The market is dropping fast. From May 2022 to Oct 2022, the median Price Per Square Foot (PSF) has dropped 7%! And that's the rolling three month average. If you take it month by month, PSF has dropped 18%. It's clear that our market is moving into a correction. How much further we have to go is anybody's guess. But we wouldn't be surprised if PSF drops another 10% to 20% from where it stands today.
2021 saw unprecedented growth and demand. 2022 was poised to repeat the trend with inventory at record lows, forcing buyers to purchase any home available even if it wasn't what they really wanted. So homes that were outdated ended up selling at a premium. Once interest rates started to rise in March 2022, the market peaked in May 2022 and started to quickly fall as demand dried up.
Supply and demand is everything. Typically, we see most new listings come on the market in May. From 2010 until 2019, it was about 120 new listings. But ever since Covid, that number has dropped into the 90's. With the amount of increased construction over the past decade, new listings should be rising. But the opposite is happening. And this is what is keeping the bottom of the market from falling out. If new listings were what they were before Covid, I think prices would be 10% lower than where they're at today.
Inventory typically starts to decrease this time of year. Most buying occurs from July through September. Most sellers want to be out by the time the snow arrives. The PSF trend is clear. But now that inventory is decreasing again, the pace of prices falling could slow down. And with this being an election year, buyers tend to be cautious until after any election. The rest of November and December will be very telling on where the market is headed.
Major banking and investment firms are starting to predict that the market will remain flat for the next two years. But Pagosa Springs typically underperforms the nation as a whole. That could change though as Pagosa receives more exposure from the ongoing success of the "Building Roots" TV show on HGTV.
What to Look For
1. New Listings. They haven't appeared like they did before the pandemic. If new listings start to increase, this will help add to inventory which could further reduce prices across Pagosa. If they stay low, this will help create a bottom to our market.Schedule Meeting
2. Post Election Bump. Buyers tend to get nervous before elections. Stock markets slump. People hang onto cash. But no matter what the results of elections are, once we get past the mid-term elections, the stock market tends to rise. Buyers get comfortable again.
3. Interest Rates. From talking to lenders, there's a feeling out there that rates could hit 10% in the spring. But recently rates dropped from 7.4% to 6.6% based off news that inflation may be starting to cool off. But where ever rates do go, we have yet to see the effect of 7% interest rates on the market. We'll find out in December how much of an effect those high rates had on our market. Currently, properties under contract are down 16% from where they were a year ago.