REAL ESTATE VERSUS UNREAL ESTATE
In Colorado, Real Estate Occupies Two Different Universes
By David Frey, 8-31-07
Take this recent headline in Denver’s Rocky Mountain News: “New-home sales down a third.” The same day, 200 miles away in Aspen, the Aspen Times ran this headline: “Downtown property listed for $39 million.” (And part of that was just a parking lot.)
While Colorado’s Front Range real estate market, sweeping across metropolitan areas stretching from Fort Collins to Colorado Springs, has been sputtering, mountain real estate continues to soar, as if all the talk of a bursting real estate bubble were science fiction. Like mountain real estate in much of the West, prices are riding what seems like a nonstop updraft. Buyers are snatching up mansions and townhouses, condos and lofts, ranches and fractional vacation getaways, sometimes sight unseen, sometimes before they’re even built.
If it seems like the two markets aren’t part of the same state, let alone the same universe, maybe they’re not.
“The demand (for mountain real estate) comes from the class of buyer who just isn’t affected by other aspects of the economy,” says William R. Travis, an associate professor of geography at the University of Colorado and author of the recent book “New Geographies of the American West,” maps the land use changes affecting the New West.
“It’s just a whole different class of money,” he says.
These are buyers who don’t need mortgages, and when the stock market tumbles, they’re still on their feet. In fact, Travis says, they’re often looking for other places to stash their cash, so when the stock market takes a dive, rather than driving down demand for mountain getaways, it seems to have the opposite effect.
After Sept. 11, Travis says, “most people remember that we had an economic slowdown. Mountain real estate didn’t. It just depends what you keep your eye on. Those whose bread is buttered by mountain real estate love to put out the big sales. The large-value, the multi-million-dollar homes. And that didn’t slow in Colorado or elsewhere. New records were set in’01, ’02, ’03, ’04 and ’05 in Aspen, Vail and elsewhere.”
Last year, a home outside Carbondale set a state record for the priciest sale ever – $47 million for Crystal Island Ranch. Uphill in Aspen, Saudi Price Bandar’s palace sits on the market for $135 million.
Mountain real estate has become the market of the titans, driven by moneyed classes that don’t blink when prices soar. It’s not just the resorts, where the not-so-funny joke is that the billionaires are driving out the millionaires. Skyrocketing prices are putting the squeeze on downvalley towns. Once worker bee havens, these towns are seeing townhouses sell – in days – with half-a-million-dollar price tags. Single-family homes for sale can average over $1 million.
The Front Range is part of the economy most mortals are familiar with. Sales there have taken took a tumble thanks, first, to a post-9/11 economic slump, the Rocky reports. Jobs shrank, but developers didn’t stop building. Then came the sub-prime mortgage crisis, and as woes in the mortgage industry continue, it becomes harder and harder for buyers to get loans, while foreclosures mount.
“Certainly, at least for the short term, it is going to be more difficult for anybody to get a loan,” Colorado economist Tucker Hart Adams tells the Rocky.
So while Front Range homes see their price tags drop thanks in part to sub-prime home loans, buyers of mountain real estate are handing over cash for multi-millionaire-dollar spreads.
Will the boom ever bust? Maybe, Travis says. Maybe when the buyers are all dead. Or at least too old to want a palace in the mountains. Retiring baby-boomers are driving this real estate rush in the mountains, and when they’re done buying real estate, the generation doesn’t seem to have the numbers to follow suit.
So fast-forward 20 years and the market may trail off. In the meantime, Travis says, “I would still invest.”
Others are less optimistic. Courtney White, an opinion writer for Headwaters News, joins the chorus of skeptics who believe rising energy costs will spell doom for the mountain resort boom. It’s an idea gaining currency among peak oil adherents who worry the days of cheap oil are dwindling and with them, the boom economy fueled by cheap travel and cheaper imports.
“Think about the two-hour one-way daily commute into Los Angeles for work, or the costs associated in reaching that second home in the woods, or just driving to the grocery store,” he writes. “And it’s not just about driving – fossil fuel permeates nearly every aspect of suburban development and maintenance. When costs rise, we may reconsider our behavior. We may have to.”
Travis doesn’t buy it. “I think people will find ways to accomplish their land-use goals,” he says.
Time will tell. In the meantime, the result is a state divided by mountains in more ways than one. The market of Colorado’s flat lands remains grounded in the real world. The market of the mountains is sky-high, linked to a global economy of jet-setters who can park their Gulfstreams at their mountain castles for a week without glancing at the credit card bill when they get home. And their credit card accounts don’t seem to be getting maxed out anytime soon.
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Comments
I'm not sure how long before the mountain resort bubble begins is disinflation, but my guess is that over the next 20 years, buyers will be pulling back. Why? Two reasons.
1 - Over the next 20 years, potential buyers will be told of the West's clear views and good air, but will also be noticing the news of wildfire, homes burned and, ahem, health warnings with special pertinence to the potential baby boomer retiree market.
2 - I expect the real estate market as a whole to be increasingly informed by the likes of reports excerpted just below.
SCIENCE http://www.sciencemag.org
13 AUGUST 2004 VOL 305
More Intense,More Frequent,and Longer Lasting Heat Waves in the 21st Century
Gerald A.Meehl*and Claudia Tebaldi
ABSTRACT : A global coupled climate model shows that there is a
distinct geographic pattern to future changes in heat waves....
Observations and the model show that present-day heat waves over Europe and North America coincide with a specific atmospheric circulation pattern that is intensified by ongoing increases in greenhouse gases, indicating that it will produce more severe heat waves in those regions in the future.
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Proceedings of the National Academy of Sciences
PNAS _ January 9, 2007 _ vol. 104 _ no. 2 _ 543–548
http://www.pnas.org_cgi_doi_10.1073_pnas.0606078104
Contingent Pacific–Atlantic Ocean influence on multicentury wildfiresynchrony over western North America
Thomas Kitzberger*, Peter M. Brown , Emily K. Heyerdahl , Thomas W.Swetnam , and Thomas T. Veblen _
ABSTRACT : Widespread synchronous wildfires driven by climatic
variation, such as those that swept western North America during 1996, 2000, and 2002, can result in major environmental and societal impacts. Understanding relationships between continental-scale patterns of drought and modes of sea surface temperatures (SSTs) suchas El Nino-Southern Oscillation (ENSO), Pacific Decadal Oscillation(PDO), and Atlantic Multidecadal Oscillation (AMO) may explain how interannual to multidecadal variability in SSTs drives fire at continental scales….. Since 1550 CE, drought and forest fires covariedacross the West, but in a manner contingent on SST modes. …. A current warming trend in AMO suggests that we may expect an increasein widespread, synchronous fires across the western U.S. in coming decades.
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SCIENCE http://www.sciencemag.org 940
18 AUGUST 2006 VOL 313
Warming and Earlier Spring Increase Western U.S. Forest Wildfire Activity
A. L. Westerling, H. G. Hidalgo, D. R. Cayan, T. W. Swetnam
ABSTRACT : Much of the public and scientific discussion of changes inwestern United States wildfire has focused instead on the effects of 19th-and 20th-century land-use history. We compiled a comprehensive database of large wildfires in western United States forests since 1970 and compared it with hydroclimatic and land-surface data. Here, we show that large wildfire activity increased suddenly and markedly in the mid-1980s, with higher large-wildfire frequency, longer
wildfire durations, and longer wildfire seasons. The greatest
increases occurred in mid-elevation, Northern Rockies forests, where land-use histories have relatively little effect on fire risks and are strongly associated with increased spring and summer temperatures and an earlier spring snowmelt.
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JOURNAL OF HYDROMETEOROLOGY
OCTOBER 2006
Modeling the Recent Evolution of Global Drought and Projections for the Twenty-First Century with the Hadley Centre Climate Model
ELEANOR J. BURKE, SIMON J. BROWN, AND NIKOLAOS CHRISTIDIS
Hadley Centre for Climate Prediction and Research, Met Office, Exeter, United Kingdom
ABSTRACT
Overall, the model predicts slightly less frequent but longer events than are observed. Future projections of drought in the twenty-firstcentury made using the Special Report on Emissions Scenarios (SRES) A2 emission scenario show regions of strong wetting and drying with a net overall global drying trend. For example, the proportion of the land surface in extreme drought is predicted to increase from 1% for the present day to 30% by the end of the twenty-first century.
----------------------------
SCIENCE
13 AUGUST 2004
VOL 305
More Intense,More Frequent, and Longer Lasting
Heat Waves in the 21st Century
Gerald A.Meehl and Claudia Tebaldi
ABSTRACT :
A global coupled climate model shows that there is a distinct
geographic pattern to future changes in heat waves. Model results for areas of Europe and North America, associated with the severe heat waves in Chicago in 1995 and Paris in 2003, show that future heat waves in these areas will become more intense, more frequent, and longer lasting in the second half of the 21st century. Observations and the model show that present-day heat waves over Europe and NorthAmerica coincide with a specific atmospheric circulation pattern that is intensified by ongoing increases in greenhouse gases, indicating that it will produce more severe heat waves in those regions in the future.
End excerpts