Ask a Broker: What do recent interest rate increases mean for the Vail market?

Question: With recent interest rate increases, it feels like there is a lot of uncertainty in the market right now. Is that true of the Vail market?

The Vail Valley isn’t just one market but a series of micro-markets, and what’s happening for luxury properties ($10 million and up) is not the same as what’s happening below $2 million. These markets can be determined both by location and product type, (single-family homes versus condo, etc.), and the forces that drive these micro-markets vary in terms of their sensitivity to interest rates and the declining equity markets.

In past adjustments, the Vail Valley has typically trailed many national markets in softening and led those same markets in subsequent rebounds. I think we may see the same thing in the near term, and I am not remotely concerned that this market will look anything like the difficulties we faced back in 2008-2012.

In general, the market has been exceptionally frothy the past two years due to unprecedented demand from buyers flocking into the area and the demand quickly outpaced — and outpriced — the supply. Houses would come on the market at prices that were totally irrational, and people would buy them anyway. There was a lot of frenzied buying behavior simply because the market was so competitive. People would ignore the comps, waive inspections, buy properties sight unseen, and basically throw due diligence to the wind in the hopes that their offer would be accepted.

In my opinion, the market is trending towards a more balanced level, where comps matter and are reasonable, patient analysis will once again take hold, and this will represent an opportunity for buyers. Sellers are still in a good spot, too, though. Sale prices will remain at historically high numbers, maybe just not at the recent peak levels, but likely significantly higher than what owners may have paid.

Inventory has risen significantly in the last few weeks alone, from about 172 homes valley wide to more than 300 in that short time. However, we are still very far from the previous all-time low inventory level which stood at about 850 homes valley wide 48 months ago, pre-pandemic. Days on market have started to increase, and sale price as a function of ask price has begun to get back below the 100% we saw in the recent past.

While the Vail micro markets remain strong, there are fiscal indicators that have adjusted our market to a more balanced, more rational place. Dramatic interest rate increases, (while still historically low) have rattled investors, and the equity markets have gotten hammered in recent weeks. There is less certainty in the macro-economic scene, which of course impacts our local real estate market.

Tom Jaffe is a broker associate for Slifer Smith & Frampton who has owned, managed, developed or brokered more than a billion dollars in property. Contact him with real estate questions or needs at tjaffe@slifer.net or AddingValueInVail.com.