Many in the real estate industry were surprised by how durable and strong the national housing market has been over the past couple of years. On a national level, from March 2021 to March 2022, the average home price as measured by the S&P CoreLogic Case-Shiller National Home Price Index rose by 20.6%, the highest rate of growth ever recorded for that index. The U.S. housing market — from new-home construction, existing sales to brokerage fees — contributes about 15% to the U.S. economy, making it one of the more significant drivers of economic growth.
The strength and direction of the national real estate market gives us clues about the strength of the U.S. economy, the stock market and ultimately the strength and direction of our local economy and real estate market. When the national economy is strong and the stock market is heading higher, our local economy and real estate market have historically followed suit.
The national real estate market over the past two years has been driven by a combination of factors, from a low supply of homes relative to the demand from buyers, low interest rates and a tidal wave of new buyers entering the market. What happened nationally was echoed locally as the Aspen-Snowmass market saw record sales volume over the past two years, property inventory dropping to historic lows and prices doubling in value. The Federal Reserve created a massive demand for mortgage securities by purchasing record amounts of mortgage loans backed by Fannie Mae and Freddie Mac. This resulted in the lowest mortgage rates in history by the end of 2020. In 2019, millennials surpassed the baby boomers as the largest generation in U.S. history. Initially, millennials preferred to live and rent in urban areas, but the pandemic changed that in 2020, when millennials accounted for more than 50% of home-purchase loans. In 2021, that number increased to 67%. The work-from-home evolution caused by the pandemic led millennials and others to flee cities, making resort areas like Aspen and Snowmass one of the hottest segments of the real estate market. In addition, purchases of homes by investors have risen over the past decade, from about 7% nationally to over 20% this past year.
However, much of what has driven the national real estate market for the past two years is starting to dissipate. With inflation topping 9% this summer, the Federal Reserve has been forced to hike interest rates dramatically, pushing mortgage rates from historic lows of 2.75% for a 30-year fixed rate mortgage to around 5.5% today — and the Fed is signaling that more interest-rate increases are likely.
The work-from-home trend increased dramatically in the past two years but now appears to be plateauing if not starting to reverse. Major corporations from Goldman Sachs to Apple have called their workforces back to the office in an effort to return to pre-pandemic status. Investors may be pulling back, as well. Blackstone Inc., one of the largest institutional buyers of homes, recently announced it would stop purchasing homes in 38 U.S. cities due to what its analysts believe is an extended housing market. New restrictions on short-term rentals in many resort communities are also likely to put a damper on investor activity in resort areas like Aspen Snowmass. The stock market — another indicator of demand for housing, particularly in second-home markets — has declined about 18.5% since the beginning of this year.
All these factors seem to be taking a toll on the national housing market. Since the beginning of 2022, home sales have fallen six straight months in a row, as reported by the National Association of Realtors. It’s the longest streak in eight years. Goldman Sachs reported this week that the trend of rising home prices has ended and that prices will likely be flat in 2023, with price declines possible in the future. In Denver, the largest metropolitan area close to the Aspen-Snowmass market, signs are emerging that market prices are softening, inventory is rising and the market is moving from a strong seller’s market toward a buyer’s market. This is happening across the country, with markets that showed the biggest price appreciation over the past two years leading the trend from seller’s to buyer’s markets.
What does all this mean for owners, sellers and buyers in the Aspen-Snowmass area? This summer, we started seeing the first indications that the local real estate market is slowing. By the end of July, the number of sold listings had declined from last year by 38% in Aspen and 52% in Snowmass. We’re also seeing the number of listings increasing and price cuts on existing listings becoming the norm. That said, the national unemployment rate is at historic lows, and a recent report from Barron’s said the wealthiest Americans are in “pretty good shape” and are expected to continue their spending for the foreseeable future. Although the national real estate market is slowing, we’ve yet to see signs of declining values. To the contrary, as asking prices come down, buyers are stepping up to purchase. Locally, we’re seeing a similar situation. As listing prices are reduced, buyers are stepping up, keeping the market in equilibrium. Short of an economic crisis, the national real estate market is telling us that the local market will continue to slow — but if values decline, that could be months in the future, if ever.
Lori and William Small, CCIM, CLHMS are recognized luxury and commercial real estate experts with Coldwell Banker Mason Morse in Aspen. They can be found through their website theSmallsaspen.com or by email at thesmalls@theSmallsaspen.com.
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