Lee Riley’s Real Estate Report
Happy New Year From Pagosa Country!
2014 turned out to be a very good year. I just conducted my unofficial survey of our business community by walking around town, as well as stopping by the Chamber of Commerce. Almost without exception, I heard the holiday season was prosperous for one and all. These local findings closely mirror the national situation. Consumer confidence is up and the public is opening up their wallets. As an added bonus, gas prices are very low.
This feels great at the pump, but I do worry about the people in Texas who may be adversely affected by lower oil prices. Many of our local customers come to Pagosa from oil-producing states, so cheap gas may come back to bite us in the end.
As far as real estate goes, sales are up 15% and inventory is down. From a ‘supply and demand’ perspective, this should allow prices to rise. So far we are not seeing huge price increases, but we are definitely headed in the right direction. For now, it is still a buyer’s market.
Interest rates continue to stay low. Today you can get a 30-year fixed mortgage at 3.75%. Each year we hear that the rates are going to go up, but then some outside force keeps them low.
Another improving trend is the local construction business. Each year we are building more homes. This year the building department reported 65 permits for new home construction compared to 60 last year. When you look back at the peak in 2006, there were 230 permits pulled that year. To see the full history, check out the bottom row of my stats spreadsheet.
Speaking of the building department, I need to update you on some info I received after showing off my tree house in last month’s newsletter. If you are planning to build anything in the county, the proper protocol is to check with the building department. They will help make sure that you have all the proper permits, and they will help ensure that everything is built correctly and safely.
As you are looking over the stats, please keep in mind that even though everything looks black and white, there are some shades of gray in the way that real estate stats are reported. I will use the “Farm/Ranch” category as an example. Farm/Ranch is a category that comes straight from our MLS, or Multiple Listing Service. You’ll see in the stats that we sold 7 ranches in 2014 versus 6 in 2013. This all seems pretty straightforward, except that the definition of what exactly constitutes a “ranch” is left largely up to the individual Realtor who lists it. Some ranches consist of multiple homes on a thousand acres. Some “ranches” are just vacant 35-acre parcels. It all depends on the agent. So even though we sold 7 ranches in Pagosa this year according to the MLS, the actual number could be quite a bit higher or lower depending on what you consider a “ranch” and what you consider “land.”
Another statistical item I’d like to examine in detail is the difference between average and median. Both are used to describe the “middle” of a given set of numbers. The average is calculated by adding all the values together, and then dividing by the number of values. The median is calculated by arranging all the values in order and then picking the middle one.
It will be useful to look at an example. To make the math easier, we’ll choose lower numbers than you’ll find in my stats sheet. Let’s say we have values of $5, $10, $15, $20, and $100. To calculate average, you add everything together and then divide by the number of values:
(5+10+15+20+100) / 5 = $30
You’ll notice that one high value can pull the average up significantly. The average of our set is $30, even though this is much higher than most of the values. Compare this to median. If you arrange all the values in order, the middle one is $15, so the median is $15. When you have a badly lopsided set of data, the median is a better representation of what most people would call “the middle.”
Real estate sales are a very lopsided set of data. Pagosa Springs saw 9 sales above $1,000,000 last year. The other 603 sales were below $1,000,000. The average would be skewed quite a bit higher by these 9 sales in a way that the median is not. The median better reflects the “middle” of the set, so you’ll notice that I always use median in my stats spreadsheet.
We have now had three years in a row of steadily increasing numbers. Sales numbers bottomed out in 2009 and then prices bottomed out a couple years later around 2011. Now we seem to be back on track with slow but steady gains across most categories. My prediction for 2015 is more of the same – nothing dramatic, but steady improvement. I look forward to serving all of you any way I can over the next year. Please contact me if I can be of service.