REAL ESTATE: The Riley Report

Hello From Pagosa Country…

…by way of Paris, France.

My wife, Laurie, and I are on a Viking river cruise which started in Zurich, Switzerland. We are now on the tail end of our trip in the City of Lights – Paris! After being gone for almost two weeks, I’m getting homesick.

We are missing the last big weekend of the summer back home. The kids went back to class on September 3. This also means a lot less traffic on the roads, and shorter lines to get into our favorite restaurants. Hunting seasons are just starting. Bowhunters are in the woods. Temperatures will be pleasant. It’s a beautiful time of year.

Here’s the latest real estate news. The total number of sales is nearly flat. We’re up just 2% compared to where we were last year at this time. Sales in the month of August were down, with 80 this year versus 94 last August. Pending sales are down slightly, with 116 this year versus 121 last year at this time.

As we look at the numbers more closely, we see home sales are down slightly. There have been 193 home sales so far this year compared to 200 last year at this time. The number of home sales in each price category is either flat or down across the board, except for homes priced at $1,000,000 and up, which are up 46%.

Home inventory is up by 30%, with the biggest increase coming in the relatively affordable range for $400,000 to $500,000. Inventory in this price class is up 200%. At first glance, this may seem strange. Why are sales up among the most expensive homes, while inventory is stacking up in more affordable categories? My best guess is that the buyers in the more affordable categories are more likely to need a mortgage, and many of them can’t qualify in today’s market.

Condo and townhome sales are up 11% for the year, and inventory is up 35%. Vacant land sales are up slightly at 4% over last year’s numbers. Another sign of a slowing real estate market is that median days-on-market is up across the board.

You can download the stats here.

Some good news for a change is interest rates are coming down. A 30-year fixed-rate mortgage is at 6.12% and a 15-year is at 5.63%. This is a big improvement over the 7.5% rates we were seeing a few weeks ago. The forecast is for the Fed to reduce the prime rate a quarter percent tomorrow, September 18, and there’s a good chance we will see a couple more cuts by the end of the year.

So why are sales sluggish with rates coming down? The cost of home ownership is still too high for many buyers. There are three culprits causing the problem. The first is that even though mortgage rates have come down, they are still quite high compared to what they’ve been for the last decade. The other two factors are much higher insurance costs and higher property taxes. I also think a lot of buyers are sitting on the sidelines waiting for rates to go down further over the next couple of months.

I recently read an article in our local newspaper, the Pagosa Springs SUN, with the headline “Average home price in county up more than $100,000 from 2023.” This is true, but the reason is that we are selling a lot more million-dollar homes than we used to, which is pushing up the average sale price. I don’t think it is accurate to say that the value of any one specific home is up by $100,000 over the last year. In fact, I believe that overall home values are actually down about 10% since the peak of the market back in 2021.

Last but not least is the big news about Realtor commissions which was in the headlines a few weeks ago. It was suggested that the cost of selling a home was going to come down dramatically because sellers were no longer required to pay for the buyer’s Realtor anymore.

This may be the case in some markets, but not so fast!

The big change is that the selling Realtor can no longer advertise in the Multiple Listing Service (MLS) how much the seller is willing to pay the buyer’s agent. Instead, now we have to negotiate the commissions as part of the sales contract.

Every market is different. Currently, the Pagosa market is more of a buyer’s market, and therefore it may be in the seller’s best interest to offer to pay the buyer’s agent like they have done in the past and package it into the sales price to encourage them to choose their property over other options they may have.

At the end of the day, the buyer’s agent provides a valuable service by representing and advising the buyer. The buyer’s agent will be paid for that service, one way or another. Whether that money comes out of the seller’s pocket or the buyer’s pocket is negotiable, just like it always has been. One thing to keep in mind is a situation where a buyer is looking at two similar properties, and one of the sellers is offering to pay the buyer’s agent commission. The other seller is not making this offer, and is expecting the buyer to pay the buyer’s agent commission in cash at closing. If I were the buyer in this scenario, I know which option I would pick…

With all these changes, it is now a more complicated world to navigate. It is more and more important that you have the right Realtor to protect your interests. After 35 years in the business, I will be your guide.