State of the Market – May 2021
Having navigated a successful winter season for the ski area and town, we are now progressing into what used to be mud season….. this ‘shoulder’ season has become anything but that with continued popularity for visitors and real estate activity alike.
Having recently migrated into level green, we are setting up for a busy summer with few restrictions and the enviable position of being able to enjoy all that the mountains have to offer as well as selling you into your mountain dream home.
It has been a crazy few months, on top of an unexpected 2020 for real estate. As many of you already know, the continued desirability for property in mountain communities continues to be fueled not only by people wishing to secure their slice of mountain living, but also, by the general population growth and popularity of Colorado. When I first moved here in 1994 the population of the state was 3.6m, now we are nearing 5.9m people. This population growth has obviously been very much focused on the front range and it is here that the high desirability and low inventory of housing started about 5 years ago. Here in Summit and Park Counties, since the new year we have also been experiencing multiple offers on lisitings, over list price closings, appraisal gap clauses and more. The low inventory and high demand has certainly made for a challenging market and with this being said, it is important to make sure certain topics are understood and discussed.
Are we looking at a housing bubble?
In past housing bubbles there has been some fundamental flaws in the market that spawned the housing bubble to burst. Having talked with a number of mortgage lenders, who have all firmly stated that it would not be as a result of poor loans, it can be said that from a finance sector point of view the real estate market is on sound footings. Strong demand is slated to continue for the foreseeable future and with limited inventory and very little new construction or vacant lots available, pricing will be driven by simple supply and demand metrics. Unless there is a much broader seismic shift in the US or global economy, my view is that Summit and Park counties will continue in an appreciating trend and demand will be strong. Read this article.
Is now a good time to buy?
I always start the answer to this question with how long are you planning to hold the asset? Short term buy and sell plays are speculation, and whilst the returns can be impressive, such as a small duplex that sold in Sept 2020 for $890,000 and just recently re-sold for $1,123,500 – 20% in about 7 months, the downside comes into play as well. Longer term (circa 7-10 years) affords you the opportunity to ride out any variance in the market and also choose when to sell. I have had too many conversations with clients three years ago that were waiting for the market to “catch a cold” and wish they had pulled the trigger then. The long-term trend in the past and the future for real estate in our market is favorable.
What about pricing?
Inflation is definitely a buzz word at the moment. We are certainly seeing it in real estate pricing and also in the cost of construction and building material costs. The longer that these higher pricing levels are sustained, the more they become the new norm. My view is that we are setting new property pricing standards that will be hard to retract from. With much stricter lending practices and owners who are well placed to service the debt, the prices we are seeing will be the new reality. Obviously, as mentioned in the previous paragraph, if the wider national or global economy takes a turn, we could well see a retraction in the market. The problem with waiting for this is that no doubt everything takes a downturn, including your income, purchasing power and the willingness of banks to lend at such favorable rates.
I would not be telling the truth if I said I have not struggled with some aspects of our market over the last 12 months….. the reality is that we are not isolated in this trend. I have had too many discussions with clients in Denver, Florida, Los Angeles etc to think that this is a unique position we are in. In the short term, we are set to have an active summer of selling. In the medium term inventory will continue to be restricted and demand high. In the longer term there is much more uncertainty, however this uncertainty can be mitigated by making sure you have a longer time horizon for ownership in the real estate market.
Stay healthy and I hope to see you in the mountains soon! Please do offer your feedback.....