How is the local real estate holding up? - Separating the data from the noise.
Photo from my listing at 369 Park Mesa in Carbondale - see listing here: https://www.zillow.com/homedetails/369-Park-Mesa-Carbondale-CO-81623/443570989_zpid/?view=public
It seems like the world changed in a matter of weeks after the election. The fast and confusing pace is hard to follow, and we are just now trying to adjust our perspective and expectations. How is the Roaring Fork Valley real estate doing? Let’s take breather and look through a few of the most impactful trends and data points we’ve collected recently.
First it’s important to understand where we started from. The US economy was the envy of the world as we approached this winter with GDP growth expected in the 4% range, low unemployment and record high asset valuations. Yet most Americans didn’t necessarily feel like they were benefitting from it. The top 10% earners in the US is responsible for over 50% of consumption in the country. This statistic is often used to illustrate the tale of two economies we live in. The richer part of the population is steaming ahead, mainly thanks to asset valuations at all time highs. Meanwhile inflation is hitting the lower income part of the population hard. It’s important to keep this in mind as we’re looking at home values nowadays.
In the Roaring Fork valley
The tale of two economies, and the tale of two real estate markets
These two categories are reflected in real estate with different products and locations. Especially in our valley where we live in Aspen’s shadow, in an economy based on tourism and second home ownership. Right now in our valley the “real estate for the majority” is still under a severe inventory crunch, letting us think that prices could be still climbing. In Basalt and Carbondale between $1m and $1.5m, Glenwood Springs around or under $1m, New Castle and down under $850k, there doesn’t seem to be enough of those and listings get scooped up quickly after being listed for sale.
The higher end of the market has seen huge growth in the last few years. But today we might see some segments being oversupplied, which is quite a change compared to what we’ve seen in prior years.
The more affordable towns are HOT
With Glenwood getting seemingly out of reach for most buyers, the New Castle to Rifle area has been HOT.
New Castle has seen properties selling above list price on average, and days on market going from 160 to 69 from February last year to February this year.
In Silt and Rifle days on market were slashed in half in the same period of time and we observe the same trend on the percentage of price received.
I see a real split happening - the luxury and second home market is becoming a buyer’s market, while the more affordable markets are still very much sellers markets. This seems to be confirmed and explained by some of the national macro trends described further down this article.
Carbondale plateauing, and a mixed picture for Glenwood
In this valley the demand pours over to the next town. Most people want to be as far up valley as they can. And they always want to be one town over what they budget can allow them :). I’ve been saying for a while that Glenwood had a lot of room to grow considering that the next town over - Carbondale - had gone very far ahead. The average price in February was $2.3+m in Carbondale vs $1.1+m in Glenwood for a single family home. That’s a big gap and both towns seem to be working on bridging it: Carbondale is slowing down while Glenwood is accelerating.
Right now there are 39 listing above $1.2m in the Glenwood Springs MLS! It’s much more than the market has ever absorbed in Glenwood at that price range. This segment of the market is definitely a buyer’s market at this point. This Spring/Summer will be a make it or break it moment for the Glenwood market. It’ll either settle for the long run in a price range in the mid-$1 million or will see a correction based on the listing prices we see today. That being said, even if prices as compared based on list prices, it’s important to know that there is no widespread distress on the seller’s side. They might just not be able to fetch the kind of money they’re asking. In this context, we might just see these properties sit for a while and this pool of inventory slowly draining at lower prices than advertised.
Meanwhile Carbondale has seen the days on market go up, and the average sales price Year to date stagnate - two signs that the market is somewhat plateauing in that town.
It’s interesting to mention that short term rentals. They are at the cross roads of this two type of real estate: not bought by working families to live in, but they are bought as investments. They create a lot of frustration in the community right now as the housing shortage continues, because they take from the pool that’s almost empty (real estate for working families), and try to grow the pool that pouring over (real estate for the wealthy). Because there aren’t enough of them to really move the needle I don’t believe that further restricting their number through regulation would have much of an impact. But this helps understand why the frustration seem to concentrate on them.
NATIONALLY - Leading indicators for the local market
I’m really careful with making any statement about where stocks ad home prices are heading. There is too much going into a general trend. But as opposed to the last few years, I hear a lot more caution, which contrasts with the blanket bullish sentiment that was ruling almost all markets for the last few years.
Some metrics such as real estate prices related to income, and earnings per share for stocks, clearly draw a picture of very high valuations, with little room to grow.
Watch the stock market
I hate to compare homes and the stock market, but in today’s market I can’t help than relate valuations of both these asset classes. Here is why.
The average home buyer today in the US is 56 years old. This is the late career age, but also the age where most people own stocks. The stock market has had a historic run in the last 4 years and it gave a lot of buying power to stock holders. We rarely receive a proof of funds that is not a stock brokerage account.
High stock and real estate valuation create a “wealth effect” that keep allowing asset owners to leverage high valuations, to purchase more, pushing prices up and so on (Click here for a good source of interesting posts regarding the “wealth effect” and its impact on real estate).
The general amount of wealth held in real estate is not necessarily acquired or directly linked to the stock market. A lot of it is still people putting a roof over their head. But the way it’s valued here in this valley is connected to stocks. As mentioned above, downpayments and financial statements used to qualify for loans are mainly stocks and other real estate holdings. If the transactions goes through and houses sell for a high price, that becomes the standard by which all comparable homes are valued.
Right now only a few houses change hands for high prices because the inventory is low, and stock valuations is what allows the buyers to acquire them at a very high price. When stocks go down, and the wealthy buyers see the purchasing power take a hit, that whole dynamic could reverse.
What to make of the national numbers
This article of the Wall Street journal tells the tale of two markets. The really hot ones and the slow ones. They use the examples of two listings to illustrate that. One listing is in Florida, and the other one in New Jersey. They are both listed around $1m. The one in FLA can’t seem to sell, and the one in NJ sees 15 offers and ends up under contract for $200k more than list price.
Obviously there is A TON to unpack here. Is the NJ home listed under value, and the FLA home over? Is the seasonality affecting both market in opposite ways? Fact is, the numbers per state seem to confirm that some markets are still super hot, and some other have become buyers markets. Either way we are done with the era of “everything that has 4 walls and one roof is selling at any price”.
Nationwide, it seems like the determining factors are zoning laws and building codes. In states where building new is an “easy” options (permitting, requirements etc… are manageable), a lot of new homes have been built and are being listed. The over supply pushed the market into buyers market territory. In other markets where construction remains impossible for most, because of lack of land or very price of construction, home prices keep going up and inventory is still very low. Namingly Texas and Florida, the sunbelt states are now buyers market (expect prices to level up or go down), and the midwest and northeast are sellers markets (prices keep climbing).
Here in the Roaring Fork Valley, prices are still rising and there has been no wave of new construction of units for sale. Appart form a few spec homes, the vast majority of new construction is rental apartments.
In conclusion
There are a lot more questions than answers out there right now. Asset valuation is at a very high level and parts of the economy are starting to slow down. The stock market is down more than 10% from its peak 3 months ago. In the meantime some locations, thanks to a mix of gentrification after COVID and a very limited ability to create more inventory, keep charging ahead. It’s very possible that areas like ours keep going up, while the FED has to lower rates to help the economy in parts not directly related to ours. It would be the perfect scenarios for our area, with home prices continuously going up and interest starting their decline in the same time.
I see a clear split shaping up in our market where the homes for the everyday local resident and worker keep going up in price, while the inventory of homes for second homeowners and luxury markets are slowing down.
Either way we have transitioned to a more balanced market, and with sellers and buyers need to adjust their expectations and strategies. As you are considering buying or selling a home, make sure to understand the market positioning of the home and if the segment of the market it’s sitting in is a seller or a buyer’s market.
The big wild card in all this is the stock market, that is needed to power home values the way it has in the last few years.
