Is Our Real Estate Market Cooling & Why?
by Rob Swan, Swan Realty, Opinion Contributor
The past 18 months or so has brought unprecedented sales to our local real estate market. Most areas saw anywhere from 10% to 20% increases in valuations. This was due to many factors that included post covid reassessment of lifestyle, however, the major factor was low interest rates. Rates began to decline throughout 2019. When 2020 came around, the average 30 year fixed rate was right at 3.7%. When Covid hit in the spring, the Fed dropped another quarter point, so by the end of 2020 , the average rate was right at 2.6%, these are some of the lowest rates our country has ever seen. Rates did increase slightly throughout 2021 but not enough to slow down the buying momentum that had now transformed itself into a buying frenzy which in turn started pushing prices through the roof.
Many of the 2021 listings throughout the Enchanted Circle were receiving multiple offers and were often selling above asking price, especially those homes that were zoned to be rented on a nightly or vacation rental basis. Why not, the annual rate of return on the rental income was far outpacing the mortgage interest. This scenario made perfect sense and many resort property buyers took advantage of it.
This year has ushered in a whole different ball game, as of this writing, the 30 year fixed is right at 5.8%. This drastic change in rates has definitely put some would-be buyers on the sidelines, at least for the near future.
Prior to 2022 when a new listing was advertised, the phone didn’t stop ringing with loan buyers and cash buyers. The loan buyers are still there as they continue to monitor the market but most of the interest is coming from the cash buyers.
So what will this summer bring? My prediction is that the frenzy will continue to subside and prices will stabilize. I do not predict a significant drop in pricing as most vacation home owners are financially stable and do not need to liquidate assets. We saw a similar phenomena in the 2008 crash that was characterized by little to no price drops but listings did rack up additional days on market prior to going under contract.
I am predicting our sales will continue to be healthy as our location is highly desirable but the days of bidding wars may be coming to an end.
If you have any questions, please feel free to reach out. www.swanrealtyinc.com