The third quarter of 2023 is likely to turn out well for the U.S. economy. While most market watchers and economists thought that we would have drifted into the long-awaited recession by now, most third-quarter data is fairly strong. Largely because of substantial fiscal stimulus, which has yet to fully dissipate, the current expansion has not yet turned recessionary. However, by early 2024, excess savings will probably have been depleted, and on October 1, 2023, student loan repayments recommenced. We are already starting to see early indicators of slowing consumer spending and falling real income, as August auto sales slumped 4.6% M-o-M and consumer credit card balances are increasing. Nationally, September payrolls rose by a surprisingly strong 336,000, and July and August numbers were revised up by 119,000. Moreover, job growth was widespread, the labor force participation rate is rising, and wage growth slowed to 4.2% Y-o-Y and to an annualized rate of 3.4% over the last three months, a rate nearly commensurate with 2% inflation. All things considered, the overall labor market remains solid.
In terms of inflation, September CPI rose 0.4% M-o-M, largely attributable to more expensive gasoline and diesel. Core inflation rose 0.3% M-o-M, its highest reading since May, but just 4.1% Y-o-Y, its lowest reading since September 2021 and the eleventh decline in 12 months. August core services inflation rose 0.6% M-o-M, unchanged since March, and the Fed's favorite measure of inflation, core services minus housing, rose 0.4% M-o-M in August, its highest reading since March. Thus, while generally falling, inflation remains uncomfortably high, and therefore, the Fed left the Fed funds rate unchanged in late September and signaled a willingness to possibly raise it 25bps in the future, a hawkish pause. However, it doesn't matter if the Fed raises rates once more or not at all because inflation and the economy's health do not hinge on 25bps. Instead, what matters is how long the Fed keeps rates at the terminal level, and that is still to be determined. According to the latest Fed releases, the plan is to reduce interest rates at the slowest pace ever. However, be assured that regardless of how long it takes to happen, if and when the weak economy arrives, as it almost always does, rates will quickly fall, or, as the saying goes, "Interest rates go up on the staircase but down on the elevator." Alternatively, if the economy stays pleasantly strong, the Fed may or may not raise rates more, but will certainly not lower them anytime soon.
There are other significant headwinds that still pose a risk to the hoped-for smooth landing. In addition to the resumption of student loan payments in October, the possibility of a U.S. government shutdown remains high, especially with the chaos in Congress.
The ongoing Russian attack on Ukraine, and now the prospects of an extended conflict in the Middle East will have continuing economic impacts on the world economy and raise the potential of spikes in fuel prices. Ongoing labor strikes offer the real possibility of impacting GDP in the short term and generating additional wage inflation. Still, all things considered, the prospects for the fourth quarter of 2023 are good, with the probability of a recession shifting to the first half of 2024.
The national housing market continues to be dominated by high mortgage interest rates, the highest since 2002, and the impacts to both supply - in terms of the iron grip of mortgage rate lock-in, as evidenced by the lack of new listings, and on-demand - by pushing the monthly home mortgage payment out of the reach of many potential buyers and showing itself in very low closed sales.
Existing housing sales slipped to their lowest level since January 2023 in August, and August pending home sales fell 7.1%. High interest rates have pushed up the average interest and principal payment for new borrowers using a 30-year mortgage to over $2,306. Two years ago, only 5% of new borrowers had a payment over $3,000/month, today it’s almost 25%. Moreover, high rates have depressed the dollar volume of cash-out refi activity by about half from 22Q1 when it was almost 1% of available equity/quarter to 0.4%/quarter, a decline of $40 billion/quarter.
Still, even with high rates, home prices remain high and stable. On a Y-o-Y basis, the Freddie Mac Home Price Index, which includes only loans purchased by Freddie and Fannie and includes appraisals, was up 4% in August, versus 3% in July. Y-o-Y appreciation peaked in July 2021 at 19.1% and annual appreciation bottomed out at 0.9% in May 2023. Median home prices increased from $406,700 in July to $407,100 in August 2023, and made this the third consecutive month with home prices above $400,000. It was the highest August price ever and is up from $389,500 in August 2022.
Home prices have stayed at or near record levels in most areas for one key reason – the relative lack of available inventory. Inventory ticked down slightly from 1.11 million units in July to 1.10 million units in August, the lowest August level ever and well below the 1.28 million units on the market a year earlier. After record housing inventory lows during calendar years 2020, 2021, and 2022, CY2023 started off differently. January through April 2023 for sale inventories were slightly above the record lows set in 2022. However, from May through August, inventories set all-time lows, and by wide margins, and it’s likely that monthly low records will keep being set for the rest of 2023. Homebuilders recognize the gap and are trying to fill the available inventory void, and because of this increased new homebuilding activity, the percentage of homes for sale that are new is around 30%, double the historic average.
While the single-family housing market is enjoying solid price appreciation and strong construction activity due to a severe lack of existing inventory, the multifamily market struggles mightily. Financing is increasingly difficult as vacancy rates and insurance premiums rise, along with mortgage and capitalization rates. The market struggles to absorb substantial recent overbuilding and rents are declining. As a result, multifamily starts have declined a sharp 41% Y-o-Y.
Banks are currently tightening lending standards for commercial real estate loans and commercial and industrial loans, and as a result, office and retail space is somewhat shaky, while other types of non-residential construction like student housing, warehouses and logistical hubs, and manufacturing facilities are doing well.
While the shakeup in commercial real estate and construction is no surprise given rising rates, what is interesting is that it takes over a year for that tightening to make its way through to credit growth. This is an excellent example of why the effects of the rate hikes that began in March 2022 are only now having a material impact on areas outside of the housing market.
Unemployment in Colorado is 3.1% as of 08/23, down just slightly from last year after hitting a peak of 11.6% in 05/20 (for comparison, the pre-pandemic rate was 2.8%) and well below the U.S. national average, marking it difficult for Colorado employers to fill positions.
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 20,735) and are now at 22,588 for the week ended 09/30/23. In Pitkin County, the August unemployment rate was 2.7%, a year ago it was 2.5% and for comparison, pre-Covid in 08/19 it was 2.2%.
Colorado’s economic and job growth still exceeds the national average, and the State’s amenities and location continue to make it an ideal home base for millions of residents, new and old.
Statewide, the September 2023 median price of a single-family home of $575,000 was 2.7% higher than September 2022, while the year-over-year average price rose 12.3% to $762,585. In the condo/townhome market, the year-over-year median price gained 2.6% to $425,857 while the average price increased 5.6% to $571,851.
Through September, closed sales across the state are down 21.2% while new listings are down 18.9%. There are 20,124 active listings statewide at the end of September, down 13.0% compared to September 2022, representing 2.8 months’ supply of inventory. Across the state, the percentage of list price received at sale was 98.7%, the same as last year and down from 99.7% at the end of June 2023 and days-on-market has increased to 46 days, up from 37 days last year, suggesting a market that is slightly weakening.
The median price of a single-family home in Aspen through September 2023 was $12.4 million, an 8% decline compared to the same period of 2022, while the average price declined 13% to $16 million.
The Aspen townhome and condominium market improved slightly compared to last year, with a median price of $3.3 million (up 4% from 2022) and an average price of almost $5.3 million (up 13% from last year). In Snowmass Village, the single-family median price gained 6% to nearly $6.7 million while the average price rose 7% to nearly $8 million. Snowmass Village townhomes and condominiums saw the largest gains in the area, with the median price increasing 24% to nearly $1.8 million and the average price rising 14% to almost $2.3 million. Across the Aspen/Snowmass Village area, closed sales were up about 5% compared to last year and overall sales volume rose 2% to nearly $2 billion. The percentage of sold price to original listing price was down about 2% across the area and days on market generally declined compared to last year for single-family homes and rose for townhomes and condominiums.
While the Aspen real estate market has a higher percentage of cash sales than many other markets, high-interest rates may still be taking a toll on sales, as many high-wealth individuals are undoubtedly considering the higher returns they are now earning on bank accounts and other investments as they consider real estate purchases. The stock market remains well below the peaks of early 2022 and weaker equity portfolios reduce overall demand for high-end homes. However, as Pitkin County considers a 9,250 square-foot cap on new homes, existing homes that exceed that size limit will likely become even more desirable as the overall stock remains limited. While the economy has been chugging forward at a steady, solid pace, it is lacking many of the factors that led to the housing market surge of late 2020 and 2021 and is hamstrung by high-interest rates. Employers are increasingly ratcheting back on remote work, the tech surge has slowed as the pandemic wanes, and the venture capital/IPO market, while improved somewhat, is yet another casualty of high-interest rates. Dr. Eisenberg comments: “The Aspen housing market remains very tight and appears to be waiting for some reason to respond to market conditions, which are quite static. A fall in interest rates would certainly be helpful, however that’s unlikely to come any earlier than spring 2024. Still, the Aspen/Snowmass Village market remains one of the most desirable and high-end housing markets in the country, and I see no evidence of that changing anytime soon.”
The median price of a single-family home in Aspen for the first half of 2023 was $11.5 million, a 20% decline compared to the first half of 2022, while the average price declined 27% to $14.3 million. The Aspen townhome and condominium market remained relatively unchanged from last year, with a median price of $2.9 million and an average price of $4.6 million. In Snowmass Village, the single-family median price declined 11% to $5.4 million while the average price rose 4% to $7.4 million. Snowmass Village townhomes and condominiums saw the largest gains in the area, with the median price increasing 18% to nearly $1.8 million and the average price rising 12% to $2.3 million. Across the Aspen/Snowmass Village area, closed sales were down about 3% compared to last year but declining prices brought overall dollar volume down by 24% to $1.1 billion. The percentage of sold price to original listing price was down about 4% across the area and days on market generally declined compared to last year for single-family homes and rose for townhomes and condominiums.
As sales have slowed over recent months, it is likely that some potential Aspen buyers may be sitting on the sidelines in a “wait-and-see” mode to see if the Fed can achieve the much hoped-for soft landing. The most recent inflation data suggest that the actions of the Fed may be working, and while at least one more rate increase is inevitable, the likelihood of an additional hike this fall is up for debate. That means that the Fed may begin to consider when interest rates can come down. Once that happens, we may see activity pick up as interest rates decline and the number of listings improves. While the IPO market is certainly not as strong as it was in 2020 and 2021 when interest rates were incredibly low, it is meaningfully improved over 2022. The stock market has largely recovered about half of the losses of 2022, which should strengthen portfolios, especially for those with stock options. The lack of inventory continues to be the key challenge for the Aspen and Snowmass Village real estate market. Dr. Eisenberg comments: “We saw a huge run-up in housing demand across all markets and price ranges during the worst of Covid, and it is likely that demand will return to more normal levels going forward. While single-family home prices in Aspen have declined compared to 2022 levels, what I would concentrate on is cost per square foot, and the average sold price per square foot has remained steady in Aspen and has increased by 7-8% in Snowmass Village. This remains one of the tightest markets in the country.”
• The median price for a single-family home in Aspen through the third quarter of 2023 was $12.4 million, 8% less than last year’s $13.4 million while the average sale price of $16.1 million declined 13% from last year.
• The number of closed sales through September increased to 63, a 21% increase over last year, and pushed overall dollar volume up about 6% from last year to just over $1.0 billion. The average sold price per square foot increased 4% to $3,244.
• As of the end of September, there were 63 single-family homes on the market, compared to 52 at the same point last year.
• The most expensive single-family home sold in Aspen through September 2023 was $76 million, compared to a $60 million sale during the same period last year.
• Days on market declined from 166 to 153, while the percentage of sold price to original listing price declined from 97% last year to 94% this year.
• Townhome and condominium prices in Aspen rose through September 2023 compared to the same period of 2022. The median price gained 4% to $3.3 million while the average price rose 13% to just almost $5.3 million.
• The number of properties sold declined by about a third, with 64 closed sales so far this year, compared to 95 through September of 2022. Dollar volume declined by about 24%, to $336 million and the average price per square foot was almost unchanged at $2,848 per square foot.
• Condominium and townhome inventories stayed flat at 46 units on the market.
• In the Aspen condo/townhome market, the most expensive unit sold through September was for nearly $48 million, well more than double last year’s $20 million.
• The average days on market for condominiums and townhomes through September 2023 was 131 days compared to 96 days for 2022. The percentage of sold price to original list price dropped from 98% last year to 96% this year.
• In Snowmass Village, the median sale price of a single-family home sold through September 2023 gained 6% to nearly $6.7 million while the average price increased by 7% to nearly $8 million. The average price per square foot, however, remained relatively unchanged at $1,631 per square foot.
• Closed sales through September 2023 declined from 29 last year to 24 this year, a 17% decrease and that pushed overall dollar volume down about 11% to about $190 million.
• There were 18 single-family homes for sale in Snowmass Village at the end of September, compared to 23 at the end of last June.
• The most expensive single-family home sold through September in Snowmass Village was $22.4 million, while the highest price through the same period in 2022 was $18.3 million.
• The number of days on market for single-family homes in Snowmass Village declined from 183 days last year to 167 days this year, while the percentage of sold price to original list price declined from 96% last year to 92% this year.
• Condominium and townhome median prices in Snowmass Village saw significant gains compared to last year, with a median price of almost $1.8 million, up 24% from last year. The average price rose 14% to almost $2.3 million, and the average price per square foot rose 7% to $1,617.
• Closed sales through September increased to 127 from 89 last year, and overall sales volume rose 63% to nearly $289 million.
• At the end of the quarter there were 45 townhome or condominium units on the market in Snowmass Village, compared to 29 last year.
• In the Snowmass Village condo/townhome market, the most expensive property sold through September sold for $9.0 million, compared to the highest sale price last year of $6.6 million.
• The percentage of sold to original list price remained at 98%, while the days on market meaningfully rose from 188 to 447.
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