Will Eagle County home sales slow this year? | VailDaily.com

Will Eagle County home sales slow this year?

Interest rates, inflation could affect market dynamics

Real estate sales affect the broader economy in a community. Nationwide, about 17% of the gross domestic product comes from real estate and development.

It’s easy to think of the Vail Valley as a unique market, and it is in many ways. But many real estate professionals around the state are telling similar stories: Things have slowed, and significantly.

A recent report from the Colorado Association of Realtors tells the story of a changing market. While still active in many places, Realtors around the state are talking about a return to activity seen in 2019. That was the last full year before the COVID-19 pandemic. The pandemic prompted a roughly quarter-long virtual shutdown of the industry, followed by a rocket ride that lasted through the first half of 2022.

By the numbers

7.8%: Statewide median price increase for multi-family homes.
16%: Increase in the Durango/La Plata County average home price.
$1.35 million: Steamboat Springs median home price at the end of 2022.
43%: Year-over-year decline in December Eagle County real estate transactions.
Source: Colorado Association of Realtors.

In his portion of the report, local Realtor Mike Budd wrote, “We look forward to stabilization in 2023.” But, he added, “Inflation, interest rates and the overall economy, coupled with our inventory, will drive the results.”

For now, the local market remains healthy but slower than the 2021 rocket ride of sales and price increases.

In a phone interview after the report was released, Budd said the 2021 dollar volume of more than $4 billion has slowed by perhaps 25%. That still puts the dollar volume around $3 billion, if sales are included from the Roaring Fork Valley portion of the county.

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‘Eerie’ similarities

Budd noted that the similarities are “eerie” around the state’s real estate markets.

While some stability may be in the cards for this year, interest rates could complicate any attempts at forecasting.

Steffen Mehnert is the team leader for Keller Williams Mountain Properties in Eagle County. While mortgage interest rates roughly doubled in a matter of months in 2022, to more than 6.5%, Mehnert said rates have since inched back down to roughly 5%. That isn’t likely to last, he said.

Mehnert said the market today is “amazingly healthy,” with “attainable” homes — those priced at about $1.2 million or less — spending only about 24 days on the market right now.

But, Mehnert said, he’s been preparing his team for a potentially “significant” shift in market dynamics.

“I anticipate rates will tick up to 8%” in the coming months, Mehnert said. With mortgage applications already in decline, higher rates are likely to have an effect on who can buy a home. Perhaps just as important, higher rates could lead potential sellers with existing low-rate mortgages to stay where they are.

Broader impacts

A slowdown in the real estate market will affect the broader economy, too. The National Association of Realtors calculates that every existing home sale in Colorado generates three jobs. The same report indicates that every home sale in the state generates roughly $162,000 in income. That’s the seventh-most in the U.S. That number includes income from real estate industries and expenses related to a home purchase. The multiplier effect of housing-related expenses and new home construction contribute still more to the economic impacts.

Nationwide, the National Association of Realtors estimates that economic activity from real estate accounts for nearly 17% of the U.S. gross domestic product.

No matter what happens regarding inflation and interest rates, Budd said he’s worried about the prospects of homeownership for most people.

Noting that the biggest share of the market is now homes priced between $500,000 and $1 million, Budd wondered, “How big a chunk of the population can afford that?”

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