Market Begins Realignment and Balance

Guest Correspondence

Sales have slowed, the meteoric price appreciation has eased, interest rates are beginning to lower, inventory continues to creep higher… all signs the Sarasota Real Estate Market is realigning from the unconventional and intense activity, which began in late 2020 and lasted through late spring 2022. As markets of all kinds tend to be cyclical, it is not unexpected to see moderation after the pandemic-induced frenzy.

The changes are increasing days on market between listing and sale, competitive multiple offer conditions are becoming rare, and infrequent offers above asking price, all helping to relieve the long-held “seller’s market” that has been in control for the last few years. Though we are still far from the target of six months of inventory available for sale, especially in the lower and mid-tier price points, improved conditions bring the canyon that separated active buyers and sellers closer into alignment.

As you can see in the graph that shows the 10-year track of days from list to sale and inventory levels, 2022 is well positioned compared to years prior to the pandemic.

Inventory conditions are improving, which in turn is helping to slow price appreciation. As sellers are better understanding buyer expectations, pricing of properties has closed the gap and is helping to shorten list-to-sale periods in the luxury price points.

Across the country, affordability is a key issue influencing the sales decline. The cause lies squarely on the increase in interest rates and inflation, affecting most buyers in the lower to mid-price markets. There is a clear hesitancy for both buyers and sellers as questions about whether now is the time to enter the market cause confusion and concern. Real estate experts and economists are projecting a somewhat humdrum year ahead, with a stronger uptick expected in 2024 after interest rates and inflation stabilize.

Market analysts recently wrote that return on investment on homes rose an incredible 20% between ’21 and ’22, almost three times the 20-year average. Their projections are for it to fall to under 5% in 2023 before rising to a more typical 7-10% in 2024.

As is often said, real estate is local, and our region has entered this quieter environment in a healthy state with continued strong demand. There is great potential to sell well located and move-in ready homes and condos, as well as properties in prized locations that are a perfect site for a custom home.

The luxury price tier had significant price escalation mid-2021 through mid-2022, The slight decline in median and average sold prices through November 30, 2022 is not something that worries me. There are often unique events that affect prices, such as a large volume of luxury condominiums selling in a short period as new buildings come online, as did occur in late ’21 and early ’22.

Wealthy clients seeking primary, secondary and investment properties will be relatively unaffected by the interest rate changes expected in 2023, as they see real estate as a key component in their asset portfolio. The affluent who are seeking to buy in this region are eager to find their home, yet patient to wait for “the one” that checks all their boxes. I believe the potential for sales of properties in the upper price points will remain steady in the months ahead.

If we continue to see new listings stay on this slow but steady pace, average prices should also continue to grow, though at a cooler rate than recent past. In my opinion, there are no signs of distress in the luxury market – a cooling yes, but nothing alarming. With several new luxury condo projects under construction and expected to be completed before year-end, this will also help the upper tier move forward in the New Year.

Sarasota’s attractive business climate, no state income and low payroll taxes, great weather and beaches, wonderful culinary and arts community, along with our region being considered “undervalued” compared to other resort communities will keep us as a top location for entrepreneurs to target a move to. 

Michael Moulton is a certified residential specialist and broker associate with Michael Saunders and Company.

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