Inflation and inventory and interest rates, oh my!

“Far More Money Has Been Lost By Investors Preparing For Corrections, Or Trying To Anticipate Corrections, Than Has Been Lost In Corrections Themselves.” - Peter Lynch

There is a lot of talk about the real estate market right now. A classic game of telephone that turns sound bites into fear-mongering. I know many people who don't even want to admit that the market has cooled over the last few months. Why is that? Normal markets fluctuate, and we have been riding an unsustainable train of growth that everyone knew wouldn't last forever. Instead of fearing a hypothetical future that may or may not happen, let's look at the facts influencing the current market conditions: inventory levels, interest rates, and closed sales. 

Pandemic Paradigm Shift

The pandemic era of real estate will always be historic, but I think we can all agree that it belongs in the past. Historically high double-digit monthly growth isn't realistic for a healthy market. Inventory shot down, and sales shot up during this period, driven by low-interest rates, an extreme lack of inventory, and a labor shift to working where you live. As we return to a 'normal' market, it's important to remember that this isn't normal or the baseline for market growth. So when you hear that inventory is up 38% in June, that is a good thing because it's still down 72% from 2019 inventory levels, which would be considered our baseline market. The graph below shows that the monthly increases in inventory are more significant leaps but are just the market returning conditions. This is good news, yes, it may stabilize prices, but there are now more options for buyers to choose from and still plenty of opportunities for sellers to get great prices for their properties. 

*Park City MLS Data

Interest Rate Roller Coaster

Interest rates and inflation have been the talk of the town for a few months now. And while we have yet to see if the interest rates have started to curb inflation, the fed is aggressively using this tool. We don't know what the future will bring, but rates will likely continue to rise; predicting where they will level off is guesswork. Interest rates may seem sticker shock high compared to the insanely low rates we have had the last few years, but they are still relatively normal when you go back further than the previous ten years. Yes, it decreases buyers' purchasing power, which is partly why we see pricing normalize. Gone are the days of sellers aspirationally pricing properties; data-driven and dynamic pricing strategies will be more critical than ever as we watch this all go down in real-time.  

Closing it Out

Closings are down over the last few months and definitely over the last few years. This is expected in a time of market uncertainty, the urgency may be gone, but there are still plenty of people transacting in Park City. Buyers have more choices now and know that they will continue to have more options, making them more patient to wait for a property that is a good fit for them instead of feeling pressure to jump on whatever is available. Pickier buyers and higher rates will reduce urgency, but properties that are unique, distinctive, or priced correctly are still selling at high rates. Again, this brings us back in line with baseline 2019 trend lines; let's not forget that 2019 was still a very strong market. 

Final Thoughts

Markets change in different ways constantly and can create opportunities where there previously were none; this is just as true now. Park City has always had a robust real estate market, and even in periods of national decline, it has outperformed other luxury and vacation markets. The secret seems to be out, Utah is a phenomenal place to live that affords a life experience and accessibility that is truly hard to match. The pandemic spurred the "Great Reshuffling," and as the dust settles, it is clear that people will not want to stop living here. Emotional factors can be just as fundamental as the stats in people's decision process. Park City has this emotional draw; it's a special place to live and always will be.