Are we seeing a shift in the Park City real estate market?
Posted by Sean Matyja on Thursday, June 23rd, 2022 at 11:46am.
This last week marked the official start of Summer. The snow has melted, the mountains are green, and visitors are back in town. With record inflation and increasing interest rates, many wonder what the real estate market will look like this summer? Will we see a market shift or downturn for real estate in Park City? Will prices continue to rise, plateau, or possibly dip? These are great questions that are hard to answer with an accurate prediction of what will come.
Most real estate professionals do not foresee a housing market crash. Many believe that we may be seeing a shift in mindset, but it is too early to say if we are truly experiencing a shift in the market. Inventory does seem to be increasing, but will that lead to lower prices, or will we simply see a more balanced market? All current data suggests that a market crash like we saw in 2007-2008 is highly unlikely.
Home ownership is much more fiscally healthy today compared to where it was during the great housing recession fifteen years ago. A significant difference is there are not as many risky loans. Back then, underwriting for home loans was far too loose, even irresponsible. Since the great housing recession, lenders have been consistently stringent with lending approval guidelines. New regulations following the housing crash changed the rules and ultimately strengthened the footing of the borrower community.
After many years of steady home value appreciation, home prices have soared to new heights fueled by pandemic demand. Homeowners today have record amounts of equity. Total mortgage debt is less than 43% of current home values, the lowest on record. Negative equity, where a borrower owes more than the home is worth, is practically non-existent compared to 1 in 4 borrowers underwater in 2011.
Mortgage delinquencies are at record lows of just under 3% - although there are fears of sub-prime borrowers beginning to fall behind in payments. If home prices were to fall, there seems to be plenty of cushion in home value to debt. Even if a borrower was unemployed for an extended time and therefore fell delinquent on mortgage payments, they likely could sell their home and possibly retain some equity, rather than that normal path of falling into foreclosure.
In Utah's real estate market, we seem slightly off pace from the frenzy we have been experiencing for the last two years. In Park City specifically, this may be explained by the fact that we seem to have gone through a more typical off-season for activity this last mud season. Before the pandemic, sales numbers and prices were steadily increasing each year. At the start of the pandemic, we saw an immediate stop (now recognized as a temporary pause), and then things quickly took off to levels nobody would have predicted. It only makes sense to see such heated market activity finally cool some.
But will a cool down in activity translate to lower prices? Again, hard to predict. In the lower to mid-range market, we could possibly see some price adjustments as those properties are directly affected by rising mortgage rates. As rates continue to rise, sales may slow, and inventory could increase. Ultimately, it may force some relief or downward pressure on home prices in the lower and mid-range markets. But what about the upper end? Cash buyers are not directly affected by mortgage rates, although rising rates and other market conditions could be considerations in their overall thought process. The pandemic expedited many families to make a vacation home purchase they had planned for years. The work-from-home byproduct of the pandemic made these homes a valued haven over the last two years. For many of these homeowners that are returning to the office, even if they cannot use the home as often now, they do enjoy having their mountain retreat, and it's doubtful that we'll see these homes back for sale. Most luxury home buyers have desired to own these properties for years and finally made the purchase. At this end of the market, we are not yet seeing signs of much new inventory to come, and therefore, not seeing a movement towards lower prices - aside from a few adjustments down from properties priced too lofty from the start.
Comparing Utah's market for Year-to-Date (YTD) 2022 to 2021, we see a slight increase in inventory, up by about 7.5% statewide. Pended sales are down by 10%, and closed sales are down by 7%. These dips in activity, combined with more inventory, suggest two things: 1 - a possible cooling period from a crazy hot market, and 2 - potentially more opportunities for buyers searching for the right home. Days on Market is still experiencing a rapid pace at only 25 days compared to 23 last year. It is possible that a hot market can cool, without necessarily causing an impactful downturn. Maybe, we can see the trends lead to a more balanced market?
Is it a good time to sell?
Although for some sellers, it may be possible not to get as high a price as we saw just a couple of months ago, the median sales price in Utah is still up by 26% year-to-date, and the average is up by 21%. For the Park City MLS, the median sold price YTD is up by 32%.
Is it a good time to buy?
In contrast to the state of Utah inventory being up by 7.5%, in Park City, the number of new listings taken is down for the year by 9%. However, in May we saw an increase of nearly 14% in Park City inventory. Hopefully, that is the start of a new trend, and maybe we will see more properties become available this summer. While prices were lower last summer, buying sooner rather than later may still be a good strategy with the threat of rising interest rates. The median sales price in greater Park City was $1,250,000 in May 2022 (all property types). For a buyer placing 20% down, financing at 6%, the mortgage payment would be $5,995 (principal and interest only). If the mortgage rate rose another full point this year, a 7% mortgage would be $6,653 - an increase of $658 monthly, or roughly 10% more.
If you are curious to test out the math on mortgage payments with varying rates, purchase prices, down payments, and terms, we have an easy-to-use mortgage calculator here: Mortgage Calculator
While we cannot predict the future, we can look closely at recent activity to identify current market trends. If you would like specific information on your neighborhood of interest, please let us know what we can provide. We are always happy to hear from you and thankful for the opportunity to be of help.
Sean Matyja - Realtor® / Associate Broker
Mobile: (435) 901-2158 | Email: firstname.lastname@example.org