One of the attractions of Sedona has always been the sense that we’re an “Island in the Sun,” a sanctuary from urban ills buffered by 160,000 acres of National Forest. Up until the boom and bust cycle that we experienced between 2004 and 2011, we also felt somewhat insulated from national economic cycles. Sedona real estate sort of plodded along seemingly unaffected much by the wild market swings we noted in California or even broader recessions in the U. S. Those days are long past, but the Sedona market does now appear to be bucking, to some degree, the current national real estate outlook.
Nationally, the August Kiplinger Letter forecasts a 5 percent increase in home prices in 2018 over 2017. Locally, however, the late August Median Recorded Selling Price in the general single-family home sector was closer to 12 percent in Sedona – although prices were relatively flat for home over $1,000,000.
Kiplinger reported that listing inventory was up 1 percent across the U.S. Locally, we are actually down about 15 percent – at least in the general single-family residence sector. The tightest inventory levels I’ve seen in the past two decades. Nationally, there’s a burst of new home construction rushing in to fill the inventory void. We’re just starting to see some evidence of that in the Sedona area, with several new developments in the process of coming on the market. Thanks to that, new luxury home inventory, though, is already up to historically typical levels.
It’s in the sales numbers that the national figures diverge most from local reality. While projecting new-home sales to be up 5.6 percent by the end of this year, Kiplinger actually forecasts a decline of 1.5 percent for existing-home sales. Sales in Sedona, on the other hand, stood at 11 percent higher in late August 2018 than in 2017. Some of that we can attribute to the exceptional allure of Sedona’s spectacular scenery, mild four-season climate, and laid-back lifestyle. And, some of it to the surge of sales to buyers intending on making their newly-purchased homes available to short-term vacation renters. As we reach the saturation level of VRBO homes in the Sedona area, however, we could well see that market segment curtailed significantly. Some of those homes might be returned to the listing inventory or turned into long-term rentals.
The other note of caution must be the question of Affordability. As prices and interest rates rise, they are likely to begin putting the brakes on the typical buyer’s ability and desire to pay the premium to live in Sedona. Already, homes over $1,000,000 constitute about 40 percent of the inventory. But, they are only 10 percent of the sales. That hardly seems sustainable. If can be, it would be an indication of a significant demographic shift for our community.
We’ll have much more to say in next month’s issue about what’s going on with the luxury home sector of the market.