“It’s tough to make predictions, especially about the future.” Yogi Berra.
The Formula One Grand Prix was in Monaco on Sunday. There was rain at the beginning of the race but the track dried after a few laps for full-speed racing. Monaco has the most turns, accelerations, and decelerations of any F1 track on earth. The race is tricky, but the results are often predictable. Right after the race I sat down to write this. I am going to start with an automobile analogy to describe the past, present, and future real estate market.
THE RACE FOR REAL ESTATE Throughout last year the engine was humming at a race pace and excessive demand led to depleted inventory and an atypical rise in property values. Since January, the engine has been revving above the red line, we’ve been corning at maximum speed and the result has been an unprecedented spike in property values. While moving at a dangerous pace with a light rain beginning to fall, the race director waived the yellow flag and put the safety car on course - the interest rate hike. Although the interest rate is not the only economic force in play it is the most tangible (inflation and Ukraine are also on the track). Today, now that we know the weather is changing, it is time for us to strategize and determine which tires to put on the car. I hope you enjoyed that.
THE LAST THIRTY DAYS It was easy to recognize that the market shift occurred early in the month. Properties similar to those which were getting multiple offers in February were no longer getting multiple offers. The lack of multiple offers has a most impactful change in the marketplace. Multiple offers cause way-too-rapid appreciation. Now that a new listing is not selling immediately (and at 10% above a prior sale) inventory will have a chance to accumulate and selling competition will soon mitigate overly aggressive list prices. Very recently, in fact, the aggressive list prices that have been out there for a while are trickling downward via price reductions. I expect that will continue to happen over the next several weeks, more new listings will come online, and by late summer, the marketplace should look much more balanced, normal. (Bear in mind, multiple offers were not happening across all property types and all price segments - just the most popular ones)
THE CORRECTION I believe the 35% increase that your property has gained over the past year will curtail to a 20% total gain by the end of the year (35 is a median value and 20 is my guess of the net gain). While we have been watching values rise rapidly, it seems we were all cognizant that it was unsustainable. As I quipped last year, ‘do not fall in love with your Zestimate’. More recently I have been mentioning to not spend your equity because it may be ethereal. Although the rapid growth has acted like a bubble I do not believe that it will pop. I believe the air will leak slowly out over the remainder of this year. That leaking air is the market correction. Bear in mind, the Vail Valley real estate market is not Main Street, USA. There are roads which connect them, but they do not run parallel. What happens elsewhere may not happen here.
HOW SELLING JUST CHANGED If you had put a property up for sale on February 1 and the appraisal value was $1MM, the viable/aggressive list price would have been $1.2MM and that would have succeeded. If you put that same property on market today, the reasonable list price would be $1.1MM and it would sell for $1.075. Yes, you missed the apex of the market but you still sold the property a bit above the appraisal value. By the end of summer/fall, I am guessing that same property sells for $1.025. That would be a normal market result and that is what we historically call ‘winning’! Thus, if you want to sell property in 2022, it is best put to put it on the market by July 1. Bear in mind, the Vail Valley has many micro markets. List price strategy might be aggressive in one ‘hood but not another.
PATIENT HOUSE HUNTING If you are the prospective buyer in 2022, my suggestion is you hunt in late July/early August…this allows all good and normal things to take shape: volume of inventory peaks, options increase, sellers compete with list prices. When all of that happens, it results in a purchase at or near appraisal value. Bear in mind, the Vail Valley is an affluent marketplace. I do not foresee ‘motivated' sellers discounting their property. I do not foresee sub-appraisal value ‘bargains’ to be had. I foresee a growing inventory and healthy absorption rate.
