Ask a Broker: What Do the Recent Interest Rate Hikes Mean for the Vail Market?
Question: With recent interest rate hikes, there seems to be a lot of uncertainty in the market right now. Is this true of the Vail market?
The Vail Valley is not just one market but a series of micro-markets, and what happens for luxury properties ($10 million and above) is not the same as what happens below of $2 million. These markets can be determined by both location and product type (single-family homes versus condominiums, etc.), and the forces driving these micro-markets vary in terms of interest rate and downside sensitivity. stock markets.
In past adjustments, Vail Valley has generally trailed many national markets in the downturn and led those same markets in subsequent rallies. I think we could see the same thing in the short term, and I have no fear that this market will resemble the difficulties we faced in 2008-2012.
In general, the market has been exceptionally bubbly over the past couple of years due to unprecedented demand from buyers flooding into the area and demand has quickly outstripped – and outstripped – supply. Houses would come on the market at totally irrational prices, and people would buy them anyway. There was a lot of frenzied buying behavior just because the market was so competitive. People would ignore comps, forego inspections, buy properties without seeing them, and basically throw due diligence to the wind in the hope that their offer would be accepted.
In my view, the market is trending towards a more balanced level, where comps matter and are reasonable, patient analysis will take over, and this will present an opportunity for buyers. However, sellers are still well placed. Selling prices will remain at historically high levels, perhaps just not at recent peak levels, but likely significantly higher than what owners could have paid.
Inventory has increased dramatically in the past few weeks alone, from approximately 172 homes across the valley to over 300 in such a short time. However, we are still a long way from the historically low inventory level of around 850 homes across the Valley 48 months ago, before the pandemic. The days on the market have started to increase and the sell price relative to the ask price has started to drop back below the 100% we have seen in the recent past.
While Vail’s micro markets remain strong, certain fiscal indicators have adjusted our market to a more balanced and rational place. Dramatic increases in interest rates (although still at historic lows) have rattled investors, and equity markets have been hammered in recent weeks. There is less certainty on the macro scene, which of course has an impact on our local real estate market.
Tom Jaffe is an associate broker for Slifer Smith & Frampton who has owned, managed, developed or traded over $1 billion in property. Contact him for any questions or real estate needs at [email protected] or AddingValueInVail.com.