This market dynamic (I voluntarily leave the term market “cycle” aside) is at the end of its road. We’ve been operating under the current fundamentals for about 3 years. If we rewind to 2020 when COVID hit, this market dynamic started: fueled by a desire to move to smaller towns and ultra low interest rates, an unprecedented level of appreciation happened especially in areas like the Roaring Fork valley. Real estate creates its own momentum and despite interest rates having gone up for over 6 months now, and COVID being behind us, we are still riding that same wave… The most recent market stats reflect that reality. In most towns, prices have stabilized. In Carbondale, Basalt and Missouri Heights, the median price is up but only because of one or two sales that occurred last month. As we are approaching 2024, we can all agree that the fundamentals of the real estate market can’t be COVID and cheap interest rates anymore. What are they going to be in the next market phase?

What is here to stay:

Low inventory is here to stay: Take a look at the graph below. Almost all homes in the US have mortgage rates at or under 5%. It will hardly be an option for any of the current homeowners to sell their house and buy another until mortgage rates are below 5%. This keeps the inventory low. Keep your eyes on the interest rates… As soon as they go back to 5%, it’s game on again! Expect high appreciation again!

High rents, high purchase prices, low affordability: Historically, rents rarely go down. They should stabilize where they are, most experts don’t expect them to go up again much in the next 12 months. It’s likely that housing will take a larger slice of renter’s and future homeowners’ budget: inventory of homes for sale will remain low as long as mortgage rates are under 5%, and the only alternative to buying is renting. Therefore there will be high demand for rentals, which will maintain today’s high rental rates. Affordability will remain low for the time being.

Mountain towns will remain attractive to wealthy Americans, looking for lifestyle, access to recreation and safety. It will maintain a high level of demand, with buyers willing and able to spend a lot of money for a property in towns like ours. With major cities having visible drug, homelessness and crime issues, and geopolitical chaos in some parts of the World, I anticipate that mountain towns will remain the most popular safe haven and events pushing population quickly to come to our towns such as COVID could happen again in the future. If anything, people might keep or purchase in the valley just in case it happens again. The trauma of lockdowns will still be a driver for a while.

What will change:

The era of cheap money is over: the American economy is carrying strong, now might be a good time to learn how to operate under high interest rates and challenging access to credit. Rates are expected to be held higher for longer.
Fear of missing out is gone, despite the low inventory. With financing being expensive and difficult to get, the pool of buyers has shrunk dramatically and there is not much competition to buy homes anymore. It’s not cheap to buy anything right now, but at least you can take your time! Also - nurture your relationship with your lender, so you can secure access to funds when you need them.

CONCLUSION

If you are waiting for a crash, you might have to wait for quite a while! Apart from a “black swan event” which can crash or prop the market up in an unexpected way, I don’t see prices going down anywhere in the valley. Homeowners have all the reasons in the world to stay put, and the financial ability to do so with low interest rates and a ton of equity. As interest rates go back down, it will make sense for more Americans to make a move. We have no control over when that’s going to happen though.