A recent observation both nationally and locally here in Teton County, is the real estate market is showing strength in the second home segment. With values off their highs, opportunities exist for buyers who may have patiently waited through the height of the market. The choice properties with significant amenities are attracting attention. I am seeing a large percentage of cash sales. I do not expect much more on the downside in the areas which are attractive to second home buyers or buyers looking for a solid long term investment. Of course, location is the key. Buy the best you can afford.
Also noteworthy is the low end appears to be getting cleaned up a bit. Many of the older condos in Teton Village and the Aspens appear to trading in a fairly tight range now.
Answer depends on the following. How long you plan on staying in the area, can you afford a downpayment and can you qualify for a loan.
As I discussed in a prior blog post, the advantage of owning real estate is that maybe someday you can pay off the mortgage and have no rent expense. You still have property taxes, insurance and maintenance. But not having to pay rent and not being kicked out of your rental by your land lord is an advantage of owning your home, condo or town home.
Here is a quick scenario. Say you can buy a entry level home for $400,000, with 20% down, payments based on interest rates on a 30 year fixed mortgage at 4.84% (rate noted from internet ads), your monthly payment is $1,686.67 plus taxes and insurance (combined guesstimate of $3,800) $316.67/month, totals a monthly housing expense of $2,003.34. So, if it costs you $1,800 to rent the same place, vs owning with the monthly payment of $2,003.34 what do you do? Contact your accountant to figure your net tax savings from your mortgage interest deduction. Factor in the mortgage interest deduction, assuming your primary residence, and the deal gets better for the owner. Say your mortgage interest for the first year of ownership is $15,488 and your in the 30% tax bracket (hypothetical example), your mortgage interest deduction would be $4,646.40. Divide the annual mortgage interest deduction by 12 equals $387.2. So the net housing expense in this example, by owning is $1,616.14 which is less than renting!
Of course buying a home with a mortgage is a long term commitment. And selling real estate you own has transaction costs involved. Currently, values are off their highs in many areas and interest rates are still historically low. If interest rates rise, your purchasing power decreases.
In order to get ahead in life, some degree of risk is involved.
For the new year I want to offer the following suggestion on how to build equity quicker. First, consider the shortest term mortgage possible. Can you refi from a 30 year fixed into a 15 year fixed, and still afford the payments. If so, consider that interest rates are still low and contact your local lender to get the ball rolling so when the rate gets to your magic number, your ready to act. Maybe 15 years is to short, so look into 20 years.
The other options, make an extra payment per year, or switch to a bi-weekly mortgage.
All of these options have the same goal in mind, build equity as quick as possible, and someday have no mortgage. This is a real advantage of owning real estate vs. renting.
Lastly, I think having a home equity line of credit is a good financial tool, if used only for home improvements. Do not buy a new car with it. Your house is not an ATM. Misuse of HELOC's can be dangerous financially.
Leverage works when the market is going up, but can be fatal when the market corrects. My recommendation for buyers is to make sure you can afford to buy the real estate with enough of a cushion. You may want to take advantage of lower rates, but if you got the maximum loan way back, you may not be able to do so if values in your area have corrected. So, buy good real estate and be careful how far you stretch things financially.
Also, your house is not an ATM machine. Do not buy a new car with your home equity loan. Try to reserve any draws on a home equity loan to things that will add value to your home, like kitchen and bath remodel, room addition, new roof or upgraded heating system.
Time may be running out on tax benefits by purchasing a solar heating system. Talk to your accountant asap if you are considering purchasing one.
I was reminded this week by a long time Jackson Hole real estate pro, with 30+ years experience, that real estate is "local". What this means is that Jackson Hole is effectively an island, which can not be expanded outward into the suburbs. There are no suburbs in Jackson Hole! Certainly there are commuter markets which are located outside the general Jackson Hole valley, which have an abundance of private land. These areas are much more affected by the supply portion of the macroeconomic conditions which are prevalent.
When your comparing Jackson Hole to other resort communities, the neighboring counties are not a true comparison. More realistic comparisons are the top tier mountain resort communities, such as Aspen, Telluride and Park City/Deer Valley. However, getting back to the local phenomenon, what differentiates Jackson Hole from these other top tier mountain resort communities is: lack of state income tax; airport which is conveniently located, wide variety of high quality recreational amenities, unmatched scenery and diverse amenities of town and the Village. Did I forget to mention the new tram at JHMR! Of course this is not an all inclusive list, but some of the big factors which combine to create a highly demanded, exclusive, mountain resort oriented community, with a finite supply of real estate. This is the demand side.
Since real estate is considered a long term investment, it is important to recognize these factors. In the long term, demand will likely increase, due to the retiring baby boomers and desire of many high net worth people to live in such a exclusive area. It does not take more than a few dozen newcomers to have an affect on real estate values in this area. On the supply side, there is limited potential increase, which will be mostly infill. Some large tracts of land exist in this valley, but it is unlikely that they will be developed in such a fashion to have a significant impact on the supply side. Meaning, what you see today will change slowly in Jackson Hole, and real estate should continue to be highly coveted.
In conclusion, the reason most of us live in Jackson Hole is the unmatched quality of life, with world class amenities, amazing scenery and ecosystem, and lack of state income tax. These factors directly relate to the demand for owning real estate in this valley and the intangible associated benefits.
Review of a recent site sale and pending sales in Teton Board of Realtors MLS, this week, indicate buyers have not lost sight of these factors.
Have a great weekend.
Its hard to ignore the volatility in the stock market recently. The financial crisis recently noted in European nations has been felt nationally & locally. This appears to have an unsettling affect on the real estate market, both nationally and locally. The financial crisis recently noted in European nations has been felt nationally and locally. Along with the stock market, I pay attention daily to market sentiment. I am talking to market participants, brokers and lenders daily. I have not heard a lot of fluffy comments lately, which leads me to believe that the real estate market both nationally and locally have not changed much in the past quarter and since January 1, 2010.
How does all this relate to real estate in Teton County? First, depending whether your a buyer or seller, information is more readily available then in the past. Knowing what to look for will likely give you a clearer picture of the true market conditions, and how to act or react. When buying or selling real estate, gather all the facts regarding number of sales in your market segment in the past 12 months, current inventory, absorption and days on market is step one. Then go look at the recent sales, the more recent the better. Also, look at the active listings and pending sales. What were the most recent listing prices of the pending sales. See if there was a catalyst that triggered someone to make an offer.
Another factor which is huge in this market is the low prevailing interest rates to qualified buyers. Meet with a local lender and find out whether they can back your dreams. Some lender’s have the ability to finance property types others can not. Its important to know that your lender can perform. I like knowing I can make a phone call to a local lender, as opposed to some customer service center in who knows where.
Low prices and low interest rates are currently aligned. For how long they will both be at these levels is anyones guess. Opportunities currently exist for both buyers and sellers.
Happy 4th of July.
I have been asked by the Editor of The Jackson Hole News and Guide Real Estate Web Site to assist with their real estate blog. I graciously accepted this offer, and hope that my 20 years of full time residential real estate appraisal background, including personal investment in developing a subdivision, constructing a spec home, constructing a commercial building, and buying and selling real estate in the Jackson Hole area, will provide some insight to the inexperienced or experienced, real estate consumer in this area.
Real estate has fascinated my interests since I began my appraisal career in beautiful San Diego, California, in January 1990. Having little knowledge of the field, and being accustomed to the concept that real estate values always rise, I soon discovered that like any market, there are cycles, and the trees do not always grow straight to the sky. My first appraiser mentor shocked me when he said, values peaked sometime in mid 1989 in San Diego, which was immediately prior to starting my apprenticeship. What does this mean, "peaking". Well, I soon found out that values were in a correction phase in 1990 and continued to sometime in the mid 1990’s in San Diego.
Although I was not sure of the exact causes of the market correction, as I had no clue what propelled the market to such heights before the peak, I later discovered that my degree in Business Economics from U.C.S.B. enabled me to understand that real estate
prices are a function of supply and demand. Quite simply, the prices of a commodity are influenced by the relationship of supply and demand. Strong demand and low supply generally results in rising prices. Low demand and high supply generally results in declining prices. Does this mean that all properties in a given market will behave precisely according to this general, simplistic theory. No it does not. Within any given market there are segments of narrowly defined properties, which may perform similar to the general trend, outperform of underperform the general trend.
Real estate is unique in the sense that it is location specific. Like the saying "location, location, location", you can change many aspects of a property, but can not change the location. Location in a community, subdivision, project, street, building are not changeable. You can change buildings, move buildings, enhance sites, but you can not move a site! This is a fundamental real estate principle, which directly relates to its demand within a market. Certain properties, such as river front, or ski slope frontage sites, generally have a very limited supply, and are often held in high demand by buyers within their respective market segments, similar to ocean front properties.
Lastly, for my first blog article, I want to plant the seed that the real estate market is dynamic and constantly changing. Just when we think we have things figured out, we realize that attitudes, preferences, styles and needs have changed, which affect our real estate decisions.
Looks like the last few weeks have seen a flury of activity. Prices in many market segments appear to be rolling back! To where? Thats what i get paid for. Buyers who missed the boom, and were told they would miss the market are now positioned to negotiate attractive deals. But this is not easy work, as many sellers are still dreaming of the past market height, and may be uneducated about current buyer market conditions.
If you need recommendation on an agent to use in a particular market, call me for a referral in Wyoming, as I am a licensed broker, but do not actively engage in brokerage, but can refer you to a top agent I have worked with in the past.
As always, good luck to all!
Looks like activity is increasing, as sales appear to be picking up a bit. Low interest rates and all the Fed's stimulus appear to be having some positive affects!
Appears were moving into a more normalized market, not bad news. Fundementals will be more significant.
Time to consider doing the addition or remodel, as materials prices have dropped. Combine this with low interst rates, and enhance the value and living amenity of what you have! This is a god time. But if your specing all high end fixtures and appliances, dont expect much of a drop if ay on these items.
Change is the only consant in life and in real estate. Accept it and move on. Markets will change as the behavior of buyers and sellers dictates. It may be difficult to spot changes, but look at all factors in arriving at a conclusion.