Economists share insights at NABOR's annual economic summit in Naples – – Gulfshore Business

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A trio of economists shared their outlooks and predictions on the region’s shifting real estate market and the economy in general during the Naples Area Board of Realtors’ 10th annual Economic Summit. 
Market statistics and predictions were presented Thursday afternoon at the Naples Hilton by Lawrence Yun, chief economist of the National Association of Realtors; Brad O’Connor, chief economist of the Florida Association of Realtors; and Elliot Eisenberg, chief economist of Graphs and Laughs and the former senior economist with the National Association of Homebuilders. 
Although a certain level of uncertainty always creates background noise when it comes to the economy, the growing level of uncertainty fueled by inflation has become a prevailing theme. “We’ve had a shaky stock market this year not going in the same direction it did last year,” O’Connor said. “That gives people pause. Worries about how fast the interest rates went up and what the future of the housing market is. Because everything is always a little bit uncertain, it’s going to cause people to pause.” 
Despite increased mortgage rates, people who consider rent hikes first realize that buying a home is a terrific financial investment, Yun said. Although consumers are hesitant to buy homes under construction because supply issues make completion dates difficult to predict, consumers are buying homes already built.  
Yun encourages builders to take a risk and build homes. “I say go ahead and build more because there’s a housing shortage,” he said. “Once you finish, you are selling it and you are selling at a profit.” 
Eisenberg does not think the economy is experiencing a recession yet, but Yun thinks it is despite continued job growth. He notes that the region’s job growth in the last two decades especially has been significant.  
“There were less than 100,000 people with jobs in the Naples region in the year 2000,” he said. “Now you have more jobs compared to pre-COVID conditions. The total job numbers are about 60,000 or 65,000 more jobs now compared to 2000, so this is quite remarkable growth given the relative size of your local market, which is the reason why home prices took off because you have so many people moving into the region.” 
The region’s overall job growth and population growth continue to be superb, O’Connor said. “That’s always going to put upward pressure on the real estate market because we need to house more people,” he said. 
Home prices, inventory 
Although the demand for homes here from out-of-state buyers is declining, it’s still way above pre-pandemic levels, O’Connor said. Northerners are still flocking down to buy homes in Florida, but just not in the concentrated numbers experienced when COVID-19 moved the needle. “That’s declined a little bit, so you’re seeing a little bit less from up there. It doesn’t mean it’s going away at all,” he said. 
The Sunshine State’s housing market still has a lot going for it, O’Connor said. “Florida is still the hot place to be right now. If you read any articles in national media, they’re still talking about how people want to go to Florida,” he said, noting that international buyers also are returning to some degree.  
“(Housing) inventory levels are very low. We don’t have inventory,” Yun said. “Yes, inventory levels are rising, but even with recent increases, it’s still way below the normal condition.” 
Despite the rise in mortgage rates, a lack of housing inventory will keep home prices from significantly falling in the local market, Yun said. “Today, with such a tight inventory, don’t expect prices to decline,” he said. “In the Naples region, I doubt that you will even see a decline. But if it does decline somewhat, it will be very modest and temporary.” 
On top of rents growing nationally because of macroeconomic reasons, the migration of people to Florida is putting even more pressure on rents and pushing them higher, O’Connor said.  
“Florida’s median sale price has indeed increased by 40% in the past two years, as of July,” he said, noting that those increased prices are still a bargain for New Yorkers, who are the largest group relocating here. “So, where your typical Floridian is thinking, ‘Oh my gosh, it’s 40% more now, for California, or New York or Boston or wherever, this is cheap still. So, you’re still seeing activity from these parts of the country.” 
Rising rates 
The rapid increase in interest rates was a shock not because of the level it reached but because it occurred within about two months, O’Connor said. “That was part of the shock that I don’t think any of us saw coming. People have been priced out of the market because of this but I think there are also people sitting on the sidelines because they’re still shell-shocked from what happened and trying to figure out how the market is going to respond,” he said. “Even if you look by historical standards, we’re not that high in terms of interest rates but, then again, prices usually don’t go up 40% in two years either.” 
The increase in mortgage payments is not just affecting those on the edge of buying or renting, O’Connor said. “It’s affecting anyone interested in financing any kind of real estate all across the board from the luxury segment down to the more affordable segments.” 
The slowdown here is more pronounced than what the rest of the state is seeing. “Now, again, much of the rest of the state has a much more affordable market than this one so that’s probably why you’re seeing a lot of that shift,” O’Connor said. “The luxury market is kind of the first market to really slow down. So, you guys were kind of at the forefront, just like you were at the forefront of our recovery. You’re just always early with stuff.” 
Once the COVID lockdown was lifted, home sales surged beyond pre-COVID days until an increase in mortgage rates became a really big deal, Yun said. “There were two years of remarkable performance before the beginning of this year steadily declining. Why is it declining? We all know. Your clients are completely surprised about the impact of higher mortgage rates,” he said.  
Buyers are immune who sell their expensive homes in markets such as New York and Chicago then come to the Florida market with all cash, but mortgage borrowers are still a significant size of the market and the sales are dropping because of higher mortgage rates, Yun said. 
“For pending contracts, you are falling more than the rest of the country. The rest of the country is down about 20% while you are down 34%,” he said. 
Inflation factor 
Eisenberg, known as “the Bowtie Economist,” said an economic dilemma has been created by inflation, which continues to rise. “Food inflation is going down now, energy inflation is going down, but not general economy-wide inflation. If this inflation persists and rent inflation continues to rise, or even stays at 7%, then we’ve got a problem on our hands, so the Fed’s going to raise rates, and this is where the rubber hits the road.” 
The federal interest rate is now 2.375%. Seeking to fight sky-high inflation, the Federal Reserve will meet two more times before the end of this year to raise key interest rates at least half a point or possibly three-quarters of a point. The most likely scenario is that the Fed will raise rates to 2.875% this month and up to 3.375% by Dec. 31, Eisenberg said. 
“And they’re talking about raising rates beyond that. It all depends on inflation,” he said. “No one knows what’s going to happen. If inflation comes down quickly, like the next couple of months—like an anvil being pushed off a cliff—no recession. Then it stops, rates come down, hallelujah. 
“But under normal circumstances, I think inflation falls too slowly, the Fed keeps raising rates, they drive us into recession. That’s what I think happens sometime next year.” 
No one knows the future but the outlook in Florida looks good because it is a dynamic, growing state, Eisenberg said. “They’re saying it looks pretty good in Florida because immigration coming north is good, higher income people are moving here, taxes are low, weather’s nice, house prices are cheap. It’s pretty good.” 
Eisenberg thinks the overall economy is weakening, but despite negative growth during the first two quarters of the year, he doesn’t think the nation is in a recession yet. “It doesn’t really matter. We’ve had crummy growth. You’ve had negative growth for two quarters. Over the course of this whole year, it will end up being about zero.” 
Eisenberg is more concerned about next year, which depends on what happens in the final quarter of this year. “The Feds are going to keep raising rates. How much they raise depends on inflation. What happens to inflation? I wish I knew,” he said. 
As far as the Fed is concerned inflation is public enemy No. 1 and unemployment is closely related public enemy No. 2, Eisenberg said. “We have to see inflation come down. We have to see unemployment rise before the Fed starts to feel happy and gives us happy moon beams.” 
Copyright ©2022 Gulfshore Business
Copyright ©2022 Gulfshore Business

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