December ’17 Market Stats
Is the rental market changing in Teton Valley, Idaho?
Those of you with a pulse on Teton Valley long-term rental market have probably noticed a bit of a lull in terms of occupancy and a small increase in availability. This tends to happen every year after the ski season begins and before the holidays. Those looking for something to rent for seasonal work have already found something in most cases, and long-term residents are generally settled in for the winter.
This year, most property managers have noticed things are a bit slower than the last couple of years, at least with existing inventory, specifically in Driggs and the North end of the valley. This is caused mostly by a supply spike in Victor, where people prefer for the Jackson commute. Several modulars along Highway 31, though lacking amenities, have filled quickly because of their location. Several more units are soon coming available on Dogwood St, and it is yet to be seen how many will be reserved for long-term renters. The new Clinic on Main Street will likely have long term rental availability. These newly completed, or soon-to-be completed projects in addition to a few others seem to have mostly satisfied the shortage, at least in the short-term interim.
I don’t believe this influx of availability will have any long-term effect on the market based on how deep the rental shortage actually is. Once the holidays are behind us, we will begin to better understand inventory levels compared to recent history. It’s been a long time since we’ve seen an oversupply (and I’m not suggesting at all that we are back to anywhere near an oversupply, or even sufficient supply) and even when we did, it was an oversupply of rentals that were not originally meant to be rentals. Throughout the downturn of 2008 we saw a number of vacancies, but these vacancies were second homes converted to long-term rentals, or even vacation rentals which weren’t performing well enough to satisfy debt service. In fact, there haven’t been too many private back-to-back projects built specifically for long-term rentals in a long time. We saw some housing projects near the Sage Hen condos, and of course the Fox Creek Apartments, but all told, not too many dedicated rental properties.
With the headlines being rental shortage you will call me crazy, but we will have to monitor the number of dedicated long term rental projects, apartment buildings and so forth in order to sustain a healthy environment with a good mix of tenants and available rentals to keep vacancies at a minimum and our rental market healthy. It will be interesting to see new major projects and how well they absorb into the marketplace in the near future.
November ’17 Market Stats
Why are Building Costs so High?
A couple of years ago I did an article about building costs in Teton Valley. At the time, it seemed like building costs exceeded what the average home sale price was at the time. Well, it seems like we are at that point once again, only building costs are even higher.
So, why are building costs so high? I’ve spoken with several builders and contractors. I’ve also talked with subcontractors. I was hoping I could pinpoint one major area, but unfortunately it is a number of items contributing to today’s building costs.
Labor: This is an obvious place to look when trying to balance your overall project cost. Yes, it is true, this is one of the larger contributing elements, but not to the point that it alone even comes close to the overall cost hike. Why is labor up? The cost of living is up. Home prices, rental prices, even groceries are more expensive than they used to be, even two years ago.
Subcontractors: Subcontractors are one of the main contributors as well. Subcontractors are usually defined as someone who carries out a specific task as part of an overall project. Examples include masons, electricians, plumbers and so forth. General Contractors oversee various Subcontractors who carry out most of the work. If you ask a General Contractor or “General” most of them report that these Subcontractors or “Subs” are price gouging because demand is so high. If you ask a Sub, they will report that labor costs are high and laborers are difficult to find. Personally, I think it’s a combination of both. We know the problem with labor costs and while I don’t think Subcontractors are gouging per se, they are certainly taking advantage of market conditions.
Materials: Materials are being impacted in many different ways. Remember that building materials don’t just include plywood. Industries can affect material costs. The main element in your electrical wiring is copper, which is an industry by itself. Fuel cost can have an impact, as well as regulations on imported goods which is currently having an impact on the overall dynamic. Further, just like high demand for subcontractors, I personally feel that high demand for materials results in higher prices.
In a nutshell, I’ve identified the main elements required for constructing a home. Time, labor, materials. The more complex issue is the number of contributing factors to each major element. Interestingly, it’s all gridlocked between high demand, increasing cost of living resulting in higher labor costs and changing Industries. Each of these major elements has its own set of smaller items that make up the problem. Here in Teton Valley, these elements are compounded by higher than average cost of living, and our remote location which only adds to material costs and lack of availability for contractors. I believe it is these two elements which have the biggest impact for our local market when comparing building costs with other areas, while the National trends such as high demand for builders and increasing material costs create the foundation that supports our local challenges.
So what does all of this mean for our local market? First, home prices are likely going to continue to rise to meet increasing costs of building. Second, we need to keep an eye on our rate of growth so as not to oversupply of the market, which ultimately will happen when comparing where our market is in the cycle of growth, oversupply, recession and recovery. Obviously we are on our way up, and we will likely create an oversupply which will in turn stabilized prices once again. Do I feel we are headed towards 2008 again? Not really. These cycles have been occurring for many years, by far predating the recession 10 years ago. Fortunately interest rates are still extremely low which creates a favorable environment for buyers to invest. 1% over 30 years on a 354k home (the median price in Teton Valley last month) will result in about $56,000 in interest over the life of the loan.
