Why Do Home Prices Continue to Rise?

The Montrose real estate market has hit record high values entering the traditional spring selling season. Home prices are up 8% from a year ago, with the 3-month median at $544,075. Limited supply of homes coupled with a larger number of luxury home sales in the month of June, contributed to the price spike. Of the 52-home sold in June, 40% were newly constructed luxury homes priced above $700K. The national market also had record home price appreciation for the month of June.

Long-term home prices in Montrose have steadily increased from 2012-2020, then massively appreciated from 2020-2023. The monthly supply of homes coincides with this long-term trend, illustrating that supply, or lack thereof, is driving and backstopping valuations. Home supply has increased from its record low in 2022, yet is still creating a seller’s market with 3.9 months of available housing inventory. Phantom inventory (homes that are listed for sale but are not yet constructed/available) are now encompassing 12% of the current housing inventory in Montrose.

The number of homes selling in our valley is relatively flat compared to last spring, while the number of homes pending paints a different story. Pending home sale numbers (which projects future closings), has been trending downward for a consecutive 3-months. Unless the month of July and August produce a different pattern from the spring, the summer selling season may be stalled heading into the fall.

Understandably, the current real estate market is heavily mortgage rate dependent. Mortgage rates spiked 50 BPS (.05%) to 7.5% in April, and have recently receded in June to around 7% for a 30-year fixed conventional. This may be the strongest contributing factor to the 25% drop in pending sales activity. From a long-term macro perspective, this is unusual market behavior for the spring season. The number of home sales in June is in line with activity last seen in 2014, a far cry from the pandemic activity between 2020-2022. Yet with such a perplexing market, real estate is still proving to be a solid investment when committed to the long-term, as the last 14-years of appreciation can attest to. 

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