Here we are at the end of another year and we find ourselves with an uncertain real estate market in Cocoa Beach and Cape Canaveral. A lot has changed in this market since January. Inventory of condos and single family homes is more than double what we began the year with and it's still increasing. Inventory bottomed in March with inventory getting as low as 34 condo units and 10 single family homes for sale in our two cities. This morning we have 127 condos and 25 homes for sale. Condo sales during the first four months of 2022 averaged 73 units per month but slowed abruptly in May just as inventory started rebounding and continued slowing through December. In October we sold exactly half the units we did in October 2021 and that was with twice the inventory.
Mortgage rates rose at the fastest pace in 28 years this year. In January 2022 the national average rate for a 30 year fixed rate mortgage was 3.22%. It was 7.08% the last week of October but has pulled back to 6.31% in last week's survey. A 30 year mortgage at today's rate has a payment that is 43% higher than it was a year ago. A $300,000 mortgage with payments of $1300 that was available in January would be $1858 at today's rate. Add higher taxes, insurance and condo fees, and it begins to affect demand.
Speaking of condo fees, we've seen a wave of condo associations in our area forced to make substantial increases in fees to cover increasing insurance premiums and higher expenses across the board. That trend is still in the first inning. All associations with buildings over two stories in our two cities will have to begin funding the newly mandated structural reserve fund over the next two years after they've performed their inspections and structural reserve studies. The insurance premium inflation that is likely to continue plus that new reserve funding is going to hit hard in many complexes and will force further increases in monthly fees. I expect demand for condos to chill as the higher fees become reality. I also expect today's prices to retreat in response to the lower demand and higher costs. There has not been a lot of discussion about this unpleasant new reality but it is here and must be addressed by the end of 2024. Based on many years dealing with many condo associations I expect a good number of them to ignore this for as long as possible.
Anyone reading this with a unit in an older building would be well-advised to start thinking about possible inspection findings in their buildings and how that is going to affect them and the value of their unit. Associations can no longer wait until project time to levy a high special assessment to pay for concrete repairs. The new law requires that ongoing contributions to the structural reserve be sufficient to pay for the project at the time it needs to be done. The sooner the engineer says the concrete project needs be done, the higher the increases to fees need to be.
Sellers of affected condo units (every condo in CB and CC over two stories) will be required to share the structural inspection results with potential buyers or disclose that it hasn't been done yet. As of right now, no disclosure is required but potential buyers need to be aware that today's condo fees whatever they may be are likely going up even in buildings in perfect condition.
What will our local real estate market look like in 2023? My expectation based on everything I've already mentioned is that demand for condos will continue to cool and prices will begin retracting as the fallout from the new inspection/reserves requirements becomes apparent. This might not happen until the second half of the year if most associations procrastinate on their inspections as I expect them to. Single family homes will continue to be in short supply and I don't think their prices will be as affected as condos although they have their own headwinds in the form of increasing insurance costs and higher mortgage rates. I think 2022 will mark the peak for prices during this cycle. I believe the high selling price for units in some buildings has already happened.
As always, I could be so far off the mark that I'm shamed into buying all readers a drink in consolation. Offer stands and these predictions will be evaluated next December. Feel free to make your own anonymous predictions in the comments.
Happy Hanukkah, Merry Christmas and Happy New Year, y'all.
“I did not consider, even passingly, that I had a choice when it came to surfing. My enchantment would take me where it would.” __William Finnegan