According to the US Census Bureau, Vermont had 335,224 housing units in 2017 with a median value of $218,900. Approximately 70% of these housing units are owner-occupied and the remainder rental units.
In this series of articles, The Informed Vermonter will take a look at house prices, rent levels, housing costs and trends affecting the housing markets in Vermont. How Vermont compares to the USA as a whole will be highlighted throughout.
The focus of this article is housing prices.
The Good Old Days
1997 would have been a good year to buy a home in Vermont. The “All Transactions House Price Index” for Vermont, which is published by the Federal Reserve Bank of St. Louis, stood at 225.67 in the fourth quarter of 1997. By the fourth quarter of 2007, the index had increased to 457.06. During this decade, house prices doubled in Vermont, growing at a compound annual growth rate of 7.3%.
Vermont actually outperformed the entire US housing market in the 1997-2007 period. For the US as a whole, house prices went up 1.8x representing a growth rate of 6.2%.
With hindsight, it is now clear that the 1997-2007 housing boom was fuelled by an easy money mortgage market that went dramatically bust in 2008. As it turned out, house prices in Vermont peaked in the first quarter of 2008. The next decade would be very different.
The “Great Recession”
What a difference a decade makes. Having peaked in early 2008, Vermont’s house prices began to decline: for six consecutive years. The bottom of the market was reached in the first quarter of 2014 when the Vermont All Transactions House Price Index reached 433.5. From the peak, house prices had declined 5%. House prices in Vermont did not recover to 2008 levels until 2017 and only now are a bit higher in certain corners of the state.
Looking at the entire USA, the housing market was much more volatile than the Vermont experience. First, the downturn was both quicker and much deeper. The US market bottomed in 2012, two full years before Vermont hits its low point. From peak to trough, US house prices declined 18.9% compared to only 5% in Vermont.
Offsetting the sharp decline, the entire US market experienced a quicker and steeper recovery than Vermont. House prices fully recovered by mid-2016 and now stand about 12% above peak 2007 price levels.
Over the last ten years, Vermont’s housing market was more stable than the US as a whole, but also more stagnant in terms of price appreciation. Basically, Vermont’s housing market demonstrated both less downside risk and lower upside potential.
There may be cause for optimism in certain parts of the state. Over the last 12-15 months, Vermont’s house price growth has begun to accelerate. For the 12 months ended Q2 2018, the Vermont All Transactions House Price was up 4.5%.
Unfortunately, not all of Vermont is sharing in these gains.
Location, Location, Location
The house price recovery in Vermont varies widely from county to county. While Vermont’s statewide house price index has fully recovered, only four counties have an index value higher than 2007. Indeed, if Chittenden County were removed from Vermont’s house price index, statewide values would still be below 2008 levels.
The chart below provides a county-by-county breakdown of house prices over the last ten years, ranked by price performance.
All Transaction House Price Index (2000=100)
|County||2007||2016||2017||% Change: 2007-2017||% Change: 2016-2017|
Source: Federal Reserve Bank of St. Louis, Economic Data (“FRED”). Note: “FRED” does not provide data for Essex County.
The financial crisis of 2008 and resulting recession hit rural areas of the country particularly hard, including most of Vermont. At the extreme end of the spectrum, residents of Rutland and Bennington counties saw the value of their homes decline by over 16%. Only now are house prices beginning to creep back up, but in most of Vermont property values remain well below 2007/2008 levels.