Outlook on the Real estate market in the Roaring Fork Valley
I usually avoid speculating about the state real estate market. It’s all natural to want to know if it’s a good or a bad time to buy and sell, but you should be wary of anybody being too affirmative in their predictions. Watch CNBC at 10:00am and we are going to the moon, watch it at 10:30am they are predicting a crash. They can’t go wrong with that!
To me it’s not about when to buy, but how to buy. Since you can’t predict the future, make sure you can live with the real estate you are considering buying for at least 5 to 10 years, so you never have to sell in a low market. Don’t over leverage yourself, and keep 6 months worth of expenses saved in an account.
That being said, keeping an eye on the health of the market will give you some perspective on what you can expect from your present or future real estate, and that’s always interesting to know even if you will only get a partial answer. I hope that this article will help you keep an eye on the right metrics and make informed decisions in the coming years!
The argument for a continuing hot market.
Inflation/price of construction: Replacement cost is one of the methods used by appraisers. The high cost of construction justifies high valuation and there is no end in sights for high cost of both material and labor. Recent data from the U.S. Census Bureau shows construction costs went up by 17.5% year-over-year from 2020 to 2021, the largest spike in this data from year to year since 1970. Building new is also one way to bring more inventory on the market, and at today’s cost it only makes economic sense in the luxury homes market, which is not where the inventory is needed the most.
Low inventory: the inventory is expected to stay low. Most properties in the country are now financed at an interest rate under 3%. With today’s interest rates over 6%, even a lateral move (selling for $700k and buy another property at the same price point) will result in higher mostly payment. Who would want to let go of a 3% debt and take on the same amount of debt at 6%?
High rent: if selling a house is hardly an option in this market, renting it out seems to be a more profitable option. Rents have soared recently, average rent nationwide crossed the $2,000 mark this Summer.
Employment: As long as unemployment remains low, employers will compete for workers and housing will benefit for higher wages.
High lending standards over the past two decade: current real estate owners are solid financially, its unlikely that they will sell if prices aren’t sky-high, as opposed to what happened in 2008/2010.
The downward pressure on price
Inflation: yes, inflation is in both categories! Persisting inflation will push the Federal reserve to keep hiking up interest rates aggressively and hurt affordability furthermore.
Sentiment: as the market slows down, some buyers will decide to sit on the sideline (lower demand), the same way that some were motivated by fear of missing out in the recent booming market.
Stock market: the stock market has been loosing ground since the Fed decided to switch their policy to quantitative tightening (QT). Stocks investors won’t liquidate to buy real estate in a low stock market.
Demanding lending standards today: It takes a good income and a perfect financial statement to be able to access financing nowadays, disqualifying a large portion of the population.
Cost of insurance, taxes, variable rate debt, are going higher, which will incentivize currents owners to sell if they can’t afford the cost of owning their real estate. That could push inventory higher with some distressed sellers who will price aggressively to sell quickly, putting downward pressure on price.
As a conclusion
Nobody has a crystal ball, and each local market will react differently to the forces shaping the real estate market. Within each market, different segments will also react differently. Here is how I would break down the Roaring Fork valley market:
the job market is bunker, rents and rentability are very high, pushing people to keep their property rather than selling them and keeping the inventory low. Buying a primary home, under $900.000 will stay very competitive for the foreseeable future. This could change is the job market starts to wobble. Glenwood, New Castle will hold better than Carbondale and Basalt for that reason. Lower end of the price range throughout the valley will hold strong.
The stock market is other asset classes are way down. Most secondary home type of products will be hurting until the Fed turn around and starts lowering interest rates, propping asset prices including stocks again. Houses above a million in Glenwood, and above $2 million mid-valley will be a hard sale this year. If you are considering selling in that price range, I’d recommend doing so ASAP, there is still money from recent real estate sales that some buyers want to spend in our are. If you are looking to buy in that price range, find the seller who is fearful!
Additional Sources:
https://www.wsj.com/articles/after-years-of-low-mortgage-rates-home-sellers-are-scarce-11663810759?mod=hp_lead_pos6
https://www.fairviewlending.com/cpi-roars-again-stocks-tank-where-is-inflation-heading-and-why-what-does-this-mean-for-real-estate/
https://coloradohardmoney.com/58-of-sellers-in-denver-drop-prices-inventory-rises-94-what-does-this-mean-for-colorado-real-estate-values/
