This has been a painful half-year for the U.S. economy, with 22Q1 GDP declining at an annualized rate of 1.6%.
At this point, the best-case scenario for 22Q2 is for very slight growth, around 1% or so, but it is more likely to come in flat or slightly negative as the economy continues to be battered on multiple fronts. While the impacts of Covid-19 had been declining, they may be re-emerging, both in the US and globally, and supply chain issues, while improving, remain very troubling. Inflation is extremely high and is impacting household incomes. In fact, national real income has been declining since the fall of last year. Household savings, which had been near record highs, have declined, especially in lower-income households, and consumers are spending less. Fuel prices remain near record highs, negatively impacting both households and businesses, and the stock market posted the worst half-year since 1970, with both stocks and bonds performing poorly.
Monthly employment growth remains strong, although first-time jobless claims have noticeably risen.
Collectively, this is a lot to overcome, and the forecast for GDP growth for CY2022 is, at best, 1%, with the probability of a recession sometime in 2023 at 75%. The good news - the economy entered this troubling situation in a much stronger condition than usual. Corporate balance sheets are strong, household finances are objectively good, and banking institutions are solid. If we do wind up in a recession, this is in no way a repeat of the Great Recession of 2008/2009. Current expectations are that inflation will top out no later than 22Q3, pulled back by both the Federal Reserve Board’s interest rate hikes, some organic improvements to supply chains, and slowing consumer demand, especially for goods.
That said, the projected decline in inflation is unlikely to be fast enough to change the Fed’s rate-raising trajectory and certainly not after the recent strong jobs data. Moreover, inflation has become increasingly economy wide and is no longer contained to autos, energy, and food.
As a result, the Fed has made it quite clear that they will continue to raise rates due to worsening inflationary pressures even if it pushes the economy into a recession. They have signaled intentions to raise the fed funds rate every six weeks for the near future (perhaps for as long as a year) with the next several hikes in the 0.5%-0.75% range and then 0.25% until the inflation target rate is in sight. If inflation data does not worsen, the Fed will not meaningfully alter the current course, and 10-year Treasury and 30-year mortgage rates should not meaningfully change from where they are now. Of course, if inflation gets significantly worse, the Fed will tighten monetary policy further. Conversely, should inflation dissipate more quickly or if the economy stalls or falls into a recession, the Fed might institute fewer or smaller rate hikes, or stop rate hikes earlier than they would otherwise. Regardless, expectations of inflation went up rapidly in the first half of 2022, and rates are more likely, if anything, to fall from where they are now than rise.
There are several key factors to watch in the housing market for the rest of 2022. First, while mortgage interest rates are unlikely to rise significantly higher than they are now, we are already starting to see the impacts of rising rates on the housing market. May closed sales, based on contracts from March and April when rates had increased somewhat, already show signs of slowing, and with higher mortgage rates since, sales activity is likely to show additional declines. In addition to interest rate impacts, softening in the job market, reduced household savings, and falling equity prices will slow sales. We already see this in data for weekly applications for first-time mortgages, which continue to decline on a relative basis compared to pre-pandemic levels.
Another meaningful change of late in the housing market is the rise in year-over-year inventories for the first time since early 2019. However, inventory growth, while high in percentage terms, in actual units remains relatively small. At the national level, available inventories are at 1.16 million units, still well below normal pre-pandemic levels. Price appreciation through the first half of the year was surprisingly strong, much stronger than most economists had predicted. However, higher home prices and interest rates will manifest in slowing rates of home price appreciation, which is likely to shift from 15-20% over the past year to closer to 5-7% by the end of the year. If inflation is considered, real price appreciation may be around zero.
In terms of new housing supply, new construction of multifamily properties will continue to do well but perhaps soften slightly because of tightening credit conditions.
Single-family starts are likely to decline somewhat from where they are now, but not by much. The number of single-family units under construction is relatively high, but that is less because of new starts and more because builders have been unable to complete homes under construction due to supply chain issues.
Demand for housing is still high, and demographics remain favorable. Further, even if individual buyers get priced out, Wall Street is still buying homes for rentals, which puts a floor under price appreciation. Thus, even if there is a recession, there will be fewer impacts on the housing market because we have never been this undersupplied going into a recession, nor have so many homeowners had so much home equity. The bottom line, this housing market is still a seller’s market, but less so than it has been for the past few years.
Unemployment in Colorado is at 3.5% as of 05/2022 after hitting a peak of 11.8% in May 2020 (for comparison, the pre-pandemic rate was 2.8%). Statewide continuing claims for unemployment hit a high of 265,499 for the week ended 5/16/20 (compared to a pre-pandemic level of 21,956) and are now at 16,566 for the week ended 06/25/22. In fact, data from the Bureau of Labor Statistics shows that employment in Colorado now exceeds pre-covid levels by about 36,000. In Pitkin County, the May unemployment rate is 4.1%. A year ago it was 8.9% and for comparison, in May 2019 it was 5.7%.
Statewide, the June 2022 median price of a single-family home of $589,000 was 11.1% higher than June 2021, while the average price of $722,014 was 7.6% more. In the condo/townhome market, the median price gained 12.3% to $432,250, while the average price rose 19.4% to $578,649. Through June 2022, closed sales across the state are down 9.0% while new listings are virtually flat compared to 2021. There are 16,322 active listings of inventory statewide at the end of June, about one-third more than last year, and that represents a 1.6 month’s supply of inventory, well below the national average of 2.6 months. Across the state, the percentage of list price received at sale is 103.3% and days-on-market is just 26 days, while through the end of June 2021 it was 33 days.
Consistent with national trends, the Colorado real estate market appears to be slowing slightly due to a combination of high prices and rising interest rates.
The median sale price of a single-family home in Aspen during the first half of 2022, at $14.4 million, gained 48% over the same period for 2021, while the average price gained 53% and rose to $19.7 million. Townhome and condo prices in Aspen were up 69% compared to last year with a median sale price of just over $2.9 million, and the average price nearly doubled to $4.7 million. Price appreciation in Snowmass Village for single-family homes during the first half of 2022 was not as strong and the median price rose 14% to $6.0 million, and the average price rose 30% to $7.1 million. The median price for townhomes and condos in Snowmass Village almost doubled to $1.5 million and the average price rose 58% to $2.0 million. Through June, there were 197 residential properties sold throughout the Aspen/Snowmass Village area, a decline of 42% but rising prices held overall sales volume nearly flat at $1.45 billion. At the end of June, there were 81 single-family homes on the market throughout the entire Aspen/Snowmass Village area and 90 townhomes and condos, collectively down 30% from June 2021, making the Aspen/Snowmass Village area one of the few areas across the country where inventory levels remain below 2021 levels.
The recently adopted City of Aspen limitations on demolition permits are likely to encourage some prospective buyers to purchase, build and renovate outside of the Aspen city limits, while the limits on short-term rentals will likely soften demand in the city slightly, but these new rules are only likely to move potential buyers outside of the city and not fundamentally alter sales activity in the larger Aspen/Snowmass Village area. Even as the national residential real estate market shows signs of cooling, the Aspen/Snowmass Village market shows few indications of a weakening market, no doubt because buyers in the area are more likely to be cash buyers and thus not deterred by rising interest rates. There are also some indications that high wealth individuals may be choosing to invest in real estate instead of the financial markets, and the Aspen/Snowmass Village area remains a highly desirable community for many lifestyle reasons.
Finally, some recent national political and court decisions may lead some buyers to reconsider otherwise appealing real estate markets and prioritize Colorado and specifically the Aspen/Snowmass Village area as a priority area to relocate to.
· The median price for single family homes in Aspen through June 2022 rose to just over $14.4 million, up an impressive 48% over the same period in 2021 and easily an all-time high. The average sale price of $19.7 million was 53% higher than last year.
· The number of closed sales declined by about a third to 42 which brought down overall dollar volume 3% from the same period last year to $827.7 million. Average sold price per square foot rose 50%, from $2,103 in 21Q2 to $3,176 in 22Q2.
· As of the end of June, there were just 60 single-family homes on the market, compared to 83 at the same point last year, a 28% decline.
· The most expensive single-family home sold in Aspen during the first half of 2022 was for $60 million, compared to $72.5 million in 2021.
· Days on market fell from 295 to 187, while percent of sold price to original listing price rose from 95% last year to 97% this year.
· Townhome and condominium prices in Aspen rose significantly through June, with the median sale price rising 69% to almost $3.0 million while the average price almost doubled to $4.7 million.
· The number of properties sold decreased by slightly more than one-third compared to the first half of 2021, with just 66 closed sales during the first half of 2022. Still, the higher prices more than compensated, and sales volume of $307 million was up 20% from last year, while the average price per square foot rose 57% to $2,817.
· Condo and townhome inventories were down 43% compared to last June with just 44 units on the market.
· In the Aspen condo/townhome market, the most expensive unit sold so far in 2022 was for $20 million, compared to the $12 million highest sale price through June 2021.
· Days on market for condos/townhomes declined from 107 to 66 and percent of sold price to original list price increased from 96% to 98%.
· In Snowmass Village, the median sale price of a single-family home sold in the first half of 2022 rose to $6.0 million, a 14% increase over last year. Average price rose by 30% to just over $7.1 million. Average price per square foot increased by 28% to $1,587. Closed sales declined by 21% to 27 units and dollar volume was up just slightly to $192 million.
· There are 21 single-family homes for sale in Snowmass Village at the end of June, virtually the same as last year.
· The most expensive single-family home sold during the first half of 2022 in Snowmass Village was for $18.3 million, while through June 2021 the highest price was $12.5 million.
· Days on market for single-family homes in Snowmass Village declined from 241 days last year to 189 days this year. The percent of sold price to original list price stayed steady at 96%.
· Condo and townhome median prices in Snowmass Village nearly doubled when compared to last year, at just over $1.5 million, while the average price rose by 58% to just over $2.0 million. Closed sales for the first two quarters decreased by about half to 62 sales, and overall sales volume declined by 25% to slightly below $126 million. Average price per square foot rose from $894 in 2021 to $1,495.
· At the end of June there were 46 townhome or condo units on the market in Snowmass Village, compared to 58 last June.
· In the Snowmass Village condo/townhome market, the most expensive property sold through June 2022 was for $6.6 million, compared to last year’s high of $9.0 million.
· Days on market for condos/townhomes in Snowmass Village declined from 172 through June to 92 days last year, while the percent of sold price to original list price bumped up slightly from 97% at the end of June 2021 to 99% at the end of June 2022