Will History Repeat Itself? A Look to
2007
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Wed 12/27/2006 11:00AM MST
Commentary
by Tim Estin
Locally, the past three years have been
unprecedented in the Aspen/Roaring Fork Valley's upward
trajectory of real estate values. Prices are at record levels
- although at any point in time in the past 50 years in Aspen
they have been - and inventory is tight.
The state of
the housing market in much of the country may be gloomy but in
the Roaring Fork Valley (Aspen, Basalt, Carbondale, Glenwood
Springs) real estate values - and especially Aspen/Snowmass -
continue to be strong with few, if any, signs of weakening and
only isolated, property specific areas of weakness. Along with
a handful of other resorts, Aspen's international credentials
are unique. The real estate market here is cushioned by a
global demand for the Aspen product - a sport, intellectual,
and cultural mountain resort powerhouse that's unmatched
anywhere in the U.S. And there is a limited supply of
properties here.
There are many reasons for continued
strong growth, and here are some national trends and more
specific local trends and statistics directly impacting real
estate in the Aspen area.
National Trends - Baby
Boomer Wealth: An estimated $30 billion is expected to
transfer from the WW II generation to baby boomers (Forbes).
Combined with retirement incomes, this generation is easily
financially secure enough towards making their vacation/second
homes their primary homes.
- Interest Rates: Rates are
trending downward. According to the National Association of
Realtors(NAR), 30-year mortgage rates have fallen from 6.8
percent in July to 6.1 percent in early December 2006, and
these low rates have begun to stimulate demand as indicated by
mortgage purchase applications which were 11 percent higher in
December than compared to last July; for 2007, interest rates
are not anticipated to top 6.7 percent;
- Stock
Market: New records are being set (DJIA).
- Job
Growth: The job rate continues to be strong
- Fall in
the Dollar: U.S. properties are now trading at a larger
discount (about 40 percent compared to five years ago) from a
European perspective.
- Technology and the Footloose
Economy: Advances in information technology, communication
infrastructure, the emergence of the service economy and the
aging demographics has created a "footloose economy."
The economy is no longer bound by "space" and geography.
Ten to 15 years ago, people followed jobs. Now, they move
wherever they want and jobs follow to these desirable areas.
- New Global Wealth: There has been a huge ratcheting
up of global and U.S. wealth accumulation. China, India and
Russia are obvious international examples. In the U.S., the
hedge fund industry is remaking the world of wealth. According
to a recent New York Times article, this surge of new money is
"reshaping wealthy communities as drastically as did the
dot-com boom a decade ago ... in less than a decade, hedge
funds have created a class of centimillionaires ... in
Greenwich, Conn., super luxury home sales increased even as
the total number of homes sold fell 10 percent."
-
High End Real Estate Resilience: Traditionally, upper-end real
estate markets tend to hold their own even as the rest of the
housing market slows. Wealthy buyers are seemingly buffered by
market volatility.
- Trophy Properties: Everywhere one
looks, trophy properties are being snapped up at unbelievable
prices.Regional/Local Trends
- Fastest Growing Region:
The Rocky Mountain region (Idaho, Montana, Utah, Colorado,
Wyoming) is the fastest growing area in the country amongst
persons ages 40-60 - the classic baby boomers. Also, the
'echo" generation, children of baby boomers, are the next
largest population segment flocking to this area, referred to
as the "third coast" by demographers.
- Boomers Retire
and Head West: There is a huge new retiree population
migration. These people are newly retired, aged 55-64, "young
elderly, grabbing life with both hands" as one Center for the
Rocky Mountain West 2006 study put it. They are couples in
good health, with high education and income levels.
- Public Lands as Magnet: People are flooding to areas
surrounded by public lands - U.S. National Forests, National
Parks, BLM - places where "open space," green forests and
wilderness appeal prevail. Dominated by recreation and
tourism, they have become the equivalent of prime waterfront
property.
- Exurbia: A huge population migration to
"exurbia," semi-rural areas where affluent Americans are
moving in growing numbers, especially to smaller towns of less
than 50,000.
- Controlled Growth Fuels Real Estate
Wealth: The "environment" has become the key economic asset
for these communities. There is a direct economic upside for
property values in controlling growth, and this is a huge
driver of local real estate values. In Pitkin County, over 85
percent of the land is publicly owned, another 6 percent is
zoned resource or agricultural (rural and large tracts of
land) and an additional 3 percent is deeded private land
trusts or local government open space. Pitkin County has
limited private land available for any kind of private
development. Additionally, the other counties of the Roaring
Fork Valley - Eagle and Garfield Counties - have 79 percent
and 63 percent publicly owned lands respectively. In Pitkin
County, strict zoning, growth guidelines, and limited
available land have made any kind of development hugely
expensive and the economics of the project difficult to
justify. And where new projects have been approved and
developed, design guidelines have maintained the overall
quality of small town living. The Aspen/Snowmass Statistics At
a recent mid-December luncheon for Aspen Board of Realtors,
appraiser Randy Gold of Aspen Appraisal Group presented some
eye-popping 2006 real estate data for Aspen and Snowmass.
Briefly, here are some of his more notable market
facts. All data is drawn from Jan. 1 through Dec. 13, 2006
records:
- Average Aspen Home Price: There has been a
radical increase in value by over $1 million per average home
property. The average price of a single-family home is now
$5,250,000, up from $4,250,000 in 2005 and $3.8 million in
2004.
- Median Aspen Home Price is $4,150,000.
- Average Snowmass Home Price is now $3.5 million
versus $3.2 million in 2005. The median home price is $3.1
million.
- Total Aspen/Snowmass Sales in Dollars: For
the year to mid-December, there has been over $2 billion in
real estate sales in Pitkin County. It's highly likely that
this year's sales will surpass last year's.
- In the
Over $5,000,000 Category: 2006 blew away 2005. In 2006, there
have been 66 single-family home sales above $5 million; in
2005, there were 54 sales, a 22 percent increase.
- In
the Over $10,000,000 Category: There's been a huge increase in
these sales with 12 sales to date this year, up 71 percent
from only 7 of these sales in 2005 when it was the weakest
segment of the market. In 2004 and 2005, there were
approximately 12 total of these listings; in 2006 alone, there
have been 36 to date.
- In the Over $15 Million
Category, seven properties have sold this year with two more
under contract; in 2005 there were a total of six sales.
- In the Over $20 Million Category, there have been
three of these deals in the past four months.
-
Hottest areas in Aspen: downtown core, Red Mountain and
Pitkin Green (the lower part of Red Mountain). Also, the East
Highway 82/Independence Pass area is showing remarkable
strength and gaining in popularity due to traffic congestion
everywhere west of town between the Hotel Jerome and the
Airport. Aspen Highlands, Starwood and Five Trees areas have
had resurgence and are back.
- Strongest Aspen
Sectors: any condos priced under $1.5 million; exceptional
vacant lots and single-family homes under $4 million.
- Biggest Aspen Surplus: properties priced over $10
million.
- Hottest Snowmass Areas: Two Creeks and The
Pines.
- Strongest Snowmass sectors: condos under $1
million; single-family homes under $3 million and any vacant
lots (they are not available).
- Fractionals: These
properties provide an "affordable" entry point for many first
time Aspen buyers and represent 9-10 percent of the dollar
sales (approximately $180 million to $200 million) in
Aspen/Snowmass. It is likely that many fractional owners will
eventually shift to whole ownership.2007 Forecast For the past
50 years, Aspen has not only been an important place to be
seen, but it's also been an incredibly good and solid
investment. Bottom line, owning
Aspen real estate is
primarily a quality of life decision, but more and more,
buyers also see Aspen real estate as part of a portfolio
diversification plan.
Yes, most real estate professionals
here believe we are probably poised for a slowdown, yet right
now Christmas/New Year's '07, there is a feeding frenzy for
high quality condos in the core where any noteworthy property
is being snapped up instantly at record breaking prices. Yes,
activity slowed down during the off-season, but is this
seasonal or a sign of a real slowdown?
"Exclusive and
outstanding properties on the high end, properties priced more
than $20,000,000, and anything that is new and priced near and
over $2,000 per square foot", said Randy Gold, "is likely to
remain strong in a slowing market".
It seems likely
that it'll take longer to market properties and that the
unprecedented appreciation levels of the past 18 months will
slow, but there should still be significant areas of continued
strength based on the big consequential trends cited earlier.
Those who have sat on the sidelines waiting for a market
correction have basically spent their lifetime ruing that
indecision. And boldness in the Aspen market has almost always
been consistently rewarded.
Tim Estin is an associate
broker with Mason Morse Real Estate in Aspen.
Wed, 03 Jan 2007 09:04:53
MST
