Is Park City Experiencing Another Real Estate Bubble?

Posted by Sean Matyja on Thursday, June 22nd, 2017 at 1:32pm.

Real Estate prices in Park City and Deer Valley are approaching new highs. Supply is down. Demand is up. The emerging question seems to be, "Is our resort market growing inside a bubble that could burst at any time?" As Realtors working with buyers and sellers daily, we have yet to see signs of a bubble and according to notable economists, there are no indicators of a looming recession.

Remodeled Condo at Red Pine in Canyons Village

The above Red Pine townhome was fully remodeled and sold in 2017 at a price of nearly $200,000 more than the previous record in Red Pine. There seems to be room in this current real estate market to reach new heights never before acheived. 

The Park City Board of Realtors produces quarterly statistical reports based on sales activity for the greater Park City area. These reports have shown our local real estate market moving up annually in sold price, but as a market average have not yet reached the price levels we saw at the last height of the market in 2007. Although this is true, there has been an influx of new affordable properties as our market continues to expand further out to areas outside of Park City proper. This large amount of sales in the more affordable price range helps to keep the overall average numbers down. What we can confirm is that we are definitely seeing new highs in many market segments. For example, homes in Old Town would rarely get to the $1,000 price per square foot range. Even to do so they had to be exceptional properties in ski-in, ski-out locations, or at the least be a few steps to skiing. In today's market, we now see many homes and condos in this price range. Currently the Old Town market has approximately thirty properties priced over the $1,000 per square foot amount. In fact, the average price per square foot for active Old Town listings, including homes and condos, is at just under $800 per square foot, with a max PPSF of $1,630.

Other factors contribute to this phenomena other than a simplicity of rising prices. Low interest rates, increased consumer confidence and an expanding economy are producing higher net worth for luxury home buyers across the country. The increase in pricing for luxury ski properties is largely from simple economics: supply and demand. An added factor we see here in Park City, is the level of luxury in properties has been increasing. More prominent architecture, higher quality construction and systems, and more substantial luxury finishes and features are being introduced to our resort market as home buyers are looking to spend more of their time in Park City. As the vacation homes become second homes, and as second homes become primary residences, the bar is continually being raised, which is also raising values. People are remodeling and building much nicer homes than what has been the norm. Homeowners are investing, and re-investing into our community.

Average Price of Sold Units, Year by Year:

Park City Realtors Statistics for Average Price Year by Year

As property values have been increasing for our "in-town" communities such as Park Meadows, Prospector and Silver Springs, buyers have been forced to look outside of Park City to find more affordable housing options. Areas like Heber, Midway and the new Jordanelle neighborhoods have been exploding with activity, and are now also seeing increases in pricing once thought unobtainable. New construction projects such as Black Rock Ridge, Rustler at Hideout canyon and the Retreat at Jordanelle could not build new homes fast enough to meet the buyer demand. New and upcoming affordable developments like Wasatch Springs should do quite well. The expansion of our market's new areas and communities has added to the increase in unit sales for our market statistics. As these new neighborhoods grow, and expand, it brings about more opportunities for buyers to find their way into the sought after Park City market.

Number of Units Sold, Year by Year:

Park City Real Estate Statistics for Unit Sales Year by Year

Little cause to worry about a recession in the next couple of years.

A recent article on Inman.com covered an assessment provided by Kevin Thorpe, global chief economist at Cushman & Wakefield, on his theory to expect the longest economic expansion since WWII. He thinks there's little cause to worry about a recession in the next couple of years and was quoted as saying “The U.S. will not be going into recessions anytime soon. Recessions don’t just happen,” he added. “First we need to see imbalances somewhere in the economy — too much credit, too much exuberance in any particular sector.” Equity markets, oil prices, what the Federal Reserve does with interest rates and “wild cards” could change that, of course, but in general, Thorpe was confident that the economy is strong and will remain so for the immediate future. “Of course there will be another recession at some point, and the next question becomes ‘What will the next recession look like?'” In Thorpe’s opinion, it won’t look as disastrous as the last one. “It’s not likely to be nearly as severe as the one we went through in 2008-2009,” he noted. “Big recessions don’t happen very often; every 50 years seems to be the pattern. The next recession is probably more likely to be a traditional recession, with two to three quarters of job loss.”

“The U.S. financial system is about as solid as I have ever seen it,” Thorpe said. “The odds are still really good that the expansion will continue, at least for the next couple of years, and the odds are also really good that the next recession won’t be so messy.”

Lawrence Yun, chief economist of the National Association of Realtors®, presented his 2017 midyear forecast at a residential real estate forum in Washington at the 2017 REALTORS® Legislative Meetings & Trade Expo. The first quarter was reported as the best quarterly existing sales pace in exactly a decade (5.62 million), and Yun expects activity to stay on track and finish around 5.64 million – the best since 2006 (6.47 million) and 3.5 percent above 2016. With several metro areas seeing hefty price growth, the national median existing-home price is expected to rise around 5 percent this year. “The housing market has exceeded expectations ever since the election, despite depressed inventory and higher mortgage rates,” said Yun. “The combination of the stock market being at record highs, 16 million new jobs created since 2010, pent-up household formation and rising consumer confidence are giving more households the assurance and ability to purchase a home.”

At this point, it appears the national and local real estate markets are flourishing with no housing bubble in sight. We have had several clients inquire as to when we expect to see a downturn in pricing. From our vantage point, we just don't see it anytime soon. Supply remains low, and demand is still high. With so many buyers watching the inventory daily through online resources such as our website, when good properties do come up for sale, they go fast. Our website updates listings about every twenty minutes, so what shows here is the most up-to-date inventory list of homes and condos for sale. Want to stay ahead of the curve and enjoy an advantage over other buyers? Have us set up an automated search for you, and be notified of any new properties immediately as they become available.

A big question is buy now, or wait to see if prices decline?

Even if we were to see an economic recession begin in the next eighteen months to two years, we would still need to wait to see that transform into a slowdown of real estate sales activity to eventually turn into a market pricing downturn. If you are actively looking for property now, but want to wait for prices to decline, you may end up waiting anywhere from three to five years to see any real savings, if a recession even develops in the next couple years. As viewed in the above charts, once the last slowdown began, it took a about four years to reach the bottom for pricing.

Lets look at a $700,000 condo for example. Should you buy that two bedroom condo today, or wait five years. If you were to buy today, and place the property in a vacation rental program, you might be able to recover approximately $35,000 annually in revenue. After five years of rental income, your initial investment would be reduced by $175,000, essentially making your purchase equate to $525,000. You can attempt to predict, or hope that today's $700,000 condo will reduce down to $525,000 in five years, but that is a dramatic 25% drop. According to economic outlooks discussed above, that scenario is highly unlikely. Why not make an investment now and benefit from the healthy vacation rental income market.

Investing into vacation property and second homes is not just a financial decision. The result from making such a purchase can be a valuable investment into time with family. As children and grandchildren grow older, the years go by faster and faster. There is nothing so valuable as the precious time with family and friends.

Our advice: Don't make your family wait another couple years in attempt to save a few dollars.

Even with many of these high prices moving higher, we commonly seek out and post great value properties to our dedicated Best Buys page. Or call us and we'll point you in the direction of some good values and unique opportunities. They are getting hard to find, but they are out there.

If you have questions or need assistance, give us a call.

Sean Matyja - Realtor® / Associate Broker
Mobile: (435) 901-2158 | Email: sean@enjoyparkcity.com 

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