Since the recession, Naples' residential real estate market has been a bellwether for the Gulf Coast. Is a real estate slowdown on the horizon?
Industry. Residential real estate Trend. Sales are slowing Key. The market is in equilibrium.
It may be a good year for residential real estate in Naples, but no one's feeling it.
The Naples area staged one of the most significant recoveries from the recession in Florida as buyers drove the single-family home median sale price over the $375,000 mark in recent years. Remarkably, in the desirable Naples area west of U.S. 41, the median sale price of a home vaulted over the $1 million threshold in late 2014.
But while prices have remained stable, there are signs of softening demand.
Through the third quarter of this year, the number of transactions has declined by double-digit percentage rates, and the inventory of homes for sale has risen 40% compared with the same quarter in 2015.
Real estate experts watch the Naples market because it holds clues to the resilience of wealthy buyers. The Naples area attracts a greater share of affluent people than many areas of the Gulf Coast, so any drop could be a sign that high net-worth people are growing more cautious.
Real estate executives are anxious about the upcoming winter season, traditionally a busy time for transactions because of the influx of buyers from northern states. “We're facing a lot of headwinds,” says Mike Hughes, general manager of Downing-Frye Realty Inc. in Naples.
National politics is one factor holding consumers back. “They're dealing with a very nasty presidential election,” Hughes says. “The hostility is a factor.”
What's more, Hughes worries the rancor may last past election day. “With the elections there's going to be a little bit of a hangover,” he says.
But there are other worries too, including the decline of the Canadian dollar, the stock market volatility, Brexit, terrorism, hurricanes and the Zika virus. “There's no one thing that's a deal breaker,” Hughes cautions.
Still, many real estate agents consider the Naples area to have a well-balanced ratio of buyers and sellers that have kept prices from falling. “Prices are remaining relatively stable,” says Jeff Jones, managing broker at Coldwell Banker Residential Real Estate in Naples.
And any year-over-year comparisons will be difficult. “Comparing last year to this year may not be doing us a service,” says Coco Waldenmayer, a Realtor with John R. Wood Properties in Naples, because “2014 and 2015 were banner years.”
Sales drop, inventories rise
Overall, the number of home sales dropped 14% in the third quarter compared with the same quarter in 2015, while inventory of existing homes listed for sale ballooned by 40% over the same period.
The presidential election is weighing on sales, but some industry experts believe that may be short-lived. “Traditionally in a post-election time period people start buying real estate again after a little hesitation before the election,” says Phil Wood, president of John R. Wood Realtors.
While sales are down, Realtors say they're in line with trends in more normal years. “Historically, we're having a very good year,” says Hughes. Year-to-date, there have been more than 9,000 home sales in the Naples area. “That's a lot of business,” Hughes says.
What's more, the third quarter has traditionally been the Naples area's weakest quarter because there are fewer visitors and part-time residents during peak hurricane season. “The comparisons make it seem like things are off,” Hughes says.
Meanwhile, inventory of homes listed for sale grew significantly in the third quarter compared with the same quarter a year ago. But the 5,044 homes listed for sale pale in comparison to the 12,400 in March 2007, and there is a 6.9-month supply at current sales pace, which many consider a balanced market between buyers and sellers.
Still, the increase in inventory means homes aren't selling as fast as they did last year. The average days a home is listed on the market reached 86 in the third quarter, up 10% from the same quarter one year ago.
“This has to be expected as inventory increases,” says Brenda Fioretti, managing broker with Berkshire Hathaway HomeServices Florida Realty. “It's still representative of a healthy and moving market.”
In addition, buyers will have more homes to choose from when they arrive in Naples for the winter season. In recent years, agents complained that limited inventory held the market back. “We would have many buyers who couldn't find what they wanted,” says Wood.
The price is right
Despite the rising inventories of homes listed for sale and the decline in transactions, median closed prices have remained surprisingly stable. “We're not seeing wild fluctuations in pricing,” says Jones.
The most significant price increase in the third quarter was for homes listed for less than $300,000, which rose 9% in the third quarter. But experts note that's because there is a significant lack of available single-family homes in that price category.
The $2 million-plus price range saw a 4% drop in the median closed price in the third quarter compared with the same quarter a year ago. That highest-end category posted the steepest drop.
Still, experts cautioned about reading too much into the quarterly data. “You should not interpret any of these statistics as negative,” says Cindy Carroll, with the real estate appraisal and consultancy firm Carroll & Carroll Inc.
Carroll says the Naples market has normalized to the point where overpriced homes won't attract as many prospective buyers. “Listing at the proper price is going to be critical,” she says. “It's going to be a great time for buyers.”
Still, after several years of rapidly rising prices, some sellers may be disappointed. “Some sellers will feel like they lost value,” says Carroll, but she notes the appreciation may never have been warranted.
Impact of new construction
Realtors estimate that 25% of the home-sale market in the Naples area is new construction. Homebuilders have been building and selling speculative homes in recent years, though some have offered incentives as sales slowed this year.
The new-home-sales transactions aren't reflected in the monthly and quarterly data that the Naples Area Board of Realtors tracks. “A lot of us are selling more new construction,” says Hughes.
Homebuilders have adjusted their prices lower, says Ross McIntosh, longtime Naples commercial real estate broker who has arranged land transactions for homebuilders. Homes that sell well today are in the $300,000 range, not the $500,000 category that was hot a few years ago.
“I don't think anyone can put their finger on what caused that,” says McIntosh, speculating political and economic uncertainty may be among the underlying causes. “Prices people are willing to pay has eroded substantially.”
Some builders are responding to the shift in the market, building homes in the $300,000 to $350,000 range. “Buyers who delayed buying decision have been rewarded,” McIntosh says. “The die is being recast on the new-housing side.”
By the numbers
The third-quarter data for existing home sales in the Naples area show a drop in transactions,
an increase in inventory and flat prices compared with the same quarter a year ago.
3Q 2015 3Q 2016 Change
Total pending sales 2,270 1,952 -14%
Total closed sales 2,187 1,889 -14%
Total median closed price $300,000 $312,000 4%
Total listings 3,606 5,044 40%
Average days on market 78 86 10%
Single-family closed sales 1,123 1,001 -11%
Single-family median closed price $379,000 $382,000 1%
Single-family listings 2,049 2,669 30%
Condominium closed sales 1,064 888 -17%
Condominium median closed price $235,000 $241,000 3%
Condominium listings 1,557 2,375 53%
Source: Naples Area Board of Realtors