It was bound to happen.
After fifteen straight months of stratospheric sales following the brief, 45-day COVID pause last spring, the trajectory of real estate has turned earthward once more. July proved the inflection point, being the first month in which pending sales in the region stand at a number below the same month last year. After getting used to rocketing at hypersonic speeds like astronauts, those in the real estate industry may have to adjust to the undeniable physics of gravity once again. So, is the mission over?
It’s important to note that total sales year-to-date in the market, despite this news, are fifty percent beyond that achieved in 2020. Also contemplate that a return to 2020 levels, if true, would still impress based on that year’s faster pace in relation to 2019. So why the recent deceleration, and what may we expect as we reenter earth’s atmosphere?
First and foremost, an almost 100% increase in closed sales in under a two-year period was, to anyone even loosely tethered to reality, clearly unsustainable. The extraordinary boost in demand was absolutely fueled by the human reaction to COVID, with resort markets such as Sarasota the recipients of a mass resettlement from all corners of the country.
Decisions were accelerated for those merely dreaming, and an entirely new audience was found in those responding to the allure of an environment of normalcy and idyllic calm in a world rapidly becoming anything but. So, some demand we’d normally experience in the future was undoubtedly pulled forward and, with feeder markets now in their summer months amid the reopening, the sense of needing to escape has waned. Both serve as the equivalent of atmospheric drags on our real estate spaceship, with expectations for the balance of the year at a pace well off that in the first half and somewhere between that of 2019 and 2020.
But before expecting a splashdown, there are plenty of reasons why we won’t return to earth but rather remain in orbit, albeit at a lower altitude. Allow me to recite a few:
• The last fifteen months were transformative for Southwest Florida. The disruption in traditional feeder markets brought us new residents from states rarely seen, and the course has now been charted for others to follow. The spotlight is on us, also evidenced by the rush of real estate developers never before involved in our region now driving up bid prices on the precious few land parcels presently coming to market.
• The international buyer, for which Florida draws more than any other state, has been exiled during this period of frenzy. But they are beginning to return and will be even more inclined to own.
• America has now moved beyond traditional employment expectations, with remote work options here to stay. Not only will more seek positions only with those allowing them to live where they wish, but the shift has caused more to leave the corporate world to seek their own destiny as entrepreneurs. The number of new companies registered set records in the last twelve months. If all you need is a laptop and occasional access to airports, Sarasota’s a brilliant bet.
• The recent drop in new home sales, rather than an indication of reduced interest, is almost certainly the result of homebuilders temporarily halting product offerings due to substantial current backlogs and material shortages. As supply chains rebuild, they will blast off again.
• After dropping to levels below one month, standing inventory of homes is now on the upswing. While convinced we’ll remain in a period of sustained low inventory for some time in comparison to historical standards, more choice and less chance of multiple bidding wars to get the home desired is around the bend, which will draw some frustrated buyers back into the game.
• And while hoping beyond hope that the future will bring a more contained virus, we are now witnessing a spike in cases resulting from the mutation of numerous variants with only half of America vaccinated. Once summer ends in northern areas and people return indoors, unless COVID is fully in the rear-view mirror, we may very well be in for an additional wave of transplants.
All are reasons not to pull back too far on the thrusters, yet perhaps the greatest confidence in future demand and activity should be rooted in fundamentals always driving real estate; the overall U.S. economy and resulting household wealth.
The economy is growing at its fastest pace since WWII, with a full-year forecast of almost 7% in GDP. The July jobs report brought almost a million back into the workforce and dropped the unemployment level to 5.4%. The stock market just turned in another record high, and inflation will be largely transitory except for wage growth, which is long overdue and vital to ensure the future wave of first-time millennial buyers. Also driving current inflation numbers are home purchase and rental prices, which will slow but not reverse. Total household net worth also stands at a record-high $130 trillion dollars, and there’s never been more of it in liquid cash ready to be invested. Interest rates will rise slightly in the foreseeable future yet remain at historically low levels, so surely no impediment to liftoff.
Like many of my peers in the real estate business, a little breather at this time would be nice, though must admit I’ve become quite accustomed to zipping along in real estate hyperspace. And with what I see on the horizon, I’m not hanging up my flight suit just yet.
Budge Huskey is chief executive officer of Premier Sotheby’s International Realty.
