect forecaster of future closed sales signed contracts do not always guarantee a successful closed sale but they are one of the better ones. And with mortgage rates now consistently above 5%, it’s not surprising that new pending sales of single-family homes were down almost 14% in April.
So we might expect closings to be weak on a year-over-year basis over the next month or two, as well. “Weak” is a relative term here, obviously. As I said earlier, 2021 was characterized by near-record low mortgage rates that allowed for a huge surge in homebuying demand. So it’s simply unreasonable for us to expect that the market will perform just as well this year now that we are in a higher interest rate environment.
The mortgage rates on home sales that closed this April are much more akin to what rates were at in 2018. And compared to April 2018, the number of single-family closings in April of this year was up 11%. April closings were also 4% higher than they were in 2019, when rates were on the way down. So it all depends on your perspective. Closed sales are performing at about the level they were leading up into the pandemic, despite higher mortgage rates, low supply, and much, much higher sale prices.
The median sale price for closed existing single-family homes finally eclipsed the $400,000 mark in April. It came in at $410,000, which is almost 22% higher than it was one year ago. While that’s bad news for prospective buyers, once again we need to remind ourselves that many home sales that closed in April actually had their prices determined when they went under contract a month or two earlier, just as rates were really starting to take off. In the longer run, price growth should start to moderate in response to these higher rates, so this is an important statistic to keep your eye on over the next few months as an increasing share of sellers will inevitably have to start adjusting their expectations to a degree.
If you’re in the real estate business, though, the good news is that the lower level of sales in April was mostly offset by this year’s higher sale prices, although not completely. The statewide dollar volume of closed existing single-family home sales in April was down 4.5% compared to a year ago. Year-to-date, however, single-family dollar volume is still up 6.4%. Although we’re seeing fewer sales relative to last year, the number of existing homes being listed for resale this year has remained relatively consistent in 2022 compared to recent years. There were more new listings of single-family homes this April than in April of either 2018, 2019, or 2020, and they were only down by less than 2% compared to April of 2021. Year-to-date, new listings are down only 0.5% compared to a year ago. This has allowed inventory levels to finally start creeping up a little bit. As of the end of April, the statewide inventory of existing single-family homes for sale was actually up close to 7% year-over-year. That’s a big deal since it represents the first year-over-year increase in Florida’s single-family inventory since June of 2019.
Granted, we still have over 60% fewer single-family listings than we did at this time two years ago, but we’ll take any victory on inventory that we can get at this point. It’s still a long road back to a balanced market. Now that we’ve covered the resale market for single-family homes, let’s take a look at the stats for homes in the condo and townhouse category.
If you regularly watch our videos here, you know that annual condo and townhouse sales were up significantly in 2021. Single-family sales were up by almost 13%, but that was nothing compared to condos and townhouses’ increase of over 34%. The big reason why that happened is that our single-family inventory was mostly depleted during the second half of 2020. So when 2021 came around, relative to single-family homes, we had a fairly abundant amount of condo and townhouse inventory. With housing demand as hot as ever and home prices rapidly rising, condo and townhouse sales went through the roof. By the beginning of 2022, though, condo and townhouse inventory levels were largely depleted, as well. As of the end of April, we’re at 1.3 months supply of inventory for this property type category not much more than the 1.1 months supply of single-family inventory.
As a result, condo and townhouse sales are constrained this year in a way they were not one year ago, so the decline in sales has been more severe than on the single-family side. Closed sales in April were down almost 21%, while new pending sales were down almost 24%. The levels of closings and new contracts, however, remain above where they were at this time in 2019, the last normal year for our housing market ahead of the pandemic. The median sale price for condos and townhouses in April was $310,000, a year-over-year increase of 24%. This year’s higher price point led to a decline in dollar volume of only about 8% relative to a year ago when condo and townhouse sales were at their hottest. Many of the factors impacting Florida’s housing market right now are macroeconomic factors in other words, phenomena that are broadly impacting the housing market nationally, not just here in Florida. Rising interest rates and high inflation are two prime examples. But on a state-specific basis, Florida currently has some great things going for it that continue to make our state an attractive destination for new residents, investors, and second-home buyers. Our lack of income tax, access to beautiful beaches, and warm, sunny weather have always been a great asset but they’ve become even more attractive in today’s work-from-anywhere world.
Moreover, Florida’s economy has seen one of the strongest recoveries of any state over the past two years. But just as all states are different, so are all of the markets within our state. So it’s important for you to analyze your local market’s statistics, not just the state-level statistics we’ve been considering here. Try to figure out how your local market is trending differently than the overall statewide market.
Brad O’Connor directly addresses the camera: