The continued lack of property for sale in Summit County will hold sales to around the same number, 2150, as in the past two years.
The lack of inventory however, has pushed average prices up quickly this year to about $650,000. Prices may not finish this high by the end of the year, but they will certainly remain above $600,000 for the first time in history.
The last time our market experienced double digit price increases, from 2007 to 2009, it was followed by about seven years of slow or negative growth.
Even that period wasn’t a disaster though. Average prices declined by a total of 17 percent between 2009 and 2011 and have now increased by about 38 percent to new record highs.
Over the past 30 years, Summit County real estate has gained an average 6.6 percent per year. This is pretty strong performance compared with any other investment despite what your stock broker tells you.
Yes, there are dues, taxes, maintenance and other costs. But you can’t spend a ski week in your mutual fund or rent it out when you aren’t using it.
The question is: why has the inventory continued to drop over the past 5 years? Why are there so few sellers?
Here are a few possible reasons.
Boomer inertia. When you’ve owned something for several years, maybe paid it off or rented it enough to pay for a lot of it, there’s no apparent reason to sell it. It’s working. And just now you’re retiring and will finally be able to use the place for months instead of weeks. It’s the plan. Just stick to it.
Value. You bought in 2008 or 2009 at a (for then) record price and have been waiting for the value to recover to the level you paid. Now it has and prices seem to be going higher so you wait a little longer to finally make a little profit on the place. You and about 5000 other owners who bought in those years are not selling.
Other arrangements. During the seven lost years you decided to put the property in trust for the kids. They’ll inherit and get the stepped up basis and lower the capital gains when they sell. Or you gave it to your favorite charity and took the tax advantages.
Stuck in place. You’d love to sell the place and buy a bigger one, but the replacement property you want has become really expensive… if you can find one. And you don’t want to sell before you buy, but you can’t buy until you sell. You’re stuck.
Waiting for tax reform… and the tooth fairy. Any day now the capital gains tax and all income taxes will be eliminated or greatly reduced and you’ll get all the money instead of just two-thirds when you sell.
So there are a lot of different reasons why no one is selling.
What will change this? Why would people suddenly decide to sell in normal or greater numbers?
Death. Boomers who built this market with the most disposable income in history will begin to pass away in greater numbers. This is a gradual process that will take another few years to really impact the market.
Taxes. Tax “reform” that changes the current advantages of property ownership: depreciation, mortgage deductions, 1031 exchanges, etc. If the government stops subsidizing real estate purchases, many will sell. This happened in the mid-80’s when depreciation rules changed.
Income inequality. Certainly the absolute number of very rich people will increase as the general population increases, but the percentage of population with the disposable income to buy a second home will decline as income inequality increases.
Catastrophic economic decline. Another depression of the magnitude and suddenness of the 2009 melt down will drive a lot of marginal owners to sell. But by then prices may be down again and we’ll have 3000 properties for sale and sell maybe 1000 as happened in 2010.
Random tweets. Second home buyers and investors in general require stability and certainty to risk their money. We have neither right now and business conditions could change at any time.
Climate change. No snow, no skiers. Less snow, less skiers. Pretty simple, eh?
This is a market like we haven’t ever seen in Summit County before. For over 20 years, prices never declined in Summit County and then only went sideways for a couple of years.
Until 2009… the year we became a normal market with ups and downs and plateaus.
But the reasons to buy a second home in the mountains have not changed. Successful owners are the ones who bought to enjoy living in a unique area different from where they come from. They are in it for the long haul, not fix and flip profit.
Going forward they will be the ones who cope best with our new cyclical market, who don’t watch the day-to-day price changes like it was the Dow. Who take the enjoyment of living in Summit County as part of their lifetime compensation.
And this is probably the best reason to buy and never sell in Summit County.