My oh my oh my oh my!
The real estate market is about to get really interesting. I think that’s the best way to put it without resorting to click bait, which I absolutely cannot stand.
So pay close attention here in the next 10 minutes, because this update could save you quite a bit of money.
But before we get into it, let’s take a quick second and calm our souls as we as we remind ourselves why we live in or desire to be in beautiful Colorado.
Alright, let's get into it.
If you remember my last report, I mentioned that I think the median price of a home and condo here in Pagosa Springs would end up in the mid 400’s. And guess what, well…it went lower than that. And there’s a reason why.
The median price for all properties here in Pagosa Springs is $400,000 as of September 2022. A drop of 24% year over year. And that’s because of Condo’s and mobile homes, which are still playing an oversized role here. In September 2022, only 66% of sold properties were homes. A drop of 22% compared to a year. And since condo’s are priced lower than homes, that drags down the median price. If we look at only homes, the median price this past month settled at 512,000, a drop of 12% from a year ago. But that doesn’t necessarily indicate the whole market is dropping that much year over year.
So I decided to narrow down our data to the most reliable data set that we have - 3 Bed, 2 Bath, 2 Car Garage homes under 2,000 square feet in the Pagosa Lakes Area. And the Price Per Square Foot for this category was down only 0.3% year over year. But month-to-month…it was down 18%.
And that is concerning because it’s our biggest monthly drop since April 2010 when there’s at least three homes sold in the current and prior month for this category.
One thing is clear…this market is declining fast and buyers are choosing less expensive properties. And the reason for this is interest rates.
And to understand where our market is headed, you have to look closely at what the Federal Reserve is doing.
By raising interest rates, the feds are fighting inflation and as a result have sent the dollar to a 20 year high.
As part of this inflation fight, Fed Chair Jerome Powell has made it clear that the housing market needs a correction to make houses affordable again.
One of the data points the Fed uses also pertains to jobs. And the job market is still red hot here in America. And as employers keep hiring and raises keep getting handed out, inflation is likely to remain high. Which means the Feds will keep raising interest rates.
And this past Friday, guess what happened. Another robust jobs report in which unemployment dropped to 3.5% and another 263,000 jobs were added.
In fact, one chief economist put it this way…
“If I had just woken up from a really long nap and seen these numbers, I would conclude that we still have one of the strongest job markets that we’ve ever enjoyed.”
And I bring this up because it points to one thing…the Feds will keep aggressively raising interest rates. Which means mortgage rates will continue to rise.
In the span of one year, we’ve gone from 3% to now 7%. That’s incredible.
To put that into perspective, here’s how that impacts monthly payments on a home here in Pagosa Springs. In May of 2021, we peaked at a median price of 720 thousand for a house. At a 3% interest rate, that home would have a mortgage of roughly 2,700 minus taxes and fees. But now with a 7% mortgage rate…you’re looking at payment of 4,300 - an increase of 1,600 a month due to the interest rate alone!
To put it another way, in order to afford a 2,700 a month mortgage, your budget would go from 720 thousand to about 450 thousand. A drop of nearly 270 thousand dollars.
And that’s exactly the reason why the median price for a home in Pagosa ended up at 512 thousand for September. But here’s the kicker…we’re not seeing the effect of 7% interest rates yet. Those homes that closed in September had rates of 5.5% to 6%.
Which means we’re going to see prices continue to fall. In just four months, we’ve eliminated all gains from late 2021 into 2022. Again, just astonishing.
But this is something that we saw coming. I brought this up during our last market report. Once interest rates started to rise rapidly in April and May, we knew a correction was coming. Now, we don’t think a crash is going to happen.
But I do think we’re in for some more pain on the seller side. And because of this, Team M-Squared informed our sellers that they need to drop their prices now instead of later. Because what could happen…is if these sellers wait too long to drop their price, they will end up trying to catch a falling knife and as a result, end up losing more money than if they had priced their property correctly in the first place.
There’s currently 162 active listings on the market and 85% of those have been on longer than 30 days when only six months ago, most properties were already under contract by 30 days. And the longer these homes sit, chances are they are going to have to drastically reduce their price in order to get sold.
This goes to show the importance of pricing your property for a falling market rather than the one we had just six months ago. This is something Team M-Squared specializes in.
We dig into the data and we’re going to be honest with you on what we think your house is worth rather than puff you up with an unrealistic price. Our goal is best represent your financial interests rather than our own pocketbooks. And we’ve saved our clients thousands of dollars these past few months by giving them real values and urging them to drop prices when necessary to avoid losing more in the end. We’ve even advised some of our clients to take their house off the market and wait a couple years for the market to rebound.
But with that said, people will always need to buy or sell no matter what the market conditions are.
For sellers, there’s still certain situations where demand is still strong. Such as properties that have river front on the San Juan River. Properties that are updated and have killer views of the surrounding mountains.
For buyers, there’s going to be incredible opportunities coming up, especially if you’re willing to put in a little sweat equity.
But that still leaves us with a question. Where is the market headed…because no one wants to sell at the bottom and no one wants to buy at the top. And while it is impossible to truly know where the market is going, we can look at a few clues to make an educated guess.
One indicator we look at is properties currently under contract. We’re currently down 19% from a year ago. With Condo’s down 42%. So we could be moving back towards more of a typical market where Homes make up around 75% of transactions. Which will help prop up that median price for all properties.
What’s keeping the sky from completely falling out though is inventory. It’s starting to drop again after increasing over the past four months. In September there were only 33 new listings. A drop of 23% compared to a year ago. In fact, we have to go back to 2013 to see new listings this low for September. And if you account for all of Q3, July through September, we stand at 161 new listings. It been 10 years since it’s been that low and we’ve had a considerable amount of new construction since then.
What we’re seeing here is that sellers don’t need to sell. There is an incredible amount of equity in homes right now. And vacation rental owners are going to make even more money with the STR moratorium in effect in which the government has effectively eliminated future competition for the time being.
So why sell? There’s a lot of money to be made here.
Overall, I think prices will continue to decline until the fed’s stop raising interest rates. And until that happens, it’s really anyone’s guess how low we could go. Early data for October shows another monthly drop in prices. And then once December hits, we should start to see the effects of 7% interest rates in our sold data.
But really, this is anyone’s guess where we’re headed.
All I know is the reality of living here in the San Juans. The biking, the skiing, the hiking, the views, the lifestyle.
It truly beats the hell out of living anywhere else here in America. It’s a more satisfying and beautiful life than living in the crowded city or the suburbs where everyone is inside glued to a damn screen instead of nature.
And the anxiety, the depression, the anger, the frustration of living like that will cause more and more individuals to move to the mountains and live the lifestyle they’ve always dreamed about. It’s why this place is such a mecca for retirees who have the freedom to move anywhere.
And yes, home prices right now will affect the ability for some to move out here. But there’s a lot of folks on the sidelines ready to pounce once prices align with their budgets. The future here in Pagosa is bright…and I fully believe it. Sometimes, we just gotta go through these fluctuations.
But please remember this, when it comes to housing, you always buy for the long term rather than the short term. And a decade from now, prices will be much higher.
The best thing you can do is to continue to pay close attention to This is Pagosa and Team M-Squared and the market reports we put out. Sign up for our newsletter. Subscribe to our YouTube and Instagram where we not only focus on real estate, but create quality content on the amazing things you can do in this area.
And whatever your question may be, please email me. Even if it doesn’t have anything to do with real estate. In fact, I just had a lady email yesterday and ask for guidance on camping spots near Piedra Hot Springs. I love answering these kinds of questions! Because I love this area. And I hope that shows from the content we create.
I can’t thank you enough for watching and participating in this journey with me. As always, Hop Raise! And you may be confused by that term. But that phrase is explained in the Riff Raff Brewing Company video that we did. So be sure to check that out! Cheers Pagosa.