2021 QTR 3 - MARKET UPDATE

JASON’S “REAL TALK”

RESIDENTIAL NEWS
As I stated in my last “Real Talk” from August, we have observed a cooling pattern that started in April. The absorption rate (one of the key measures we focus on, and is essentially the rate at which homes are sold) has fallen 46% for single family homes and 31% for condos and townhomes since the highs we saw in March. I don’t want to overstate the situation as the levels we saw in March were at historic highs that were unsustainable. We are still in a seller’s market and the overall real estate market remains strong. We believe this is a natural and healthy cooling pattern that is caused by a lack of affordability and buyer limitations. This cooling pattern is a slow move to normalization. This isn’t to state that we will see an equilibrium in the market, but that we will return to the market we saw pre-pandemic. It will probably take another 6 to 18 months before we see the pre-pandemic normal. The pace will be impacted by mortgage interest rates.

The local housing market is suffering from a supply and demand imbalance. The number of new listings in our market is largely unchanged from four or five years ago. The inventory is near the all-time lows we saw in March and April. We currently only have about one month’s supply of inventory in Pinellas County. Equilibrium is considered to be six months of supply. In January of 2015 Pinellas had just shy of four months of supply, and in January of 2020 Pinellas had two months of supply of inventory. Due to this imbalance the median sales price has increased by 67% in the last four years, and the time to contract has decreased by more than 50% in that same time period.

COMMERCIAL NEWS
Commercial real estate’s rebound continues to pick up pace, albeit somewhat unevenly among the sectors. Industrial, and Multi-Family continue to lead the market with softer conditions for large office space and hotels. Despite a setback with the Delta variant both Retail and Food and Beverage (F&B) have quickly bounced back. We believe that Retail and F&B will return to their pre-pandemic pace (at least here locally) by mid next year, if not sooner. Hotels and Office space is the biggest question mark for the industry. There is a lot of movement in the office space sector with companies starting to come back into the office, but often with a new “hybrid” model. We are still only at about 40% of attendance for in-person office space pretty much throughout the country. Office leasing remains challenging and we expect that to be the case into 2022 and probably into 2023. We believe it is too early to determine the future of office space, and that one way or another, it will look different than it did in 2019. While Hotels locally have done incredibly well (some of the best numbers in the nation) they still are far behind their pre-pandemic numbers. Hotels nationally are optimistic for the future of travel. New development is trying to move at lightspeed, but is still being hampered by the cost of land, labor, materials, and supply chain issues. We expect these costs to come down as the pandemic continues to ease and supply chains normalize. We have heard more about supply chain issues over the last quarter than we had previously. The global pandemic continues to have a significant impact on the international supply chains. We have heard of issues with just about every part or piece you can think of. Some areas of the supply chain are starting to normalize, but it will probably be 12-24 months before we see anything that resembles normal.

Summer was better locally for small businesses than it has been in years. Summer is usually the slow season for our local shops, but they have seen a steady increase in summer activity over the last few years. We believe this activity was due to the overall trend combined with Florida being open while many areas still had restrictions and some of that release of the pent-up demand. The local shops are gearing up for the holiday season with Black Friday and Small Business Saturday being two of the biggest days for local retailers. We expect F&B to see continued increase in sales as long as they can find the labor and product to run their businesses effectively.

We have seen a significant increase in traffic on all of our listings over the last few weeks. We believe that this year is following a similar pattern that last year showed with a delayed seasonality of the market. Pre-pandemic the local market was usually very hot in the summer and cooled with the weather. Since the pandemic we have seen a slower summer and a busier third and especially fourth quarter.

HUGE NEWS!
We continue to remain bullish on the long-term prospects of St. Pete, and Tampa Bay more broadly. If you haven’t heard the news, the legendary Wall Street fund manager Cathie Woods is moving her asset management firm to Downtown St. Pete from NYC! Her firm, Ark Investment Management, manages 78 Billion in assets. Ark focuses on innovative and future focused technologies, which is also part of her move. The firm will be launching in talent incubator with the Tampa Bay Innovation Center and Pinellas County in south St. Pete. I spend all this space on this one move because it is that important. I cannot underscore how much of a big freaking deal this is. This is huge. It is a game changer for not only the City of St. Petersburg, but the entire Tampa Bay Region. I can assure you that this is the first domino. Other funds will follow, as will entrepreneurs and tech startups. The future is bright in the Sunshine City.

THE ECONOMY
We continue to watch the broader economic activity and the pandemic, and remain hopeful on both fronts. Vaccinations slowed in the third quarter, but then rebounded sharply due to the Delta Variant and then vaccine requirements. We are close to almost two thirds of the US population being fully vaccinated with the numbers rising every month. As booster shots now continue to go out with more probably on the way soon, and the combination of vaccine mandate deadlines approaching we will likely see even higher vaccination rates by year's end. This brings us closer to that highly coveted and touted Herd Immunity. Florida is and has been wide open, but other parts of the country are just starting to open back up and get to their new normal. We saw people retreat due to Delta, then when the case rate started to drop, immediately go back out to spend. We believe there is a lot of pent-up demand that is waiting to feel safe when enjoying themselves shopping and dining.

On the economic front we see a few different stories unfolding. The big story concerns the actions of The Federal Reserve, which has indicated that they will start to taper the quantitative easing (buying of bonds to stimulate the economy) next month. Tapering will have the same impact that a small Federal Rate increase would. The Fed is currently indicating that the first rate increase may be in early to mid 2022, which is sooner than previously expected. They state this is due to the economy’s strength, but we have to wonder if inflation concerns are also a part of that consideration. We will continue to watch if that guidance changes as inflation climbs. Congress is still working on two large infrastructure bills that combined could be worth $4 to $5 trillion in spending over the next 5-10 years. That is a significant amount of investment into the economy. That infusion of capital would elevate and accelerate some of our economic predictions on the pace and scale of the recovery. The stock market took a hit in September and had a rocky October, but overall is very positive for the year. Overall, we expect the economy and real estate market to continue their current trajectories for the next 12-18 months.

We’re always happy to chat one-on-one with you about the market, and provide free valuations of any property.