91 F
Longboat Key
Friday, August 19, 2022

Will Interest Rates Cool the Real Estate Market in 2022?

422 Meadow Lark Drive on Bird Key is Pending/Sold at $6,995,000 – the highest price to date on the island.

Guest Writer

Jeff, I have been coming to sarasota for a number of years and have never seen real estate as hot as it was in 2021. What do you think the 2022 market will look like? Will the higher predicted interest rates lower prices?

You are right. In 2021 homeowners watched their property values soar and new homebuyers struggled to find products for sale. High-stakes bidding wars, all cash offers, and limited supply pretty much summed up the activity in 2021.

There were an estimated 6 million homes sold in the US in 2021 according to CNN. Prices skyrocketed and buyers found it tough with competing offers causing prices to set new records.

We saw an influx of new buyers from the Northeast, Midwest, California, and Canada.

2021 was a record year by any measure due to the gap in supply and demand. The dynamics were driven in particular by low interest rates, a hot stock market, and Covid.

Is there a difference in demand between condos vs housing?

I am one of the few realtors directly involved in building new construction and renovations. I started building houses to provide product for my clients who otherwise were unable to find the house that they desired.

New construction and renovations were a significant part of my portfolio in 2021. Over the past 3 years, I have been involved in the construction or renovation of 8 homes primarily on Bird Key and Longboat Key. This has provided me with a unique knowledge of new home construction opportunities.

COVID contributed to a very high demand for single family housing in 2021. Single family housing saw a specific focus from people working from home and in doing so relocating to areas with warmer climates and lower state taxes. Many of these buyers wanted offices and home gyms causing them to look primarily at newer builds.

As 2021 progressed, builders experienced supply shortages, price increases issues and labor shortages. Finding building lots also became challenging and expensive.

Condo sales, however, were not left behind in this wild market. The demand was equally as great for this segment of the market. Buyers of condos, not unlike home buyers, had a preference for fully renovated condos.

What will happen with mortgage rates? What impact will an Increase on rates have on real estate?

In early January many did not believe that mortgage rates would affect the real estate market in any major way in 2022. In 2021 we saw the lowest interest rates in the past 50 years. The Consumer Price Index rose 6.8 % last year, the highest in four decades. Gas and groceries in particular have led the way. The Federal Reserve has signaled that its pandemic monetary policies will come to an end and it will focus on curbing inflation. This will result in higher interest rates. Rates are expected to increase in 2022 but there is disagreement about how much rates will increase. The Fed’s held off on any increase this past Wednesday but did signal that there could be as many as three increases this year. Certainly recent events would suggest that rates will be higher than anticipated 4 or 5 weeks ago. With elections in the fall of 2022, there will be a lot of pressure to try to control inflation in order to not lose seats in the delicate balance in Congress. Last time the Fed’s increased rates it did so nine times in a three-year period.

Jeremy Sieg, Wharton Business School’s finance professor Emeritus, has been warning about inflation for over a year stating that the Fed are going to have to hike many more times than the market expects. It is now appearing that he was right. There is a debate about whether rate hikes will curb inflation or cause a recession. There is some common acknowledgment that rate hikes will not fix the supply chain issues that have been a major contributor to cost and price increases. Supply chain issues, continued Covid variants, related slow-downs, and extended backlogs are contributing to cost and price increases. Higher interest rates will not fix these issues.

What other factors should I be concerned about in 2022?

Interest rates, in the recent past, have not be the principle driver in the luxury market. In order to compete in this market almost all sales at the high end have been cash offers. Sellers do not have to wait for buyer financing approvals to sell their properties. Although higher mortgage rates could impact the market, it may be more as an indication of the health of the economy and the stock market in particular rather than the cost of financing per se.

Other potential events that may create risks include geo/political issues such as Ukraine and the impact of a failure to find a solution. If there is not a resolution to this conflict the issues could be much greater than real estate prices in Sarasota. Notwithstanding current posturing I believe that the stakes are too high in not finding a solution. The uncertainty of this issue on top of supply cost and price increases that are contributing to inflation and recent market volatility are issues to monitor. The stock market of course is an indicator of confidence or concern in the economy. When will supply chains function smoothly again? When will energy prices fall? Will another coronavirus variant cause even more disruption?

If the Ukraine issue is not resolved quickly it is possible that there may be a leveling of real estate prices, but again I do not anticipate a major drop in the interest in Sarasota properties or in pricing.

How does sarasota compare with other markets? Are we unique?

Sarasota is increasingly becoming one of the most desirable areas to relocate to.

People want to live here. Factors that may impact real estate in general will be offset to a large extent by the high desirability of the Sarasota market in particular. I expect average days on the market to continue to be at its lowest in years.

Sarasota for some time has been recognized and awarded for its pristine beaches, but the accolades and awards go much further,  and describe a place that would appeal to many people whether it be for vacation, retirement, work, or raising  a family: Sarasota ticks all the boxes.

Just a few examples of the recognition that Sarasota receives includes:

One of the World’s top 100 Places, the Best Place to Retire, Safest Community in Florida, #1 Best Beach, Top 10 most Walkable City, 14th Happiest Place in the US, 3rd in Capital Gains wealth in US, 6th smartest city in Florida, 1st in US for Well-Being, 11th Best City for Jobs, and SMH top 50 Best Hospitals in US.

All of this recognition and publicity combined with great weather, great beaches, and recreation together with outstanding cultural, entertainment and restaurant options bring tourists back year after year with many often deciding to buy a vacation property. This has been the typical trend. Tourists visit Sarasota and they like it so much that they return year after year ultimately in many cases buying a property to vacation and ultimately retire.

Sarasota has become the “destination of choice”. People want to be here! Until that changes Sarasota will continue to perform above real estate markets generally.

If I am looking to buy or sell in 2022, what should I consider?

Continue to monitor the supply crunch to see if there is any easing of the shortage of homes and condos. If you are looking to buy you will have to decide if you are willing to compete with aggressive buyers that are willing to pay to seller’s demands, or are you willing to gamble that 2023 will see a return to more normal market conditions?

In conclusion, the variables and unknowns are politics and Ukraine, inflation, and interest rates. Fortunately, inflation, although expected to rise, is not anticipated to cool the market. Housing and condo inventory is still low, and there continues to be many more buyers than sellers.

In the near term, the greatest factor, with certainty, that I see affecting the 2022 housing market is continuing low inventory. Buyers will continue to aggressively compete for homes recognizing the lack of choices. As this continues prices will continue to rise. Prices may not continue to increase at the level of 2021 but as long as demand exceeds supply I do not see prices dropping significantly. As this season ends and we approach next fall there may be a leveling. But again, at this point, I do not see real estate in the Sarasota luxury market declining.

When looking at real estate metrics and factors that may affect prices it is important to remember, as already stated, that Sarasota has become a top destination of choice across many parts of the US and indeed Canada and Europe as well. I expect this to insulate prices in Sarasota against any possible cooling effects elsewhere.


Ask the Expert your Real Estate Questions…

Ask the Expert’s Jeff Rhinelander is a real estate agent with Coldwell Banker. He is a member of Coldwell’s “International Society of Excellence” awarded to fewer than 1% of Coldwell Bankers Agents Worldwide. Jeff is involved in Sarasota’s markets as a real estate agent as well as involved in the design and development of new homes and renovations. If you have questions on real estate in send them to “Ask the Expert” at: expert@lbknews.com

Related Articles


Please enter your comment!
Please enter your name here

Stay Connected


Latest Articles