National Association of REALTORS® Chief Economist Dr. Lawrence Yun talks about market recovery and how it applies to the Vail Valley
The Vail Board of REALTORS® (VBR) had the pleasure of welcoming back National Association of REALTORS® Chief Economist Dr. Lawrence Yun to present current economic trends and the effects on our local real estate markets. His last visit in 2008, the economy was very different. His positive yet realistic assessment gave us some much-needed insight.
As experts in our field, clients look to us for answers as to why the market behaves the way it does. What factors influence real estate dynamics? We hear in the media the stock market is doing well, that our economy is recovering but in general, most Americans (aside from the investor bracket) are “not feeling it.” Unfortunately, this has a profound effect on real estate.
Regaining confidence in real estate
Measuring the recovery is complicated, best left to economists. However, on a very high level, we can base the economic recovery on two major factors: job growth and wage increases.
In his presentation, Dr. Yun revealed that overall, across the U.S., job growth is up with job creation leading the way. And, if we continue seeing unemployment applications fall over the next three quarters, it will confirm that our economy is supporting continued growth. The drawback is stagnant wage increases.
Locally, we are seeing this phenomenon and its effect on the mid- and lower-level real estate market. As we all know, housing is cyclical. The slow recovery is fueling a current lack of trust in the market. Yet, Dr. Yun maintains a positive outlook. In his opinion, “Continued job growth nationwide will increase confidence in all areas that may boost the Vail Valley due to the diversity of buyer in this local market.”
Another economic factor in the national housing market that relates directly to the state and local market is a lack of construction new starts overall. This is due to rising costs, a scarcity of skilled workers, and difficulty securing construction loans created by the Dodd-Frank financial regulations. National builders are effectively shutting out local builders because of access to better funding. This financial inequality has inspired the NAR to form legal partnerships focused on revising Dodd-Frank regulations to effectively freeup smaller, local banks to lend more easily to local builders.
Dr. Yun explained all of this is part of a very slow, multiyear recovery. The bright side: Inflation should remain low due to falling energy costs. Oil prices will not increase as they have in the past. The world’s production has doubled and America currently uses less oil and gas than ever before. In addition, falling oil prices may move potential workers into construction. This could help with the stall in valley construction.
Taking it local
As most of us know, the Denver market is thriving. And, according to Dr. Yun, “The hot market conditions in Denver could be the leading indicator of rising demand for second homes. Newly found wealth in homeowner equity of the Denver-based buyers may influence demand here in the Vail Valley.”
VBR Board Member Corey Lamothe agrees. “My Denver clients are actively looking and have been for months,” says Lamothe. “They are ready to incorporate the mountain lifestyle into their future. They have been coming here for years and are ready to make their getaway a reality.”
To give you an idea of how well the Denver market is doing, 5.5 percent job growth is considered strong. Denver is growing at double the rate of the rest of the country. On top of that, historically more people move to Colorado than leave. With the recovering market currently favoring investors, vacation properties are the first to feel the recovery as reflected in this past winter selling season. The high-end, resort properties, with top-dollar price per square foot, were hot commodities while the rest of the market struggled with inventory and pricing issues.
Like Denver, job growth in Eagle County is also rising and looks to be sustainable. Dr. Yun believes, based on current economic trends, the next 8 to 9 years will be strong for local REALTORS citing the retirement of baby boomers looking to leave work/business-focused cities. This should bode well for the Vail Valley.
“I’m encouraged by Dr. Yun’s 8- to 9-year assessment of strength and stability in our market,” says Onie Bolduc, 2015 VBR Chairperson. “We are fortunate to be in a resort market that attracts such a diverse selection of second-home buyers from retiring baby boomers to the investment-savvy millennial generation. It’s exciting to hear Dr. Yun’s positive market cycle expectations.”
Although Eagle County has had virtually no new building activity over the past five years, we can look at the current boom in the metro markets of Denver and Fort Collins and know that the mountains are next, particularly if the Dodd-Frank regulations change in any way.
2015 real estate expectations
In summation, Dr. Yun offered a positive general outlook for 2015. Consistently rising home prices over the last three years are encouraging consumer confidence as steady appreciation gains in the home asset continues. Pent up demand will play a large role in real estate market growth sooner rather than later. More people needing and wanting to own a home along with the rising cost of rent will increase demand. Rising mortgage rates are inevitable. The current lower rates and an end to quantitative easing will spur the long-anticipated increase in interest rates. He also believes in order to achieve economic growth we must keep the mortgage interest rate deduction on income tax. And finally, as homeowners begin to recognize a rise in home value, they will look to invest that equity in the down payment of another home.
Visit VBR.net for a more in depth look at the economic effects on our local real estate market.
This story originally ran in Vail Valley Home, June 2015, a publication presented by the Vail Board of REALTORS™ and Swift Communications ©2015
Posted in: Market Watch