The real estate market on ice ahead of the Summer season.

Jun 16

Key take-aways:

Be ready for the market data to show a clear slowdown of the pace of the market in the next 6 months. Some properties have been sitting on the market for a while, and sellers are still for the most part listing at prices that are to high to meet the current demand.
Some other areas in the US are already in a buyer’s market, reversing the after COVID trends.
Headwinds are accumulating: Stock market on shaky grounds, high interest rates, and more and more real estate experts are starting to change their tune.
The real correction waiting to happen is between what the market can bear and what sellers are expecting to get. Price in real terms are likely to be flat through the Summer. Don’t expect a market crash unless a big unexpected event throws us off!
Other indicators like days on the market, price reductions etc… will be indicative of a split between seller’s expectations and the demand. Seller are pricing like the market is going up another 10%, but really the market flat.
For a breakdown by town, please scroll down to the end of this article.

Both Zillow and Redfin have forecasted the national average home prices to go down in 2025. What about our valley? Are you ready for the next phase of the market?

Let’s be clear, the market is not crashing right now. But by looking at the current data and indicators of what the future data could look like, there is no doubt that the “anything will sell at any price” phase is behind us. Here are a few indictors of that change.

A few indicators that the market is slowing down

The Days On the Market (DOM) will climb up in the next few months market data. Right now in our entire MLS (Parachute to Aspen), out of 1134 residential listings 475 have been on the market for more than 100 days. During the last few years we were running on a market that had 1 to 2 months worth of inventory, which means that properties were on average selling in less than 2 months. My understanding is that DOM get recorded by the MLS once a property sells, so all these properties sitting for more than 100 days will only impact the data once they close. It could take a while, but after these properties sell and the data is recorded, this is going to look like a big slowdown.
Some markets in other parts of the country have transitioned to buyers markets. A balanced market is typically 6 months worth of inventory, and it means that there is roughly as many sellers and there are buyers out there. It typically results in slow but steady appreciation (1% to 3% per year). Since COVID most market were sellers market. We were seeing quick sales and appreciation greater than 5% per year. Some markets have transition back to buyer’s market, which explains Zillow and Refin’s forecast of slightly shrinking property values at the national level. As you can see on the maps below, the southeast is affected the most, Texas and Florida being at the top of the list. The midwest and the northeast are strong sellers market. Mountain and coastal markets are mild sellers markets.

The real estate podcasts have changed their headlines: I know it sounds like a bit like the tail wagging the dog, but it shows a change in sentiment out there. The last few years were all about how to acquire more in the real estate podcasts such as bigger pockets. Now it’s more about: “Is it time to sell?”, or “how to protect yourself against a downturn"?”. We will see in the next 12 months if they were right to change their headlines!
The stock market on shaky grounds: As I explained the this article, the wealth effect is sustaining high valuations right now. It basically creates a feedback loop amongst people who own assets. They are buying more assets, creating the demand that increases asset values, which then allows them to buy even more. With the stock market going up and down, instead of straight up like it did the last few years, the wealth effect is slowing down.
High rates and high prices prevents newcomers to enter the market with no end in sight. Interest rates are back to 7%. With high prices and high rates, it’s increasingly hard to make the numbers work. Contrarily to common beliefs, the Federal Reserve does not set interest rates for mortgages. Mortgage rates are set by the market, and the demand for money that mortgage origination creates competes with the one created by government who issues bonds to finance the US government deficit and debt. If you follow the news, you know that the governments debt is going up to new heights, to the point that the US has lost is AAA+ rating with all rating agencies. The dip in confidence on the bond market is pushing the rates up. Bond investors ask a higher rate of return to lend to a borrower in which they have less confidence. Irresponsible fiscal policies, which seems to be the only thing on which both parties agree with, makes your mortgage rates higher. And it’s apparently not changing anytime soon.

Which town in the Roaring Fork valley is the most at risk of a correction?

First let’s define what I mean with “correction” here. A lot of homeowners get excited when they see homes around theirs listed for a high price tag. If they consider what their home is worth based on what homes get listed around theirs, they need to be ready for a “correction” of that number. Their home might be worth quite less than they think. The right way to assess your home value is to look at what houses actually sell for, not what they are listed for.

I believe that homes will sell for quite less than what they are listed for, or not sell, based on the facts that:

Homes sit on the market much longer (Days On Market)
Homes get listed for much higher than latest comparables, and seemingly much higher than the buyers are willing to pay for them (AKA they sit on the market).
We are starting the busy season of real estate, and homes are not selling quickly.

Using these data point to approach the market, let’s try to figure out how which towns see the largest gap between listing price and closed sales price throughout the valley. We will be comparing the median sales price year to date, from the Colorado Association of Realtors numbers, and the current list price in each town. The high the ratio number, the more “over priced” the town is. For example, a ratio of 1.5 means that properties toady are listed for 50% more than the current median home sales price.

DISCLAIMER: Despite the

Aspen: Median home sales price year to date: $14,325,000 / Average list price: $23,393,890 / Ratio: 1.63 (63% over median home sales price)
Snowmass Village: Median homessales price year to date: $7,350,000 / Average list price: $11,054,091 / Ratio: 1.50 (50%)
Basalt: Median home sales price year to date: $2,185,000 / Average list price: $4,304,943 / Ratio: 1.97 (97%)
Carbondale: Median home sales price year to date: $1,017,500 / Average list price: $4,222,643 / Ratio: 4.15 (315%)
Marble: Median home sales price year to date: $812,500 / Average list price: $1,178,429 / Ratio: 1.45 (45%)
Glenwood Springs: Median home sales price year to date: $1,146,800 / Average list price: $1,497,000 / Ratio: 1.30 (30%)
New Castle: Median home sales price year to date: $715,000 /Average list price: $1,050,876 / Ratio: 1.46 (46%)
Silt: Median home sales price year to date: $659,000 / Average list price: $1,025,482 / Ratio: 1.56 (56%)
Rifle: Median home sales price year to date: $535,000 / Average list price: $806,295 / Ratio: 1.51 (51%)

Granted that other factors can impact these numbers, like the fact the best properties might usually get listed during this time of the year, and that the seasonality of our market pushes sellers to list properties at a higher price during the late spring and summer, It seems apparent to me that some sellers might have expectations about sales price that buyers won’t match.

That’s especially true in Carbondale, Basalt and Aspen. The lower valley homes might have a moment as they have not exceeded the demand by as much, and as buyer seek affordability.

If you are getting ready to list your home, now more than ever you need to get professional advice on how to price it. Here is a link to reach out to me if you would like to discuss. You can also find my contact info by clicking here.

If you are looking to buy real estate in the Roaring Fork valley this year on the next, make your you stay informed and work with somebody who the the market at the neighborhood level. All real estate is local and the dynamics are different depending on where you look. Getting good advice can save you thousands! If you want to discuss a purchase, please read out to me though the buyer’s form by clicking here or find my contact info on this link.