By Julia Purdy
Just at the time in 2020 when, thanks to stimulus money, I could seriously consider owning my own front door again, well-maintained (if older) homes in my admittedly modest price range were suddenly out of reach — overnight, it seemed — if not entirely missing from the inventory, anywhere in Vermont.
This discovery drove me to looking at manufactured homes and land to put one on. The same reality prevailed everywhere: no longer was an undeveloped acre priced affordably as a weed-choked, rock-strewn, tree-covered acre, but priced as if there was a home already on it, and the price went up from there. Some parcels I walked on, tripping over roots, stepping over boulders and brushing through high weeds, were deceptively attractive on the map. Three in particular were perched on precipitous riverbanks or ledge, leaving much less area to build on than the three acres, whether utilities were available or not.
Clearly, the reputations of certain towns — and the Vermont brand — motivate property owners to demand top dollar. The infusion of cash is welcome, but the result is sticker shock, experienced by low- and moderate-income homebuyers, renters trying or needing to move elsewhere, downsizing empty-nesters, new arrivals taking a hit to their incomes, or professionals young and old who moved here for the lifestyle and who often end up underemployed or working the seasonal or gig economy.
The sticker shock is not merely anecdotal.
As everyone knows by now, 2020 was the year of an almost unprecedented real estate boom created by a perfect storm of events: super-low interest rates; a burgeoning population of millionaires seeking to invest in real property; Covid, which prompted a mass exodus from crowded cities into regions considered safer; already superheated real estate markets that chase their tails in a never-ending upward spiral; and a shortage of new listings. Divorce, foreclosure, the attempt to stay ahead of the cost surge by selling prematurely, complete the picture.
Politico reported for January 2021 that despite the weather, home sales increased by 24% over a year ago, with prices close behind. All this despite an unemployment rate almost double that of the previous January. “Demand for existing homes is so strong that the average residence is on the market for just three weeks, and inventory is at a record low … Mortgage balances grew by $182 billion in the fourth quarter of 2020, the biggest quarterly uptick since 2007, according to the Federal Reserve’s latest report on household debt,” Politico wrote.
“This is the strongest seller’s market since at least 2006,” Redfin Chief Economist Daryl Fairweather told housingwire.com reporter Tim Glaze. “Buyers outnumber sellers by such a huge margin that many homeowners are staying put because they know how hard it would be to find a place to move to. It seems like the only move-up buyers who are confident enough to list their homes are those who are relocating to a more affordable area where they’ll have an edge on the local competition.”
The fair market value of real estate is a textbook example of supply and demand, given a willing seller and a willing and able buyer.
“Able” is the operative word. FRED, a useful blog of the Federal Reserve Bank of St. Louis, concluded that simple supply and demand is not the only nor the best explanation. The third factor, FRED says, is buying power. Citing the S&P/Case-Shiller U.S. National Home Price Index, per capita personal incomes have steadily risen like a gently undulating mountain slope, to a peak of $1.85 million at the end of 2019. That’s per capita.
“Assuming the housing stock has remained basically unchanged, there have been fewer people with much more money chasing the same houses. So house prices increase. Note how incomes increase pretty fast around the year 2000, precisely when houses got significantly more expensive,” wrote FRED blogger Christian Zimmermann.
Affordable housing as we used to think of it, whether rentals or owned, has been steadily eroding over the last 15 years in Vermont.
According to Vermont property transfer tax records, while private home median market values in Rutland County are chronically somewhat lower than those statewide, in 2020 the steady upward swing spiked sharply for both, pushing to $175,000 and $250,000, respectively.
“Statewide in 2020, the median single family non-vacation home sold for $255,000, the median condominium sold for $222,000 and the median mobile home with land sold for $100,000,” wrote Mia Watson in a post for Vermont’s premier housing database, housingdata.org, on Feb. 8, 2021.
Zillow, sometimes criticized for inflating the theoretical value of single family homes using its Zillow Home Value Index (ZHVI), reveals that in Rutland, the median price jumped from $185,195 in January 2020 to $192,501 in January 2021.
(Regional data from local brokers also confirms these trends, see story)
In a blog posted to housingwire.com last week, Tim Glaze reported on Redfin’s findings that “of counties that have seen the largest uptick of homebuyers — and, subsequently, home value — the top 10 are all in either vacation destinations or relatively affordable suburbs of big cities … In addition, demand for second homes across the country has skyrocketed since last January — up to 84% year over year, according to Redfin.”
Buyer competition is noticeably intense here in Vermont. In conversations with real estate agents and neighbors, I have heard of multiple offers coming in on the same day, often outcompeting each other by paying above the asking price. I have heard of offers made sight unseen, and at least a few multimillion dollar properties that have been, reportedly, purchased outright for cash.
Not all buyers intend to settle into the community. “Flipping” — buying low and selling high, sometimes with renovations and sometimes without — accounts for some of the inflation spiral in real estate. Case in point, viewable on Zillow: a 2-bedroom, 725-square foot home built in 1934 on 1/3 acre on a side street south of downtown Rutland that sold in May 2020 for $45,000, listed this month for $150,000 — a 233% markup and a monthly payment estimated at $827/month, excluding utilities. This home has already had 866 views in two days on Zillow and now has an accepted offer. Buying up property to rent short-term is another factor at work.
As a former real estate salesperson on both coasts, I recognized signs of the clash between speculative buying and land use regulation. With original values so much cooler here than in the major markets, investors have resembled kids at a candy counter. Zillow publishes the transfer history on its active listings and some have a long list. What I guessed was that those parcels were snapped up sight unseen, then the investor ran afoul of reality.
This conjecture was reinforced in conversations I had with two different farmers in Addison County. One remarked that he had seen a cluster of cars with out-of-state plates at an adjacent parcel that was on the market. The people seemed to be congratulating each other on a purchase. But wait until the snow goes, the farmer said with a chuckle, “That place is a swamp.” Another farmer was scratching his head over why anyone would buy a parcel next door to him that is “all rocks.”
With Vermont as the go-to place for a host of reasons, how far up the beach will this real estate tsunami reach?
