And sales crash.
Naples, Florida, a wealthy beach town on the Gulf of Mexico, known for its golf courses and high-end shopping, and a favorite hangout for Canadian snowbirds trying to escape their cold winters, has a problem:
Pending home sales in the first quarter plunged 23% from a year ago, according to the Naples Area Board of Realtors. Closed sales plunged 19%. Overall inventory soared 33%. In the two mid-price ranges from $300,000 to $1 million, inventory soared about 42%!
But sellers haven’t gotten the memo yet: even as sales crash and as unsold inventories pile up, the median closing price rose 8%.
That’s how housing busts start out. Buyers lose interest at these prices and evaporate, while sellers go into denial. As prices still rise, volume collapses. When sellers begin accepting the new reality, or when they’re forced to sell, then prices are getting slashed until enough buyers materialize.
A similar scenario began playing out last year in the broader vacation home market. Vacation-home sales in the US plunged 19% in 2015 year-over-year, to an estimated 920,000 units, according to the National Association of Realtors. Chief Economist Lawrence Yun blamed a laundry list of things that included “economic uncertainty,” a “presidential election that might lead to restrictions in economic commerce in the future,” if Trump has his way, with potentially worrisome consequences for Canadians, such as “visa restrictions,” and this gem of a reason:
“The turbulence that hit the financial markets the second half of the year likely seized some would-be buyers’ available cash.”
But even as sales volume of vacation homes plunged, the median sales price skyrocketed 28% to $192,000. The report: “Many of the metro areas with the strongest price appreciation in 2015 were in the South — the most popular destination for vacation buyers – and particularly in several Florida markets.”
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