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Economic and Real Estate Outlook for December 2022

By Ernesto Rostoker and Michael J. Seiler

The key topic of debate and greatest concern has been and continues to be inflation. Although off its 40-year high of 9.1 percent in June, year-over-year inflation in October was still 7.7 percent,1 far exceeding the long-run target of roughly 2 percent.2 The greatest contributor to the Consumer Price Index (CPI) was shelter, but food and fuel costs also contributed. Within the energy sector, fuel oil rose 19.8 percent in October, which is a whopping 68.5 percent year-over-year increase. After two quarters of decline, the advanced estimate of GDP for the third quarter of 2022 was +2.6 percent, which gave the Federal Reserve a bit of flexibility.

To combat the continued inflationary concern, the Fed once again raised rates by 75 basis points a few weeks ago with the explicit intent to quell consumer spending and pump the breaks on the economy. Personal income increased by 0.4 percent in September, but personal consumption expenditures increased by 0.6 percent, resulting in a reduction in the savings rate.

In terms of real average hourly earnings, employees experienced a net decline of 0.1 percent in October when factoring in both the 0.4 percent increase in hourly earnings with a 0.4 percent increase in the CPI of all urban consumers.5 The national unemployment rate rose from 3.5 percent to 3.7 percent in October, still far below the natural rate of unemployment.6 This translates into an increase in the unemployed by 306,000. The bulk of these newly unemployed come from adult women and Caucasians, even those both remain lower than the national average. All other sub-group employment levels remained relatively unchanged.

In sum, it appears the necessary steps are being taken to continue to mitigate inflationary concerns with the acknowledgement that these steps will be accompanied by pushing on various pressure points.

FLORIDA REAL ESTATE MARKET

Any real estate market outlook should be preceded with the reminder that all real estate markets are local. As such, the statements made here are tempered with the acknowledgement that these high-level trends need to be vetted even within the ZIP code level before purchase and sale decisions are made. With this said, Florida’s residential real estate market has been red hot for quite some time. Redfin measures Florida’s year-ever-year growth to be in the mid-teens, a staggering number by historical standards. With interest rates rising amid inflationary fears, housing affordability will certainly decline. Despite the continued migration trend into the state of Florida, markets with geographic land constraints should be more resistant to downward home price movements, but markets with plenty of available land should be concerned with softening real estate prices.

The general pattern for home sales in south Florida is an increase in transaction volume in the spring, followed by decline thereafter. While natural disasters like Hurricane Ian understandably decreased deal flow, the market recognizes this as a part of living in Florida and reverts to normal soon afterwards. Still, we are seeing increased inventory and greater time-on-the-market which should result in lower transaction prices.

In sum, we see a general slowdown in the overall economy and a rise in interest rates, both of which put downward pressure on home prices. And while a net positive migration to Florida will provide some demand support, we view non-land constrained areas as performing worse than those with supply constraints.

Ernesto Rostoker is CEO at RBI Mortgages and may be contacted at ernesto@ rbialliance.com.
Michael J. Seiler is a Professor at the College of William & Mary and may be contacted at mjseiler@ wm.edu. 

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