Teton County Real Estate Late Summer 2010 Update
First Half of 2010 Posts Increased Sales Volume and Lower Prices
Year to date numbers as of mid-August show a gain in the number of transactions occurring, despite price erosion being still apparent in some market segments. These gains in transaction numbers were compiled in the first half of the year, with sales numbers for June, July, and the first half of August being nearly identical to last year’s numbers.
As a result of the economic downturn, Teton County real estate prices have corrected significantly over the past three years. While the amount of correction is dependent on the market segment in discussion, generally speaking, corrections in the range of 20% to 40% have been observed. These corrections can be initially traced to mid-September of 2008, where the magnitude of the recession was made known by the pronounced stock market correction which occurred at that time. In hindsight, this point in time appears to be where market participants acknowledged that Teton County would not be insulated from market forces that were already affecting most of the country.
Perhaps the best fairing market segment in Teton County during the recent recession has been the luxury single-family home market, where seller staying power coupled with better-than-average demand level has resulted in 15 transactions equal to or greater than $3,000,000 through mid-August, 2010. Additionally, while acknowledging the initial impact of the correction, sellers of second home / resort-oriented single-family homes have been less willing to continually lower asking prices, which provides a hope that a bottom in price points may be on the horizon for this market segment. Conversely, asking prices for the condominium, resort condominium, and more moderately-priced “locals” segment of the market, appear to have accepted an additional increment of loss beyond the initial correction.
| 2009 | 2010 | ||
| Total Residential (Single-Family, Condo,Homesite) Transactions | 91 | 166 | 82.42% |
| Average Price of Transaction | $1,385,910.84 | $1,551,758.44 | 11.97% |
| Total Sales | $126,117,886.00 | $248,281,350.00 | 96.86% |
To further analyze the most current trends in the Teton County Real Estate Market, the market segments of single-family home sales, vacant homesite sales, and condominium / townhome sales will first be examined on an August 15th year to date basis as a whole. Each of these data sets was then allocated between its higher-end and more moderately priced components for further analysis.
Single Family Residences in Teton County Wyoming
Reviewing the year-to-date sales data for detached single-family residences for 2010 as compared to 2009, an increase in the number of sales (50.94%) and dollar volume of sales (74.53%) was noted; the average price of single-family home transactions also increased by 20.13% during this period. However, this indicator is misleading, as this changes the result of higher-end home sales pushing up the average, rather than price growth of the homes comprising the data sample. The following table arrays year-over-year comparisons of single-family home sales by analyzing the time period through mid-August:
The attached table arrays year-over-year comparisons of single-family home sales by analyzing the time period of January 1 through mid-August.
Observing the preceding table and chart, it is noted that the number of single-family sales that have occurred year to date has increased from the same period the preceding year, but is still at a low number when compared to the period of time from 2000 – 2007.
Allocation Between “Resort / Second Home” and “Local” Market
Historically, the Teton County Market Area has been able to be segmented into its components of homes having their greatest appeal to market participants whose income is largely dependent on the local economy, versus homes that are more likely to appeal to second home purchasers and investors whose wealth is not necessarily tied to the local economy. Examples of the former category would be homes in developments such as Cottonwood Park, Melody Ranch, and the incorporated Jackson area. Examples of the latter area include homes located on the “West Bank” of the Snake River, north of Jackson, and the Teton Village area. The following table allocates the single family homesites between these segments:
Single Family Residential Local Market
|
2009 |
2010 |
||
| Number |
33 |
40 |
21.21% |
| Average |
$823,166.67 |
$772,315.79 |
-6.18% |
| $ Volume |
$27,164,500.00 |
$29,348,000.00 |
8.04% |
Single Family Residential Resort/Second Home Market
|
2009 |
2010 |
||
| Number |
20 |
40 |
100.00% |
| Average |
$2,808,413.05 |
$2,976,787.18 |
6.00% |
| $ Volume |
$56,168,261.00 |
$116,094,700.00 |
106.69% |
As shown in the previous table, the local and resort markets have both increased in transaction volume, with the resort market showing a stronger rebound on a percentage basis. The increase in sales volume in the resort segment, coupled with an increase in the price of the home sold has combined to over double the sales volume of this segment when measured in dollars. The more modest increase in volume coupled with a slight lowering of price for the locals segment resulted in a less pronounced increase of dollar volume of 8.04%.
Luxury Home Submarket of the Resort-Orientated Market Segment
Included in the above-discussed resort orientated market segment is the submarket of luxury homes. Observation of high-end sales reveals that 15 sales equal to or above $3,000,000 had occurred as of mid-August this year. This number is greater than noted in 2008 and 2009 and is actually only two less than the transactions counted in the market segment in 2006. The most robust years for the luxury market are noted to be 2005, 2006, and 2007, which had an average number of transactions of 21 per year. The 15 transaction in this category is 28% below this number, but still ranks as a respectably strong indicator in these economic times.
The attached table shows year-to-date data for this market from year 2000 through 2010.
Homesite Sales in Teton County Wyoming
When observing year-to-date data for vacant homesites, similarities with the single-family homesites are noted in that a 50% increase in number of sales occurred year-to-date as of mid-August 2010 as compared to 2009 for the same period. Additionally, dollar volume of sales increased 24.05% despite a decrease in average price of -13.7%.
The attached table arrays year-over-year comparisons of vacant homesite sales by analyzing the time period of January 1 through mid-August.
As was done with single-family residences, the market for vacant homesites was, for analysis, allocated into its component parts of the “resort” and “local” markets. The following table summarizes this allocation:
Residential Homesite Local Market
|
2009 |
2010 |
||
| Number |
1 |
7 |
600.00% |
| Average |
$450,000.00 |
$431,357.14 |
-4.14% |
| $ Volume |
$450,000.00 |
$3,019,500.00 |
571.00% |
Residential Homesite Resort/Second Home Market
|
2009 |
2010 |
||
| Number |
15 |
17 |
13.33% |
| Average |
$1,356,748.33 |
$1,424,062.50 |
4.96% |
| $ Volume |
$20,351,225.00 |
$22,785,000.00 |
11.96% |
As shown in the previous table, the resort market has shown a smaller increase in sales (on a percentage basis) than that of the grouping of sales that have been classified as being pertinent to the local market. However, the jump in percentage of the local market is certainly distorted by the pronounced lack of transactions in 2009. Small fluctuations are noted in the average price of both market segments. However, sample size and changing composition of the body of sold transactions eliminates the predictive value of such fluctuations.
Condominium and Townhome Sales in Teton County
Observing year-to-date data for condominiums and townhomes, a decrease in sales volume (number of sales) of 181.82% is noted. As with the other market segments, changes in average price indications are noted to be misleading, as comparisons of current listing prices and historical sales and re-sales indicates that downward price pressure still exists.
Please see attached document for a chart and a graph related to condominium and townhome sales.
Allocation Between “Resort / Second Home” and “Local” Market
As was done with single-family residences and homesites, the market for attached homes for analysis, was allocated into its component parts of the “resort” and “local” markets. The following table summarizes this allocation:
Condominium/Townhouse Local Market
|
2009 |
2010 |
||
| Number |
10 |
26 |
160.00% |
| Average |
$503,690.00 |
$725,182.00 |
43.97% |
| $ Volume |
$5,036,900.00 |
$18,129,550.00 |
259.93% |
Condominium/Townhouse Resort/Second Home Market
|
2009 |
2010 |
||
| Number |
12 |
36 |
200.00% |
| Average |
$1,412,250.00 |
$1,682,988.57 |
19.17% |
| $ Volume |
$16,947,00.00 |
$58,904,600.00 |
247.58 |
As shown in the previous table, both the local market and the resort market show signs of a considerable rebound from 2009 numbers. However, it should be noted the magnitude of this rebound is enhanced in appearance due to the very low numbers returned from the 2009 data. As an example, despite the number of sales increasing by 160% for the local market and 200% for the resort market, the 2010 numbers approximate only between 17% and 30% of the volume noted in peak years such as 2005 and 2006. The absence of financing for both resort attached homes and many attached homes in the local market may prove to be continued stumbling blocks for a rapid recovery in these market segments.
The Supply Side
When considering the health of a real estate market, it is important to consider available inventory as well as historical demand. In this regard, signs of a market slowdown have been mounting over the past three years. However, despite a rapid growth in inventory immediately subsequent to the onset of the recession it appears that the exponential growth in inventory has ceased, with only a single-digit expansion in inventory being noted between mid-August 2009 and mid-August 2010.
The attached table arrays the increase in listed inventory in the major market segments of Teton County. Areas such as the condominium market north of the Town of Jackson or the market segment south of the Snake River Bridge were not specifically addressed due to the inconsistencies typically caused by the limited amounts of data points in these areas. Overall, this analysis shows that, on average, buyers have 6.25% more inventory to select from when property shopping in Teton County as compared to the same time last year. While this increase is not extraordinary, the increase is considerable when viewing the inventory growth as compared to August of 2007, with this comparison revealing a 124.44% increase. The greatest increase in listing inventory is noted in the market segment of attached homes, which grew 219.70%. This is somewhat to be expected for the lower-end segment of attached homes, which had experienced strong upward price pressure due to the loose credit policies which existed prior to mid-2007 and is now challenged due to a lack of financing for even qualified buyers. However, compounding the woes of the attached home market segment is the lack of available credit for higher-end attached homes with short term rental potential (condo-tels and similar property). Conversely, the lowest growth in inventory is noted when observing vacant homesites (68.84%). This is logical in light of the general limited availability of developable vacant land in Teton County. Detached single-family homes falls in between the market segments of attached homes and vacant land, with a growth in inventory from 2007 to 2010 of 133.55%. The greatest growth of single-family inventory is noted for the market segment comprised of properties in the town of Jackson and areas immediately south, which has shown inventory growth of 165.38%. Noteworthy in the preceding analysis is the fact that the base point of inventory was assessed in August of 2007, a date subsequent to the media announcement of the “mortgage crisis.” When considering the inventory in April of 2007 (a date prior to the national acknowledgement of a recession), it is noted that the Teton County MLS reported only 144 active listings for the above-studied market areas. A comparison of this number to current inventory levels reveals an over five-fold growth in available residential product.
Value Trends and Going Forward
The preceding data has shown a rebound in the number of transactions since 2009. However, due to the small sample size, little could be gained in the way of price trend analysis when viewing this data in aggregate. Therefore, to provide a better indication of value trends, historical sales were paired with subsequent sales or current listings of the same or similar properties so that the value loss could be measured. In cases where a property’s previous sale was transacted prior to the time of peak values, the historic sales were appreciated to account for value increase that occurred subsequent to the end of the calendar year of 2007. The comparison of this sale price with a more recent sale price (post correction) provides an indication of the value loss for that property type. When performing this type of analysis, it is important to relate the value loss to a period of time in order to differentiate between the initial value losses that occurred for the Teton County market area as opposed to any subsequent value loss or stabilization that may be occurring as an ongoing trend. More specifically, it was previously opined in this analysis that the “financial meltdown” of September 2008 can be viewed as the demarcation point in the Teton County market area for acknowledging that local real estate market could no longer be viewed as being detached from the impact of national economic events. Examples of this acknowledgment are noted in comparisons such as a Racquet Club condominium selling in December of 2009 for approximately 25% less than its peak value of $680,000 in November of 2007, or a home in Wilson Meadows selling in June of 2009 for approximately 30% less than its estimated peak value. Such examples quantifying value loss are relatively plentiful, with observed diminution in value ranging from negligible amounts to value loss of 50%. The question then becomes if additional value loss is being experienced above that which was initially observed and, if it is, which market segments are being most affected. Observation of recent sales and current listings provides the indication that luxury properties or properties that are perceived as being unique have been most resistant to additional downward price pressure, and properties that are perceived as being “commodity items” (and thus having more competition from available inventory) are being most affected. The implication of this observation is that the local market currently appears more susceptible to continued downward price pressure than the resort market. As an example, two Ponderosa Village Condominiums (property classified as being a part of the local market) are currently available for $265,000 and $255,000. Were these units to sell for 90% of their asking price, this would imply an 8-12% value loss beyond the observed initial correction of 30% for this market segment. Alternatively, many sellers in the resort market have been able to limit losses to an amount approximating the initial 30% correction. For instance, in June of 2010 a cluster home in Teton Pines was sold for approximately 28% less than its previous peak value. This sale indicates that a value loss beyond the initial correction had not yet been noted as of mid-summer 2010. Similar trends are noted when searching active listings in this market segment, indicating that sellers of resort property are currently presenting a somewhat unified front as far as not lowering their asking price below the price points less than that which is supported by the initial value loss in the 30% range. Notably, one exception to this is in the resort condominium market, where lack of retail financing is hypothesized to be playing a key roll in downward price pressure for this market segment.
The primary difference between the ongoing value trends in the local and resort markets is the prevalence of motivated sellers. The local market, at present, is likely comprised of more sellers that may have initially benefited from the loose lending guidelines that existed prior to July of 2007, and are now suffering due to the lack of such lending policies. This is not to imply that the resort single-family home market is guaranteed to be insulated from further correction. Rather, most sellers in the resort segment have simply had more staying power to date. Whether or not this trend will continue will likely become evident in the coming months and be the primary determinant of whether or not additional value loss will occur in this market segment.
Buyer Discretion – Another Level of Correction
One interesting phenomenon that has also been noted recently in the Teton County market has been the effect of buyers driving the market to increasingly acknowledge price differentiation resulting from differences in property attributes. During the previous seller’s market, acknowledgement of property attributes by buyers (or at least the ability to have such acknowledgments impact value) was somewhat limited by the lack of leverage that buyers had in purchase negotiations. However, buyers are now in control of the negotiation process and are able to have sellers acknowledge property attributes that may detract from value without eliciting a “take it or leave it” rebuttal. Examples of this have been noted in situations ranging from attached homes that are being discounted due to their proximity to commercial areas to high-end neighborhoods such as 3 Creek where lesser quality “spec homes” are not being purchased despite their being priced significantly less than homes of superior quality with nearly identical floor plans. At face value, saying that homes of superior quality or location would sell at a premium to homes of inferior quality or location appears to be stating the obvious. However, the point is that the value ascribed to such differences during the previous seller’s market was minimized (if it was acknowledged at all) and now is not. As such, sellers of homes with less desirable attributes were previously not accounted for in pricing may find themselves facing an additional increment of price correction.
In Summary
The Teton County Real Estate Market had, in recent history, experienced robust growth in sales volume and price. This trend largely continued through 2007, with the onset of recessionary tendencies triggered by what has come to be referred to as the “mortgage crisis” in mid-summer 2007 not causing a significant impact to 2007 numbers. After a stalemate between buyers and sellers for most of the first three quarters of 2008, the financial collapse in September of 2008 forced sellers to acknowledge that Teton County was not immune to the state of the national economy. In the wake of this acknowledgement, value losses as great as 50% were observed, with a more typical range in value diminution being from 25%- 30%. A point of focus subsequent to this initial value loss is whether the market is incorporating additional declines or had reached bottom after the initial correction. The first half of 2010 saw increased sales volume, providing some home hope of a market trying to resurrect itself. However, observation of both recent sales and current listings for the local segment of the Teton County market indicates that devaluation is still ongoing, although not occurring in the magnitude that was experienced during the initial correction. Review of recent sales and listings for the resort / second home market has indicated that, with the exception of attached homes, the resort / second home segment of the market has been largely able to limit value loss to that which was experienced in the initial correction. The disparity between the value trends for these two market segments may be partially attributable to the amount in which previous lax lending policies played a role in property price escalation (with one hypothesis being that it played a greater role in the inflation of value in the local market – thus giving it greater room to correct). However, ultimately, the ability of price points to hold will be dependent on how much of the market is comprised of participants that need to sell and not simply the resolve of property owners to maintain price levels. That said, with current interest rates being near all-time lows and current pricing having recently incorporated reductions approximating a third of peak values, it is felt to be a reasonable expectation that buyers will begin returning to the market in increased numbers such as was noted in the first half of 2010.