June 1, 2007
(updated from original article in Mountain Business Journal, Dec 27, 2005)
Locally, the past 3 1/2 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.
Baby Boomer Wealth: According to Forbes Magazine, an estimated $30 Billion is expected to transfer from the WW II generation to baby boomers. Combined with retirement incomes, this generation is easily financially secure enough towards making their vacation/second homes their primary homes.
Interest Rates: Rates have been trending upwards but are still within a historically low range. With the recent spike in the yield of 10-year treasury bonds back up to the 5.25% level, one should expect rates in the 6.7 – 6.8% territory. More important to the housing market, however, is that lending standards are on the rise, while home equity levels are on the decline (the opposite in Aspen), making it much more difficult to find a lender or maximizing the size of a loan.
Stock Market: New records are being set (DJIA).
Job Growth: The job rate is moderate, not as strong as the winter.
Fall in the Dollar: US properties are now trading at a significant discount (about 30% 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 have created a “footloose economy”. The economy is no longer bound by “space” and geography. Ten to fifteen 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 US wealth accumulation. China, India and Russia are obvious international examples. In the US, the hedge fund industry is remaking the world of wealth.
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.
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, Ct. super luxury home sales increased even as the total number of homes sold fell 10%.”
Fastest Growing Region: The Rocky Mtn region (5 state: 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”.
Second homes become primary residences: According to a recent study by the Northwest Colorado Council of Governments, increasing numbers of second home owners are making it their permanent home. Second homes are on the decline as more and more owners in Pitkin County, Eagle and Garfield Counties, are taking up residence here year round. ”Baby boomers are just coming into that age bracket – 55 to 64 – most likely to purchase second homes. And as they hit their 60’s and 70’s, a huge influx of full-time residents is anticipated”, said the consultant who wrote the study. As this happens, more and more full-timers will add to community life and a maturity of services.
Public Lands as Magnet: People are flooding to areas surrounded by public lands – US 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% of the land is publicly owned, another 6% is zoned resource or agricultural (rural and large tracts of land) and an additional 3% 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% and 63% publicly owned lands respectively. In Pitkin County, strict zoning, growth guidelines, and limited available land has made any kind of development hugely expensive and the economics of the project difficultto justify. And where new projects have been approved and developed, design guidelines have maintained the overall quality of small town living.
At an end of 2006 luncheon for the Aspen Board of Realtors, appraiser Randy Gold
of Aspen Appraisal Group presented some eye-popping year end 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-Dec 13, 2006 records:
Average Aspen Home Price: There has been a radical increase in value by over $1M 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 $3,800,000 in 2004.
Median Aspen Home Price: is $4,150,000.
Average Snowmass Home Price: is now $3,500,000 versus $3,200,000 in 2005. The median home price is $3,100,000.
Total Aspen/Snowmass Sales in Dollars: For the year to mid-December, there has been over $2 Billion dollars 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 plus 22% change.
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% 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 $15,000,000 Category, (7) properties have sold this year with (2) more under contract; in 2005 there were a total of (6) sales.
In the Over $20,000,000 Category, there have been three of these deals in the past (4) 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 $1,500,000; exceptional vacant lots and single family homes under $4,000,000.
Biggest Aspen surplus: properties price over $10,000,000.
Hottest Snowmass Areas: Two Creeks and The Pines.
Strongest Snowmass sectors: condos under $1,000,000; single family homes under $3,000,000 and any vacant lots (they are not available).
Fractionals: These properties provide an ‘affordable’ entry point for many 1st time Aspen buyers and represent 9-10% of the dollar sales (approximately $180-200M) in Aspen/Snowmass. It is likely that many fractional owners will eventually shift to whole ownership.
2007 Summer Forecast
For the past 50 years, Aspen has not only been an important place to be seen, but also it’s been an incredibly good and solid investment. Although owning Aspen real estate is primarily a quality of life decision, 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, but right now, summer ’07, there is little sign of that. In fact, 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.
It seems likely that it’ll take longer to market properties and that the unprecedented appreciation levels of the past 36 months will slow, but there should still be significant continued strength in Aspen/Snowmass and all of the Roaring Fork Valley based on the big consequential trends cited earlier. But in general, inventory levels are down approximately 10-11% from 2006 translating into higher prices across the board.
“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 definitively, “is likely to remain strong in a slowing market”.
Although Aspen’s airport was shut down for two months during the spring off-season, there was a remarkably sustained high level of real estate transactions. It was more like business as usual in spite of dire predictions of a halt to all activity because of the airport closure. This is the market direction as we begin the summer sales season.
If one is concerned about market timing, especially whether it is prudent to buy into a peak market like this, please remember this fact: At any point in time, prices here have always been setting new records. So far, this market has rarely – if ever – corrected, but it has ‘paused’ for 1 – 3 years (post 9/11, the market stagnated for about 24 months).
The pattern has been that prices don’t fall, rather there may be a lull before the next market climb.
In the bigger picture, those who have sat on the sidelines waiting for a market correction have basically spent their lifetime regretting that indecision. At any time in the past 50 years, this market has consistently presented ‘sticker shock’ to new buyers. And though history is no indicator of future results, once one gets over the psychological pricing hurdle and plans on at least a 3-5 year horizon, boldness in the Aspen market has almost always been consistently rewarded.