Despite negative GDP growth in the first half of 2022, the U.S. economy remains relatively solid, even as it has been battered by a series of one-offs and bad news. However, factors that drove growth since the start of the pandemic are unquestionably beginning to slow, with individual incomes generally flat, savings rates declining, and most of the pandemic-triggered stimulus has ended. Early forecasts place 22Q3 GDP at 2% growth as net exports improve. All indications are that 22Q3 and 22Q4 should show growth below trend but positive, and that may be enough to offset the bad first half year so that for all of 2022 we may ultimately have positive GDP growth.
Importantly, the consensus is that by 23Q2 the U.S. will most likely be in a recession as the impacts from rate hikes become increasingly felt throughout the economy. With inflation as public enemy number one, the Fed is likely to continue to raise the fed funds rate through the remaining two meetings this year and probably into next year as well. Currently, the impacts of higher interest rates are mostly seen in the housing market, and increasingly, manufacturing. We have not yet seen similar impacts in the traditionally interest-rate-sensitive auto market since the ongoing chip shortage continues to keep the supply of autos well below demand. Over time, increased interest rates will broadly impact other parts of the economy, importantly business investment and commercial construction. This situation is not unique to the U.S., as central banks throughout the world are similarly raising interest rates to reduce the demand that far exceeds the available supply, causing inflation almost everywhere. As we look to 2023, all indications are that this will be a garden-variety recession, not particularly deep and lasting around a year.
Since the beginning of the year, the stock market has been down roughly 20% and teetering in and out of the bear market territory for months. The impact of rate hikes on the stock market is not a bug of current monetary policy but rather a feature, as the intent of rate hikes is to cool the economy down by reducing household spending. If history is a guide, the stock market will probably fall somewhat further, as we are likely to see lower corporate earnings in 2023 and higher interest rates push down price-to-earnings ratios.
While headline inflation numbers appear to have peaked and are likely to come down, core inflation looks to be more persistent and will ease more slowly. Declines in headline inflation are being led by improved supply chains and the resultant reduction in goods inflation, as well as declines in food and energy prices. However, core inflation, which is made up in large measure of services and rents, is coming down much more slowly, and other highly technical measures of inflation are flat or increasing, making it unlikely that inflation will dissipate soon, or at least soon enough to dissuade the Fed from further rate hikes.
Overall, despite rising rates, the economy remains in surprisingly good health, and it is thus highly unlikely that the Fed will quickly pivot to looser monetary policy. The most important variable to watch is inflation since it needs to fall meaningfully and steadily before the Fed becomes less hawkish.
The Fed’s interest rate increases are having the intended impact as home price appreciation slows meaningfully across the country, and in some markets, prices are starting to decline. Year-over-year price appreciation that was as high as 15-20% as recently as six months ago is now down to single digits. Interestingly, because mortgage rates were so low for so long and so many houses were sold or refinanced since Covid, data show that as of July 31, 2022, 90% of first mortgages have an interest rate below 5%, and more than 66% have a rate below 4%. With rising interest rates, this rate “lock-in” is preventing a big bump in new listings from materializing, keeping supply low, and thus propping up home prices. This lack of new listings is effectively reducing supply while simultaneously keeping demand down as well, by constricting the normal “move-up” market. On top of that, the shift from the pandemic to endemic nature of Covid and the associated return-to-office policies are dramatically slowing the second home market. Combined, this makes this housing market much different than those of the past. As we look to the pending recession, there is little chance that this will be a replay of the Housing Bust of 2008. Demographics are still very strong, homeowners have a staggering amount of home equity built up, and there is still an underlying shortage of millions of housing units needed to meet demand. Overall, this remains a seller’s market, though one with more opportunities for potential buyers.
Demand for housing is still high, and demographics remain favorable. Further, even if individual buyers get priced out, Wall Street is still buying homes for rentals, which puts a floor under price appreciation. Thus, even if there is a recession, there will be fewer impacts on the housing market because we have never been this undersupplied going into a recession, nor have so many homeowners had so much home equity. The bottom line, this housing market is still a seller’s market, but less so than it has been for the past few years.
Unemployment in Colorado is at 3.4% as of 08/22 after hitting a peak of 11.8% in 05/20 (for comparison, the pre-pandemic rate was 2.8%). Statewide continuing claims for unemployment hit a high of 265,499 for the week ended 5/16/20 (compared to a pre-pandemic level of 21,956) and are now at 16,233 for the week ended 09/24/22. In Pitkin County, the August unemployment rate was 2.8%, a year ago it was 4.3% and for comparison, in 08/19 it was 2.2%.
Statewide, the August 2022 (latest data available) median price of a single-family home of $570,000 was 9.6% higher than September 2021, while the average price of $694,340 was 6.9% more.
In the condo/townhome market, the median price gained 9.2% to $414,961, while the average price rose just 4.4% to $531,892. Through August, closed sales across the state are down 25.3% while new listings have declined 13.2%. There are 19,024 active listings statewide at the end of August, a 37.5% increase over August of 2021, and that represents a 1.9 month’s supply of inventory, still well below the national level of 3.3 months. Across the state, the percentage of list price received at sale has fallen below 100% and is now 99.2% and days-on-market has increased to 31 days, up from 25 days in August 2021. As the Colorado real estate market continues to cool and inventories rise, potential buyers may finally see some relief as sellers start to offer price concessions.
The median sale price of a single-family home in Aspen through the third quarter of 2022 was $13.4 million, a gain of 34% over the same period of 2021, while the average price rose 46% to $18.4 million. Townhome and condo prices in Aspen were up compared to last year with a median sale price of just over $3.1 million, and an average price of nearly $4.7 million, both 64% gains over last year. In the single-family market in Snowmass Village, the median price rose 30% over last year to $6.3 million while the average price rose 39% to nearly $7.4 million.
Townhomes and condos in Snowmass Village saw the highest year-over-year price appreciation, gaining 72% to nearly $1.5 million while the average price rose 53% to $2.0 million. Through September, there were 265 residential properties sold throughout the Aspen/Snowmass Village area, about half the level of a year ago, but rising prices helped sales volume, which only declined by about 21% compared to the same period of 2021. At the end of September, there were 91 single-family homes on the market throughout the entire Aspen/Snowmass Village area and 101 townhomes and condos, collectively up 75% from September 2021.
The Aspen/Snowmass Village real estate market continues to defy the gravitational forces that are slowing markets elsewhere, perhaps because so many buyers are high wealth cash buyers and thus less impacted by rising interest rates. Prices and price appreciation remain high, and inventories are still very low. However, as the overall losses and increasing volatility of the debt and equity markets continue to batter investors and portfolios, buyer resolve may soften, even in highly desirable locations like Aspen and Snowmass Village. This is an economy and a real estate market in flux, and activity levels are generally slowing as sellers continue to insist on top dollar and buyers wait for price corrections.
The median price for single family homes in Aspen through September 2022 rose to just over $13.4 million, up an impressive 34% over the same period in 2021. The average sale price of $18.4 million was 46% higher than last year.
The number of closed sales declined by about half to 52 which brought down overall dollar volume 22% from the same period last year or $956.4 million. Average sold price per square foot was up nearly 50% though, from $2,104 through 21Q3 to $3,109 in 22Q3.
As of the end of September, there were 73 single-family homes on the market, compared to 60 at the same point last year, a 22% increase. The most expensive single-family home sold in Aspen through September was for $60 million, compared to $72.5 million during the same period in 2021.
Days on market fell from 266 to 166, while percent of sold price to original listing price rose from 95% last year to 97% this year. (See Graphs Here)
Townhome and condominium prices in Aspen rose significantly through September, with both the median and average sale price rising 64% compared to last year, to $3.2 million and $4.7 million, respectively.
The number of properties sold decreased by nearly 50%, with just 95 closed sales through September 2022 compared to 178 through September 2021. Overall sales volume declined by 12.0% to $442 million, although the average price per square foot rose by to $2,807, a 44% gain over last year.
Condo and townhome inventories improved dramatically in comparison to last September, with 54 units on the market, compared to just 19 units last September.
In the Aspen condo/townhome market, the most expensive unit sold so far in 2022 was for $20 million, compared to the $36.5 million highest sale price through September 2021.
Days on market for condos/townhomes declined from 148 to 96 and percent of sold price to original list price increased from 97% to 98%.
In Snowmass Village, the median sale price of a single-family home sold through the end of September 2022 rose to $6.3 million, a 30% increase over last year. Average price rose by 39% to just under $7.4 million. Average price per square foot increased by 30% to $1,613.
Closed sales declined by nearly 50% to 29 and dollar volume was down 28.0% to $215 million.
There are 18 single-family homes for sale in Snowmass Village at the end of September, slightly more than the 13 homes that were on the market last September.
The most expensive single-family home sold through September 2022 in Snowmass Village was for $18.3 million, while through September 2021 the highest price was $12.5 million.
Days on market for single-family homes in Snowmass Village declined slightly from 193 days last year to 183 days this year. The percent of sold price to original list price declined slightly from 97% to 96%.
Condo and townhome median prices in Snowmass Village rose by a staggering 72% compared to last year, at just under $1.5 million, while the average price rose by 53% to just under $2.0 million. Closed sales through September decreased by about half to 89 sales, and overall sales volume declined by 28% to slightly below $178 million. Average price per square foot rose by 62%, from $932 in 2021 to $1,512 through September 2022.
At the end of September there were 47 townhome or condo units on the market in Snowmass Village, compared to 18 last September.
In the Snowmass Village condo/townhome market, the most expensive property sold through September 2022 was for $6.6 million, compared to last year’s high of $9.0 million.
Days on market for condos/townhomes in Snowmass Village declined from 188 through September to 89 days last year, while the percent of sold price to original list price stayed steady at 98.0%.
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