“Mortgage Rate Hikes? Who Cares?!” -Aspen’s Ultraluxury Buyers
While most of us have started to sweat every time we fill up our gas tanks or pay the energy bill, wealthy buyers in Aspen are trying to outbid each other on ultraluxury homes that are not even for sale. As first reported by the Wall Street Journal earlier this month, the Aspen luxury market has been supercharged by extremely low inventory, tight restrictions on new home construction, and an influx of buyers. Not dissimilar to what has been happening in the rest of Colorado… but what is quite different are the price points. Aspen has seen an extreme number of $50 million and up home purchases since the pandemic hit. So many, that even uber-wealthy buyers are struggling to find a house in the ski resort town. It has become common for their real estate agents to cold call homes that have not even hit the market, in hopes their offers will be so attractive that the owners will sell. This has created a sort of “shadow market” where these luxury mansions are sold before the listings go public. 2021 was such a hot year for Aspen real estate, one house even set a record purchase price of $72.5 million.
Back in real life, the real estate market is starting to slow. As a local example, housing inventory in Metro Denver is increasing. The number of active listings at the end of May was up for the first time in recent memory, at +7.9% from April, or 4,051 active listings. This rise in inventory is a sure sign that things are beginning to cool off, and that the buyer pool has started to thin out. Some have undoubtedly been priced out of the market, given high average home prices and mortgage interest rate hikes. Plus, high inflation for everyday items like gas and eggs adds up fast. This increase in inventory is much needed for the remaining buyers, who have suffered through some of the worst housing scarcity to date. Things should be a little less competitive right now than they have been over the past two years, and the marketing time for listings is likely to increase over time. On the flip side of the coin, some sellers are looking to capitalize on their equity and move or trade-up before interest rates get much higher, and are no doubt getting a little bit panicky about a looming recession. For sellers who must make a move right now: just remember, this is still a seller’s market. Buyers may be less willing to waive their concessions, but demand is still high for homes.
One crucial thing to note about these recent changes is that the increase in active housing inventory, the slowdown in home price appreciation, and the rise in interest rates are all factors that are likely bringing us closer to a more “normal” real estate market, not towards a housing crash.
Housing inventory was already historically low when the pandemic hit, and then the move to remote work drove demand even higher. The net result was that historically low inventory, around 8,000 homes for sale in December 2019, was driven even lower into the red. At times over the past couple years the inventory was as low as about 1,000-1,200 homes for sale at one time in the entire Denver metro. Wow.
In terms of price appreciation, having radical appreciation as we have seen over the past couple of years is not sustainable over the long term. Denver was recently listed as one of the Top 5 Least Affordable cities in the country, for the first time ever, according to the Denver Business Journal. The fact that price appreciation is slowing down recently, but still continuing to grow at a slower pace, is actually good for the balance of the local market.
Plus, a recession does not necessarily equal home price depreciation. Given genuine demand for homes and a scarcity of supply, slower paced price appreciation is the more likely scenario this time around.
Lastly, mortgage interest rates were also already at historic lows when the pandemic stuck. Those too were driven even lower by the FED to combat inflation, to an all-time record low in December 2020: 2.68%. Although rates have been on the rise lately, they are still on the low end, historically. All these factors point to a real estate market that is simply slowing down from its fervent pace over the past two years.
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