Teton Realty Blog

Teton Region Real Estate Market Stats, Articles & News

Interest Rates, Ideas for Buyers and Market Impacts

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It’s no secret, interest rates are definitely on the rise, and likely will continue to do so. It’s interesting hearing about all of the potential impacts. A lender friend of mine provided some good insight recently. Interest rates are still very low from a historical standpoint, and there are still some great ways to minimize the impacts of rising rates. These include mortgage points that come with a variety of options and the ability to have these points negotiated into a transaction or even paid by the seller. A mortgage point is effectively a way to buy down the interest rate up front. This can be a great tool to help buyers keep up with today’s real estate prices, which don’t seem to be going down despite interest rates creeping up. Buying mortgage points can also work well for buyers that intend to keep their loans long-term. Typically a “point” is equivalent to 1% of the purchase price and that will usually reduce the interest rate anywhere from 1/8 to 3/8 of a percent. Other options include a 2-1 (or even a 3-2-1) buy down which reduces the first year by 2 points in the second year by one point, which is where the highest amount of interest is paid on a loan while the principal of balance is still high.

Obviously interest increases are coming as a way to combat inflation, and it’s probably the lesser of two evils. Interestingly, supply chain issues, high building costs and other factors on the supply side are keeping new inventory at bay. Whereas real estate is primarily supply and demand based, this has created an interesting dynamic for both buyers and sellers. Personally, I do believe that the cumulative total of these issues will have an impact on the market, but without the increase of supply, I’m interested to see how much (if any, I should add).

Marketing Backfires in a Seller’s Market

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Notwithstanding some recent market volatility, looming interest rate hikes and other noteworthy news headlines, supply remains incredibly low and demand is as high as ever here in Teton Valley. While the market likely won’t always be in this predicament, I believe this advice will remain pertinent for many market cycles to come.

Getting back to the subject line here, we’ve grown accustomed to allowing the market to “autocorrect” when it comes to listing properties, at least listing them too low. If we know the last sale for something was $100,000, and it was more than a couple of months ago, we usually anticipate multiple offers at or above that number. With this consideration I arrive at my first no-no;

Listing too high

This can be a delicate balance, particularly when we know that the market increases month by month. We almost have to anticipate how much it has increased but not overshoot. Overshooting typically results in “days on market”, and the general conclusion by the public is that there is something wrong with the property. Days on market can be normal in normal markets, but detrimental in hot markets.

Anticipating multiple offers

I’ve seen this one happen a few times over the past 12 months. Just because the market is hot doesn’t mean that it can’t be eclipsed by random happenings. Real estate markets always come and go in waves and cycles. It’s strange how everybody looks at real estate at the same time, and oftentimes we find that people aren’t looking at the same time. Marketing a property stating that you are “accepting offers through Tuesday at noon” when you don’t actually have an offer might deter the only person looking at the house.

Overdoing itThis one’s hand in hand with the scenario above, but overdoing it can sometimes create a marketing issue. For example, scheduling an open house with a tagline of “multiple buyers expected, showings limited between 12 to 3:00” might also detour someone that isn’t interested in bidding against multiple buyers, even when there aren’t multiple buyers. Scheduling too many open houses is also a signal that the activity was less than expected, almost as if sellers are begging for buyers, we don’t want to give that impression.

Measuring the Value of Land by Price per Acre

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I have been meaning to draft this article for quite some time, it is one of those articles that’s relevant in any market. That is, valuing a particular piece of property based on a cost analysis per acre. This is a measure that we will sometimes use when valuing large farm acreages. For us working in the industry, that’s usually where it stops. For others, that methodology trickles down into residential property which in my opinion, is usually not appropriate. I share this opinion with most when discussing values, but usually when customers, be it Buyers or Sellers, start forming their own opinion it’s hard to get them to change their perspective. For Buyers, it’s a way of arguing the value down, and for Sellers the opposite. I’ve heard this a few times…

Anyway. A local analogy I often use as an example is a development between Driggs and Victor. It’s really one large interconnected development with two phases, but it was organized as two separate adjoining developments that share the same rules and regulations. The East half/development comprises 2.5 acre lots and the West half comprises 1 acre lots, but there’s a catch – an important one. The current county density requirement in this area is one home (and guest home if the subdivision allows) per 2.5 acre parcel. The average density of the East development is obviously 2.5 acres. The West development also has an average density of 2.5 acres. Each 1 acre parcel is surrounded by community-owned open space that cannot be developed. Currently on market is a $190,000 1 acre parcel and a 2.5 acre parcel nearby priced at $109,000 per acre. Does that mean that the one acre parcel surrounded by open space is only worth $109,000? Obviously not.

Okay, so the above example is easy to justify. Let’s move across the valley into the Teton View corridor. To keep things fair, we need to keep the area similar. Properties East of State Highway 33 should be valued differently than those West of side of the highway. Let’s compare parcels in developments with no open space, one parcel being 2 acres and another being 5 acres. Am I saying each of these have the same value? No, but they certainly could. What I am saying is that if I were asked to value each of these parcels I wouldn’t even look at the cost per acre (yes, I would look at the overall size) of nearby listings or sales. The important thing to remember here again is that each parcel allows ONE primary home. I could compare 2.5 acre parcels with 5 acre parcels in the primary view corridor all day long and would probably find more 2.5 acre parcels that I would recommend to customers regardless of overall price or price per acre. I’m going to look at budget, proximity from the highway, property features, overall development value and restrictions and of course, the viability of an unobstructed view down the road. In other words, is it conceivable that I would value a 2.5 acre parcel and a 5 acre parcel the same? Absolutely. Does it mean I don’t take the size of a parcel into consideration? No, it does not.

The important thing to understand when determining or justifying the value of any given tract of vacant land is to remember to look at the entire picture. A 2.5 acre parcel overlooking 200 acres of an adjacent development’s open space has tremendous value. Trees, creeks, undulation in terrain, community features and amenities AND size – all of these elements should dictate the value of a parcel. It is not fair or reasonable to value any given property using just one of these metrics.

Time to sell?

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I’ll try to keep this article generic so that it is relevant in years to come, but in so many ways much of this information will likely be outdated before we know it. One thing is for sure, this market has had so many unexpected twists and turns that the craziness now seems to be normal, and it probably is normal until the next crazy happens… You know how it goes.

The inspiration for my article was an advertisement I saw on behalf of one of my realtor friends on social media in another area. It was something like looking to sell? It’s a great time to sell! Are you looking to buy? It’s a great time to buy as well! Of course, this could have been handled differently and they could have talked about the low interest rates for buyers and the obvious hot market for sellers but it didn’t really come out that way. From a marketing standpoint, I think it’s difficult to group everybody into one advertisement like this. Generally speaking, buyers buy when they want to buy. It doesn’t matter if it’s a seller’s market and they know it, or if it’s a buyer’s market and the value is easy to justify. I can look back through my career with dozens and dozens of potential buyers that always felt the market was overvalued. They are always going to feel that way. I can also remember buyers that seems to be making an impulse decision that didn’t seem to make sense. Sometimes that worked out, sometimes it didn’t. As always, my job is to provide data, facts, and information. Unless it is overwhelmingly clear I generally won’t answer the question of “Is it a good time to buy?”. Besides, buyers want to make their own decisions, they just want to hear straight information.

But is it a good time to sell? Is it ever a good time to sell? It depends who you ask. Most stock brokers will talk about averaging. Investments tend to increase over time, hang on, hang out and let the world do its thing. Is it a good time to sell if you don’t have anywhere to go? Not really. Is it a good time to sell if you are planning to do so? How about if you have a real estate investment that isn’t providing a great return? How about one that you are tired of maintaining or otherwise don’t need? To those questions, I would probably say, yes. Here again, probably not directly (which I seem to have done here) but I would mention some indicators that would point to the appropriate timing for such a task if it were a consideration. First, foremost and always – supply and demand. There was a weird time in October of 2020 after the craze where all of the land inventory was totally wiped out. While land in some areas has seemed to increase since then, so has the supply. As a result some land listings have stagnated despite the overall market continuing to perform well. Regardless, we saw an enormous bump in land real estate values during that time. On a side note, I’ve said this more times than I can count, land was too cheap for too long and that contributed to what happened in October. Anyway, when inventory gets tight, people tend to spend more. Getting back to the buyer thing, when people decide they want something, they pursue it and buy it. We’re all guilty of it. The starter goes out on your car. You start to have thoughts of the next thing, what’s the next big expense? You start looking at options. At that point, I would say with relative certainty, you’re probably going to buy a new car. If the automotive market seemed to be at a point where inventory was tight and things were more expensive than they should be, would you overspend to buy that car? Probably. A lot of people are looking at real estate right now, and there isn’t much available. We seem to have hit the inventory levels comparable to what we were seeing with land a year ago mentioned above. There’s also some uncertainty in the markets (although there always seems to be) and we only know what we know, now. Getting back to it, is the market going to hold? Are values going to increase? No clue. What I can tell you is that values are high, now. If you’re in that category and you’re planning on selling when the time is right, think about it.

To be clear, I am definitely not sounding any alarms. Most local real estate professionals and those with a close ear to the ground in the financial sector agree that this market still holds steam, and a lot has changed in ways from how the lending market works with protections in place to the clear indications that our little paradise has finally been discovered. Not as many people are “finding” Teton Valley through Jackson, they are traveling and investing here because we are a destination.

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