US ECONOMY & HOMES – VAIL, CO REAL ESTATE
The biggest stock market comeback in modern history is defying all valuation methodologies in favor of the view that the pandemic will be over by this time next year so who cares about what is going on around the country. 3.3 million small businesses, 22% of all the firms in the US, have shut their doors since February as compared to 730,000 during the Great Recession. Irrational Exuberance is now being mentioned in hushed tones as the only explanation for a pre-Covid stock indices making the capital markets look more like Las Vegas gambling than a real investor playing field. There are no real connections to P&L, consumer confidence or unemployment which is probably closer to $30M with 20% of America’s workforce out of a job despite lower statistics to the contrary. Expectations that the FED will do whatever it takes to keep the recovery going with $3T of printed money already approved. Chairman Jerome Powell is prepared to go as high as $6T if necessary, which is a staggering sum of money when compared to total US debt of $22T and rising. The DJIA fell 1862 points last week in response to the virus’ spread with more than half the country setting record high infection numbers. Until vaccines or therapeutics are developed Covid 19 is not going away so get ready for two steps forward one step back until such time as one of these two solutions become available.
The cost of housing has grown twice as fast as wage earner income with fewer homes on the market than in any year since 1982. Demand for lower priced properties drove appreciation at twice the rate of high end neighborhoods. Once the backbone of US wealth, housing has become a political, economic, and environmental catastrophe. Renting has become even worse with costs increasing by 16% compared to wages at 5%. After 2011 4M units under $800 a month have all but disappeared due to demolition, co-ops and condo conversions. Half of all renters spend 30% of their salaries on rent; but for the poor that number is closer to 50%. Minimum wage earners would have to work 127 hours a week to pay for a two bedroom rental. In 1990 it took 18 months of medium salary to buy a house in 72 of the top 100 cities; today that number is just 25 which is a staggering 65% reduction. The US is more than 10 million homes undersupplied as a result of the Great Recession with no solutions in sight. So, giddy up and buy residential properties because increasing valuations are almost guaranteed based upon the national numbers but will depend on specific SMSA locations and economic activity.
Vail Valley Market Overview
Rumors abound that Eagle County’s housing market is red hot. Currently there are 348 pending sales with May setting an all-time monthly record. Covid 19 is changing all prior seasonal patterns with buyer activity very strong for what is typically the slowest month of the year. Eagle County has averaged about 2400 transactions per year since 2017 producing $2.2 billion in annual volume. That yearly average of 200 homes per month would seem to support May’s red hot status but it’s not that simple. At an average price of about a million dollars, 348 sales translates into $350M which is only 15% of countywide volume. July is the height of our inventory accumulation cycle with 682 homes currently on the market and if every home were to sell that’s $600M plus the under contract $320M for less than one billion dollars or roughly half of pre-Covid volume. Is the local real estate market on fire? Well sort of with most of the action happening at seven digit numbers. Local demand is in the tank given 48% employment as reported by the Rocky Mountain Alliance which means the market is almost 100% driven by out of area buyers. The pandemic has created unexpected demand at an unexpected time for city dwellers who want social distancing and family getaway properties. Zoom has proven that not all workers have to be in the office which is going to be a game changer for how and where we work, changing the ‘must be on-site’ paradigm forever. We are not seeing a massive exodus from urban areas to outlying communities but rather the realization that a second home can make real sense given on-line working and increased flexibility as to where people can or have to live. Urban flight from NYC after 911 is being talked about but we just don’t see a change in primary residences, but rather an escape valve option for lifestyle enhancement in less congested lower hassle safe places.
Best regards from our part of the world to yours where in the Rockies the colors glow against a background of towering peaks, crystal clear lakes, and views of an endless the horizon. Fall is right around the corner and if you can figure out a safe way to come and visit; we promise you will not be disappointed.
Greg Strahan and Connie Kincaid- Strahan
Lifestyle enhancement coordinators and real estate guides to the Vail Valley.
75 Years’ Combined Experience. One Billion of Completed Transactions. 250+ Happy Families