Over the last year we have become fairly comfortable with uncertainty. Our society has honed an ability to roll with the punches and pivot on a dime. It’s a testament to our resiliency and tenacity. And, despite social distancing and the inability to see our family, friends, and neighbors smile behind the face masks, we rely on trust to get through this historic time of disruption.
A year ago, we were completely shut down. The resorts had closed, restaurants shuttered, jobs were at best uncertain and at worst eliminated. Staying at home became the most noble thing we could do to help our frontline health care workers through rapid chaos. Our homes became central to our survival. A roof over your head was more than a luxury, it was a necessity to be able to continue working (if your job is conducive to telecommuting), to educate our children remotely (if you have the technology and Internet connection), and to our safety from a killer we cannot see.
Real estate industry leadership was acutely aware of the importance of home stability and got to work advocating for real estate to be considered essential. Before restrictions began to lift for summer, economic ramifications of the shutdown were glaring. Realtors® didn’t know what to expect but they were prepared, for anything, and we put our trust in their professionalism.
No one could have predicted the Vail Valley’s real estate success that ramped up in late spring and didn’t slow through the end of the year. In fact, predicting that this community would hit record sales in the midst of a pandemic. Yet, here we are. 2020 was a record-breaking year, home prices continue to rise in 2021 due to high demand and a challenging supply of homes for sale.
A Seller’s Market
In today’s struggling economy, real estate is a shining star, says Dr. Lawrence Yun, Chief Economist for the National Association of Realtors® in a presentation on February 28, 2021. Throughout the nation, we are seeing demand outweigh supply resulting in rising home sale prices, increased competition for homes, and urgency. In Eagle County, our numbers are more exaggerated but reflect national trends. The February year-to-date closed sales for all types of properties, including single family homes, duplexes, condos and townhomes have increased approximately 26% over this same timeframe in 2020, pre-pandemic during a thriving economy.
The top reason for increasing home prices is that the number of new listings is simply not keeping up with the number of sales. Although the low market inventory remains a challenge, it is not an insurmountable one, according to Chad Cremonese, Vail MLS 2021 Chair.
“As professionals, we work hard to guide our clients, home buyers and sellers alike, through transitions. COVID was another transition we had to navigate. At the center of what we do as Realtors® is to educate our clients and ourselves about the changing market,” says Cremonese. “Interest in Vail Valley real estate has always been centered around recreation. Add the work-from-home necessity, and it’s easy to see why people are jumping at the chance to own a home here.”
Slim home sale inventory does not seem to deter Cremonese or Dr. Yun. The lack of home supply on the market is also driving demand for builders to respond. Building permits were up in the fourth quarter of 2020 and the start of 2021.
In the VBR Economic Update, Dr. Yun predicts the first quarter of this year will see a minimum 20% increase over the first quarter of last year. That is an increase in sales during a pandemic over the previous year when the economy was at a high point. This seems to be a conservative prediction when we look at February 2021 pending sales in all home categories at 67% increase over February 2020 pending sales. And, year-to-date closings in February 2021 are 18.9% higher than the same time last year.
Additionally, Dr. Yun predicts a 50% increase in home transactions for the 2021 second quarter over 2020. Yet, he qualified the statement with the fact that the entire country was shut down, and the economy came to a grinding halt. The third quarter of 2021 should be similar to that of 2020 with a slight increase and a possible decrease in the fourth quarter. Overall, Dr. Yun estimates the Vail Valley will see about a 15% increase in the 2021 real estate transactions over 2020.
“If mortgages remain steady for the time being, prices may continue to go up,” agrees Cremonese. “Now is a good time to buy. Trust your Realtor® to find what you need and want. Don’t be intimidated, and don’t give up.”
Dr. Yun shared some additional challenges Realtors® should be aware of including a push for mortgage rates to increase. Although, he says, it should not be too dramatic, possibly 3.3% by year’s end, not even a full percentage point over the historic 2.7% low rates. This, according to Yun, is the predictable effect of the economic stimulus as our society enters a phase of herd immunity from COVID vaccinations.
The economic stimulus will increase the national debt and trigger inflation, but do not be alarmed says Yun, it will be nothing like what the U.S. experienced in the 70s or 80s. The Federal Reserve is acutely aware and prepared to manage inflation. And finally, diminished building supplies and stressed supply chains will drive costs on new home building. The 2020 California wildfires and Canadian tariffs are influencing this trend. Although we can’t control wildfires, we can work with Canada and end the tariffs to help with our new home building needs.
“Interest rates are a big factor at several price ranges,” says Cremonese. “Low interest has given people more purchasing power. They can buy in a resort area when before they had not thought about it. It’s important for our clients to understand this market, how it’s different from others, and know that situations that seem impossible can be possible when your Realtor® is knowledgeable about the market.”
“Our focus should not be on a lack of inventory. There are still properties out there. It’s still a good time to buy, and a great time to sell. Inventory is a challenge and more reason to work with a professional. We can help our clients form a plan to reach their goals.”
The Vail Board of Realtors® is a professional membership organization with more than 700 REALTOR® members and over 100 Affiliates who provide a variety of real estate services. To learn more about the VBR, visit VBR.net.