An extremely competitive local real estate market persisting since the beginning of the pandemic, fueled by low mortgage rates and an influx of out-of-staters, has driven prices to record highs and continues into 2022, according to local real estate brokers.
In Montpelier, there have already been eye-popping residential sales in 2022. According to MLS, 20 Winter Street sold for $701,000, 12 Isabel Circle for $900,000, and 95 Inglenook Drive for $1.075 million. Plus, a property at 170 Spring Hollow Lane listed at $799,000 appears to be under contract. In 2021, the highest-priced sale in the city was $645,000.
Montpelier is not unique. Throughout the Central Vermont region, prices are up, inventory remains low, multiple bids are common, and properties are selling quickly, brokers say.
Mortgage Rates on the Rise
At the same time, mortgage rates are on the rise and are expected to continue to increase over the next year or more as the Federal Reserve pushes up interest rates in an effort to quell inflation. This will likely put a dent in demand if rates go up as much as expected, experts say. The average 30-year fixed rate mortgage rate nationally went up to 4.72% as of April 7, according to mortgage giant Freddie Mac.
Federal Reserve chair Jerome Powell was clear about the impact on housing of higher rates in Senate testimony earlier this month. “Housing is a very interest-sensitive sector, and rates moving back toward more normal levels should act to cool off housing markets,” he said.
Demand Remains High
“There can be dozens of showings on a new listing, and it is not unusual to see six or eight good offers on a house,” said Ray Mikus, owner of Greenlight Real Estate. “It is a great market for sellers, but a really challenging market for buyers.”
Tim Heney of Heney Realtors said the local market had “accelerated in 2021 and accelerated further in early 2022.” The fierce competition among buyers means properties in central Vermont go under contract quickly, with properties in Montpelier selling the fastest, according to Heney.
In 2021, the average days on market before going under contract for single-family homes sold in Montpelier through MLS was just 19 days, down from 57 days in 2020 and 74 days in 2019, according to figures provided by Heney.
Inventory is Low
As a result of the quick sales, the inventory of properties for sale at any one time is minimal. In Montpelier, there can now sometimes be only “one, or two, or three” residential homes in inventory and not under contract, Heney said. “There is a lot of demand here,” Mikus observed. “I could sell a three- to four-bedroom, $350,000 house in Montpelier every day of the week.”
Broker Jeanne Felmly of Dome Real Estate Group said buyers are attracted to Montpelier because it is “eclectic, with a real sense of community, where people both live and work. The fact it is a friendly, walking town is a big deal for many people.”
High Demand = Higher Prices
Not surprisingly, high demand has resulted in higher prices. Heney’s figures, which include both MLS and private sales, show that the highest average residential sale price in the capital region in 2021 was in Montpelier, at $326,797, followed by $313,866 in the U-32 towns.
However, those prices did not reflect big increases over 2020, perhaps because prices in Montpelier and U-32 towns had already risen by double-digit percentages in the first year of the pandemic. Montpelier’s 2021 average price was up only 2.57% from last year, while the U-32-town average price was down 5.33%.
Price increases in 2021 were much higher in local towns with lower prices. The average home price in Barre City jumped 36.6% to $203,097. In Williamstown the average price rose 32.2% to $259,976, and in Northfield it went up 27.36% to $261,613.
These increases easily outpaced 2021 average residential increases, as reported by Realtor organizations, of 16.4% in Vermont and 16.9% nationally, and may have resulted at least in part from a kind of domino effect pushing buyers to widen their focus.
Felmly said buyers who have been priced out of the “aggressive and competitive” Chittenden County market are now looking in central Vermont, while locally oriented buyers are having to look farther afield themselves. “I have one client who was interested in Middlesex at first, but is now looking anywhere from Hyde Park to Williamstown,” she said.
The fast-rising prices of gasoline and heating fuels may be starting to change the calculus of buyers when it comes to location, however. “Buyers are talking more about fuel prices now,” Mikus reported. “They want to be close to town, in an energy-efficient house.”
While today’s prices are very high by local standards, they are still well below prices in hotter markets. The average home price is now about $800,000 in California and $1.5 million in San Francisco. Much closer to home, the average sale price in Stowe in 2021 was $883,941, up 15.7% over the prior year, according to the Vermont Realtors.
Whether the unprecedented demand and rising prices for real estate continue through 2022 is uncertain though, given variables such as rising mortgage rates, war in Europe, inflation, and hints of a slower economy or even a recession in a year or two.
Mikus said higher mortgage rates have not impacted demand yet, since rates are still reasonable by historical standards. The buyers who may be impacted the most as rates go up will be those shopping for lower-priced homes and who need a large mortgage, he said.
So far this year buyers have been battling over a dwindling inventory. In Washington County, the number of new listings in January and February was 63, down from 92 in the first two months of 2020.
But spring is traditionally the time of year when more listings come on the market, and that trend is continuing this year, these three local brokers say. Economics seem to be behind more of their decisions.
“I asked one seller we are working with why he is selling now,” Mikus noted. “He said it was because the market is really good right now, with much higher prices than two years ago.”
What Has Been Driving the Hot Real Estate Market?
Low mortgage rates. National average rates fell to a record low of 2.65% for a 30-year fixed mortgage in January 2021, allowing buyers to afford higher-priced houses. Now buyers are racing to make deals before rates go higher.
Cash sales. From last March to this March, 28.4% of residential sales in Washington County were cash-only deals, up from 25.5% in the prior 12-month period. Cash purchases have probably been boosted by stock market increases in recent years and by the fact that out-of-staters who have sold in bigger markets can often buy at lower prices here.
More out-of-state buyers. Concerns about climate change are one factor bringing buyers to Vermont, but the COVID-19 pandemic has been an even bigger factor. Not only did some people want to escape to more rural locations, but employees able to work from home were suddenly free to move wherever they wanted. Remote workers moving to the state often bring with them wages and salaries higher than local businesses pay, allowing them to bid more for houses than local buyers. But brokers say most local buyers are still from Vermont, and they are eager to purchase homes.
Changing demographics. Many millennials — now the largest generation group — were happy to rent until recently but are now reaching an age where they want to buy a home. Meanwhile, a significant number of baby boomers — some with deep pockets — are looking to downsize into the same size houses that first-time buyers are pursuing.
Slower construction of new homes. Fewer construction workers and the high costs of construction materials have hampered building. In the 1980s, the supply of Vermont primary homes grew by 1.8% each year on average, but that slowed to 0.6% in the decade that ended in 2020, according to housingdata.org. Predictions over the last decade that Vermont’s population would fall, which may now be proving to be incorrect, may have also influenced builders to go slow.
A shortage of sellers. There has been a paucity of sellers in the last couple of years, possibly because of the pandemic, but also because finding a new home in this market, here or elsewhere, is difficult. And even before the pandemic, there was a trend of people staying longer in their homes before selling, reducing turnover.
According to a recent analysis by real estate brokerage firm Redfin, homeowners are remaining in their homes for 13 years on average, up from 8 years in 2010. “If people aren’t moving on, there just are fewer and fewer homes available for new home buyers,” said Redfin’s chief economist. Higher mortgage rates may push even more sellers to stay in their homes, if their current rates are low.