REAL ESTATE NEWS
Need to Get Away? Consider Purchasing a $100MM Island!
Although there is not much snow to speak of yet in Colorado, everyone could use some time in warmer climates for the holidays. Consider a beach getaway! Or if you happen to be an eccentric billionaire, consider purchasing your very own island. In fact, one was just listed in the Bahamas for $100 Million, according to the Wall Street Journal. The island, named “Little Pipe Cay,” is around 40 acres. It features 22 structures, including the main house which is 5,300 square feet. There is also a separate 8,900 square foot house just for parties that houses a spa, dining room, pub, and gym. Because, who wants to share their 5,300 square feet…? If all that is not enough for you, there are also four two-bedroom cottages for your guests to stay in. But before you get too deep in debt, make sure you can cover the annual operations overhead of $1.5MM per year!
A Review of the Real Estate Market in November
In our Market Snapshot for Metro Denver, there were 2,248 active listings in the MLS at the end of November. This number includes both homes and condos. That number was down around 34% from this time last year. This marks a continuation of the madness we have seen over the past several years. There is not enough housing inventory to supply the demand for homes. This is in-part due to continued labor and material shortages nationwide, as well as a lack of buildable land due to zoning challenges. Plus, interest rates have remained at near all-time lows for the past couple years, providing an extra incentive to buyers.
The average listing is currently on the market for only 15 days. This is much lower than it was between 2017-2018, when it took around 27 days to sell a house. Although home showing traffic is normally slower around the holidays, this year is one of the exceptions. Showing traffic is currently well above the historical trend, rivaled only by last year’s strong activity. Although, if you are a buyer, winter is still the best time to shop around due to reduced competition. It is likely that Spring ’22 will be a challenging time to look for a house. It could show even more multiple offer situations than Spring ’21!
Home Prices Are on the Rise, but Inflation May Have Other Plans
Home prices were up almost 15.5% in Nov. from the same time frame last year. However, the thing to watch out for regarding home prices in 2022 is rising inflation.
What Exactly Is Inflation?
In layman’s terms, inflation means that people are having to pay more for everything from groceries to our heating bills. As a result of the pandemic, the U.S. government provided households with stimulus checks. This was to help support Americans as they were furloughed or lost their jobs. At the time, it gave these households more purchasing power. However, many people switched to working from home or were receiving unemployment. They did not need many of the things they used to. They did not need to worry about buying gas, ordering lunch for the office, dry cleaning, and other expenses. So, companies on the supply side of these goods/services had to start charging more money to offset their mounting losses. Furthermore, there were virus-related supply chain issues caused by a lack of manufacturing, fewer truck drivers to haul goods, and other worker shortages. These factors also contributed to inflation.
This has recently become a huge concern, as annual inflation hit an all-time high in October, at a startling 6.2%. According to Realtor.com, that is the highest inflation has been since November 1990, over 30 years ago.
What Does this Mean for Home Buyers and Sellers?
So far, this has meant that the cost of materials has risen, and home prices have gone up. These higher material costs have encouraged many investors to put their money into luxury homes instead of cheaper fix and flips, to get a good return on their now-higher investments. Luxury buyers also had attractive mortgage rates in 2020/2021. These trends have skewed the average home price even higher. The time it takes to build or remodel houses increased as well. Contractors must now wait around for materials so they can complete their work.
Average home buyers are forced to spend more on their everyday bills due to inflation, so they in turn will have less money to buy homes. This may reduce some of the demand on the lower end of the market. On the reverse side, some sellers are reluctant to sell because owning a home is historically a good hedge against increasing inflation. Many homeowners do not want to sell their homes when they can stay put and grow their equity. This can act as a safety net against some of these increasing costs. Other sellers are using this situation as an opportunity to sell their homes and relocate to cities where the cost of living is lower, also helping to offset the costs of inflation.
Interest rates are another concern when it comes to home prices in 2022. If rates were to remain low, buyers could afford to buy more homes. But if they continue to rise as expected to in 2022, these higher rates, coupled with inflation, will price many buyers out of the market. These major factors may soften home price increases next year, but prices should remain high based on the many factors keeping the housing supply low.