The Estin Report: Aspen Real Estate Market and Trends: Spring 2008 By Tim Estin

By EstinAspen.com, Unfiltered 3-20-08

The Estin Report: Aspen Real Estate Market and Trends©: Spring 2008
By Tim Estin | MBA, GRI | Broker Associate | Mason Morse Real Estate Aspen
(see other articles on Aspen real estate by Tim Estin at www.EstinAspen.com)

The Aspen Market March/April 2008:
In spite of negative real estate and credit news almost everywhere, the Aspen market remains strong although it is slowing to a more normal historical pace.

According to data from Land Title Guarantee in their year end summary, 2007 Pitkin County real estate sales was “an incredible year”, the second best ever in terms of dollar sales volume, off an incremental -4.6%, from $2.62B in 2006 to $2.5B in 2007 in total sales.

However, in an attempt to quantify a trend, this broker isolated Land Title data from early Oct. ’07 to early Feb. ’08.

 Total number of transactions in Pitkin County is off -17.5% in the past four months.
 Dollar sales volume has fallen -40% to $606M from $1,016M in the same period of 2006/07. However, Dollar sales volume is off only-12% from the Oct to Jan ‘05/06 period
which was $691M.

 A bell curve showing dollar sales volume from Oct. through Jan for the last 3 years looks like this: Apex
Late fall ‘06/early winter ‘07 at $1,016M
‘05/06 at $691M [within 12% of one another] ‘07/08 at $606M

 Present transaction activity is at a level close to early-mid 2004, although that was a period of rapidly increasing momentum. In terms of dollar volume, we are at late 2005 levels when prices were on a huge price upward trajectory.

There is a big disconnect between buyers and sellers right now. But in Aspen it is creating a unique self-correcting market mechanism keeping prices aloft:

• Buyers believe we are in a buyer’s market because the daily national housing and credit news is so bleak; sellers don’t seem troubled because for the most part they’re not forced to sell.

• Dissatisfied sellers will simply take their property off the market if it doesn’t sell, and that keeps supply in check and prices from falling dramatically.

• Buyers and sellers are at a stand-off, and this is likely the reason according to a recent study by the Aspen Times that for the first two months of 2008 “the total number of monthly transactions in Pitkin County has fallen off by 23%.

Through the end of February ’08, sold prices for high quality properties – as defined by great location, high end remodels and brand new properties, well priced tear downs and renovation projects – remain strong with little discounting from list prices. Prices for properties unrealistically priced, that have sat on the market a while, are coming down. But we are not seeing anything close to falling prices, nor foreclosures at all, experienced by the rest of the country.
~ ~ ~ ~

Whether Aspen’s past four year’s of unprecedented demand, limited inventory and significant price appreciation can be sustained remains to be seen. At present, the trend is a slowing market.

If history is a guide, even if the Aspen market slows down or flattens, significant price decreases – and specifically ‘deals’ – will be minimal or unlikely except in unique circumstances. The average sold to list price is above 95%, and over 70% of transactions are cash. Owners here can afford to wait it out.

Except for those with foreign currency, the reality is that Aspen has few ‘bargains’.

Buyers are beginning to have more choices as inventory levels increase incrementally, and this may be a better opportunity than any other in the past four years for them to be selective with more quality product to choose from.

National events, of course, could ultimately tip the balance here between demand and supply
over the next 12 months: uncertainty abounds right now … In the immediate post 9/11 period, it took Aspen at least six months before a local slowdown began, and that was mostly related to tourism falling off precipitously, not real estate. For the two years following, Aspen RE prices
were more or less static, with some unique cases of owners selling at a loss, but the market was just slow and flat. Values were maintained while short term appreciation stagnated.

If there is in fact a cooling off trend, it should be regarded as a healthy sign. A return to a more normal, versus hyper, market pace can either be construed “the pause that refreshes’, (like other prior flat Aspen market periods) or “business as usual”. Any slowdown here seems to represent a cyclical interval consistent with Aspen’s history of rapid price appreciation followed by market lulls, not fall-offs. This steady step pattern, rather than boom or bust volatility, is representative of Aspen’s long term investment strength.

This time, however, a market lull may be the calm before a long sustained wave of huge demographic and economic trends bearing down on us like a rolling tsunami. These trends will be discussed in the next few pages after the details of present market conditions are listed below.

Aspen/Snowmass: Market Facts

Aspen Appraisal Group - 2007 Year End Data:

Aspen Single Family Homes:
• For the year, Aspen single family home transactions are expected to be down 26% from (134) sales to (99) sales, while the average number of listings have increased 10% to (154). The total dollar sales volume is expected to drop approximately 15% from last year’s record dollar sales of $2.64B.
• The average Aspen home price is now $6.2M (+14%) from $5.45M in 2006.
• The median, or mid-point, sale price is $5.55M (+30%) from $4.15M in 2006.

Aspen Condos:
• The average price for an Aspen Condo is $1.2M (+9%) in 2007 versus $1.1M in 2006.
• The median price is $1.15M (+18%) versus $975K in 2006.

Aspen Lots:
• The Aspen vacant lot market continues a trend witnessed in 2006 of falling sales and more listings. Sales continue to lag behind a swelling number of listings. There is estimated to be an approximate 2 ½ year supply of lots. A significant factor influencing this is that developers and builders are withdrawing from the market leaving only end user buyers.
• The average lot price has increased +20% to $4.6M from $3.65M in 2006. The low end is priced at high $2M-low $3M.
• The median lot price is approximately $3.8M
• There is very little undeveloped land in Aspen and much of the increase in lot listings reflect a dearth of quality developable land, and buyer’s balking at high prices for constrained and compromised buildable sites. The product is staying on the market longer.

Snowmass Single Family Homes:
• The average sale price of a home in Snowmass increased an astounding +50% in the past year from $3.5M in 2006 to $5.5M in 2007.
• The median price increased +30% from $3.1M in 2006 to $4.1M in 2007.
• The huge average sales price increase has been driven by the fact that the houses that
are selling are the best and most expensive, while the less desirable are languishing. Whereas in 2005 and 2006, the number of sales exceeded the number of listings reflecting the very heated market, there is now an approximate balance between sales and listings.


Snowmass Condos:
• The wildcard affecting value is the new Snowmass Base Village. The market for new, well
located condo product is very strong in Snowmass, and not as strong for older condo properties.
• The average condo price is $1.2M (+20%) versus $1M in 2006.
• The median price s $950K.
Snowmass Lots:
• The average lot price has fallen to $2.2M from $2.75M in 2006.
• The median lot price has fallen from $2.4M in 2006 to $1.8M in 2007
• The lot data really reflects the fact that there are few vacant lots available and those that are available are of less quality and questionable developable (compromised) prospects.

***
National and Local/Regional Trends Affecting the Aspen Market

National Trends:
• 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. And they are ready to spend now.
• Interest Rates and Credit: Since Sept. ’07, Fed funds rates have come down 1.75 basis pts. with another .75 to 1.00 bpts lowering anticipated in Mid-March. Lower rates should mean lower housing costs, but their effect so far on mortgage rates has been counter intuitive. The Street sees these cuts as inflationary so investors buy bonds, upping interest rates. And lending standards are dramatically on the rise. Even buyers with good credit are finding if more difficult to obtain financing.
• Stock Market: 1st Quarter ’08 has been miserable, DJIA is down 9.7% and S&P is off 13% (as of Mid-March).
• Job Growth: As of yet, there is no evidence in the employment data that suggests the economy is in the midst of a major meltdown and officially in recession.
• Fall of the Dollar to record lows: Miami, Manhattan, Aspen … Just as Manhattan and Miami are “On Sale”, the same can be said for Aspen. For foreigners, there is a precious window of opportunity to buy blue chip Aspen real estate at bargain prices.
• Global Wealth: There has been a huge ratcheting up of global and US wealth accumulation. China, India and Russia are obvious international examples. Until recently, the hedge fund industry in the US has been remaking the world of wealth.
• Big Money Skews Property Values in Already Rich Enclaves: According to a recent New York Times article, this 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 over 15%.”
• 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.
• 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 seem to be buffered by market volatility. An October 2007 article in the NY Times stated, “The very very high end of the communities such as the Bay Area, LA, NYC, Miami and to a lesser degree Chicago, Seattle and Washington that have global appeal have held up much better than rest of the housing market…much of their buying is done with cash and not affected by the global financial turmoil and its impact on the availability of mortgages.”
• Credit Crunch/Recession Possibility: In light of the credit melt-down and a possible recession’s affect on high end real estate, the on-line magazine, Financial Planning, recently wrote, “High Net Worth individuals are vulnerable to changes in their net worth. As "qualified investors" with access to hedge funds, they may have seen their portfolios damaged more seriously in recent months than have standard-issue investors. The larger question is whether the credit crunch will spark a full-blown recession. If it does, even the richest Americans could find their wealth diminished, at which point it will become much clearer how well insulated top real estate markets truly are.”
• Trophy Properties: Everywhere one looks, trophy properties are being snapped up at unbelievable prices.

Regional/Local Trends:

• Fastest Growing Region: According to the Center for the Rocky Mountain West, 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.
• Local Population Growth Forecasts: According to a recent October 2007 Healthy Mountain Communities: State of the Valley Symposium, the population of Eagle, Garfield and Pitkin Counties combined is expected to increase 20% from 116,500 in 2005 to 138,800 in 2010. By 2025 it will ‘soar’ to 220,000 or 88% more than the current level. Nationally, the growth rate has been 1% annually; the Pitkin County growth rate is 1.4%, Garfield County is 4.5% and Eagle County is 3.2%. The big driver of the Pitkin County economy will be surging demand for second homes for reasons cited above. In the next 20 years, Pitkin County’s population is expected to increase 46%.
• Parents Purchasing College and Resort Properties for their Children: More and more parents are purchasing housing for their children in college and resort towns as a way to defer expensive housing costs for the kids, to use the property as a 2nd home, possibly for retirement, and to take advantage of the potential appreciation.
• 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, these lands 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 (Strict Zoning) 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. One of the great ironies of our area is that the unprecedented clamping off of new development fuels higher and higher prices as supply is artificially constrained.

 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.
 The other counties of the Roaring Fork Valley - Eagle and Garfield Counties - have 79% and 63% publicly owned lands respectively.

• Lack of Speculative Activity: The high price of real estate, strict zoning, lengthy and
uncertain approval process and limited available land has made any kind of development hugely expensive and risky. The economics of the projects are difficult to justify. But where new projects have been finally approved and developed, design guidelines have maintained the overall quality of small town living.
• Affordable Housing Shortage: The lack of affordable housing is driving Aspen’s
employees further and further down valley to Glenwood Springs, Rifle and beyond. This
detracts from a local community base and ultimately diminishes a thriving and dynamic ‘small-town’ character of Aspen.
• Increasing Traffic: There has not been a City/County consensus to solve the “Entrance to Aspen” problem for thirty years. Meanwhile, traffic in town and on the west side of
town during commuting hours gets worse every year. The only through road into Aspen for employees, trucks, slow moving construction vehicles, tourists and second homeowners, Highway 82, is pushed to capacity eroding the overall quality of life. But it’s not even close to big city traffic …yet.

2008 Spring/Early 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 solid portfolio diversification plan.

In the context of the rest of the country, we are literally and perceptually an island: literally, we are at the end of the road surrounded by majestic beauty that is 94% publically owned or land banked, only 6% privately owned and with extreme controlled-growth governmental policy designed to protect and preserve it all; perceptually, we are a unique sports and nature, cultural, and intellectual Mecca sought after by an increasingly wealthy constituency, both national and international, in spite of the present very dismal macro economic picture.

Presently, the unprecedented local real estate appreciation levels and hyper-activity of the past 4 years is slowing. And yes, it is likely to take longer to market properties. But while the present
national housing crisis appears to be causing at least a ‘reality check’ for the Aspen market, in the longer term there will be a dramatic increase in demand for the quality of life Aspen and Roaring Fork Valley offers based on the significant demographic, socio-economic and local trends cited earlier.

Whether Aspen is the land the national housing slump forgot, or sunning itself before a long dark winter, is anyone’s guess. A credit or stock market meltdown, a strengthening dollar, a terrorist strike, even higher energy price spikes, a recession and other unforeseen shocks to the US and Global economies certainly could inflict blows to the Aspen real estate market.

If one is concerned about market timing, especially whether it is prudent to buy into a peak, or maybe even a flattening market, please remember this fact: at any point in time in Aspen, prices have always been setting new records.

In the early and late ‘70’s, two extreme periods of exorbitant interest rates in the high teens, this market suffered. Other than that, this market has experienced lulls, ‘pauses’ for 1 – 3 years (as example, post 9/11 the market stagnated for about 30 months) but no overall loss of dollar value.

The historical pattern has been that when Aspen prices stabilize, this flattening becomes the new base for the next market climb.

In the bigger picture, those who have sat on the sidelines waiting for a ’great deal’ or a market correction have basically spent their lifetime regretting that indecision and procrastination. 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.

The statements made in this document represent the opinions of the author and should not be relied upon to make real estate decisions. Information concerning particular real estate opportunities can be requested from Tim Estin at 970.309.6163 or at testin@masonmorse.com. A potential buyer is advised to make an independent investigation of the market and of each property before deciding to purchase. To the extent the statements made herein report facts or conclusions taken from other sources, the information is believed by the author to be reliable. However, the author makes no guarantee concerning the accuracy of the facts and conclusions reported herein.
~ See other articles on Aspen real estate by Tim Estin at www.EstinAspen.com ~
The Estin Report: State of the Aspen Market and Trends©
Copyright 2008 EIA, Inc. All Rights Reserved

Tim Estin Profile
I learned to ski before I could walk, went to elementary school in Aspen, and was a Founding Director of the Tenth Mountain Hut & Trail System* between Aspen and Vail with one of Aspen’s legends, my friend and mentor, Fritz Benedict. I love living in Aspen, I love my work and sharing these passions with others.
After graduating from Colorado College and getting an MBA from Boston University Graduate School of Management, I worked in luxury mountain resort consulting (Sno-Engineering, Inc./Aspen) on major US and Canadian projects and then managed national advertising accounts for Timberland, Boston Whaler, Apollo Computer (acquired by Sun Microsystems) amongst others.
In 2007, I served as the Aspen Board of Realtors/Liaison to the City of Aspen. Before this, I was the Aspen
Board of Realtors/Liaison for the new 2006 Pitkin County Land Use Code (LUC) Rewrite approved in July ‘06 after an extensive two year review. I also served as a member of the Pitkin County Land Use Code/Technical Advisory Committee advising the Planning & Zoning Commission and the Pitkin County Board of Commissioners on land use issues. Although theses volunteer positions have involved communicating policy, political issues, code changes, and their consequences to property buyers and sellers and to the Aspen real estate community, I do not represent myself as an expert nor professional in land use issues. As the new Code evolves and amendments and/or changes are made, it is always my recommendation that clients consult with professionals in their respective fields of expertise to satisfy their property concerns.
I contribute articles and comments on local and regional real estate issues in the Mountain Business Journal, a regional weekly business magazine, and the Aspen Times, Aspen Daily News, Aspen Magazine, and others. This information is the basis of The Estin Report © which is updated regularly and can be read and downloaded at www.EstinAspen.com
In my non-work hours, I participate in The Buddy Program (an Aspen School District mentoring program), the International Design Conference/Aspen, the Aspen Institute Ideas Festival and local performing arts organizations.
I have a reputation for approachability, creativity, great loyalty and an unbelievable work ethic. If you, your family and/or friends are looking for unparalleled Aspen/Roaring Fork real estate service, information and discretion, please call 970.309.6163 or email me: testin@masonmorse.com
**One of the great outcomes of being involved with the beginning of the Tenth Mountain Hut and Trail system was the opportunity for my family to build the Peter Estin Hut in memory of my Dad. He was a former FIS racer and Dartmouth ski team captain, Director of the Ski Schools at Portillo, Chile and Sugarbush, Vt. and a New Yorker magazine cartoonist. In the early 60's, he wrote, "Ski the American Way" considered a ski teaching classic. (See: www.huts.org)

Tim Estin | testin@MasonMorse.com | www.EstinAspen.com | 970.309.6163 cell

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