Impact of Increasing Prices and Interest Rates on Vail Valley’s Real Estate Market
The Vail Valley real estate market continues to face challenges due to limited inventory, increasing prices, and rising mortgage interest rates.
According to the most recent data from the Vail Board of Realtors, there is a mixed message when it comes to pricing, inventory, and days on the market.
In July, the median price of single-family and duplex units grew by 3.1% compared to July 2022. Condos and townhomes showed even higher growth, with an increase of nearly 25% during the same period.
This significant jump in townhome and condo prices is correlated with an increase in the time properties spend on the market. In July of this year, the time on the market skyrocketed by 220% compared to July 2022.
Alex Griffin, the manager of Vail Valley branches at LIV Sotheby’s International Realty, believes that the delayed sales can be attributed to projects like Frontgate Avon, which are just now finalizing purchase agreements. This extended period between listing and closing has contributed to the increase in days on the market.
Moreover, the number of days on the market also experienced a significant jump of 63% between July 2022 and July of this year.
Griffin pointed out that one cause of the delays in sales might be the disputes between buyers and sellers.
Part of the standoff between buyers and sellers is a result of the rising mortgage interest rates. Currently, rates are hovering around 7.5%, which is close to the historic average but hasn’t been seen in a couple of decades. Not long ago, it was the norm to have mortgage rates as low as 3%.
As a result of higher interest rates, potential sellers who locked in mortgages at 3% are reluctant to move as they would have to pay more interest on their next home loan.
These increased rates have disproportionately affected first-time homebuyers and those looking to move up the housing ladder.
Mike Budd of Berkshire Hathaway HomeServices Mountain Properties explained that while 8% mortgages may be the historic norm, the current price points are much higher. With a 7.5% interest rate on a $750,000 home, monthly payments can become quite substantial.
Higher prices have also influenced the buyer pool and affected market dynamics.
Budd observed that an increasing percentage of monthly transactions involve homes priced at $500,000 or less. This marks a departure from the long-standing trend, which saw only a limited number of homes available in this price range. Currently, the largest segment of sales falls between the $500,000 and $1 million range.
However, it is important to note that the average and median prices for homes in the valley are skewed by sales in the upper end of the market.
Transactions involving homes priced at $5 million or more, while still a small fraction of the total transactions, now account for 8% to 10% of all sales. This upward trend in luxury sales has had an impact on both the average and median prices.
Griffin delivered a somber update to prospective buyers patiently awaiting a decline or stabilization in prices.
According to data from reputable sources such as Standard & Poors, Case/Shiller, and the U.S. Bureau of Labor Statistics, the U.S. average home price has only decreased in six out of the years since 1942. Five of these years fell between 2007 and 2011, during the Great Recession.
However, national new home construction has plummeted by a staggering 40% from previous pre-Great Recession highs.
Griffin shared an anecdote about a potential buyer who has been searching for a home in Singletree for five years. In that span, prices have approximately doubled, and yet this buyer has yet to secure a deal.
On the other hand, Michael Slevin, the owner and managing broker of Berkshire Hathaway HomeServices Colorado Properties, pointed out that overall inventory is higher compared to a year ago. While inventory levels are relatively lower, Slevin emphasized that the local market is following a historically predictable pattern.