‘Exacerbating Our Sluggishness’ In Aspen
The Aspen Times has a rare report on that Colorado town. “Getting the straight poop on Aspen real estate from most brokers is impossible. Unable to get at the truth, I contacted my old friend Turner Hicks to shed light on the local real estate market.”
“Q: Do you think owning a house in Aspen is a good investment? Turner: No.”
“Q: Ah, could you be more specific? T: You can read as well as I can. The City of Aspen 2005 Cost of Living Index Study revealed that real estate in Aspen has appreciated by only about 2.5 percent annually for the past six years. That’s far below the national average of almost 12 percent per year over the same time period. Those trend lines haven’t inverted since the silver crash.”
“That report you cite; nobody gives it any weight. It’s obvious that our local governments don’t know anything about numbers, finance, or economics. The signs of a booming real estate market are everywhere. Those paltry appreciation figures can’t be correct. T: You’re right. Actual appreciation was likely less than reported. The city simply compared average home sales prices over the years. But, Aspenites are addicted to home improving. Those never-ending upgrades and remodels figure into a rising average for home prices, but their costs are not real appreciation.”
“Q: You talked then about how Aspen was no longer an unknown quantity, thus the speculative qualities of real estate here were crap. Aspen is becoming more like every other small city with its chain stores, traffic jams, and even the same types of crime emerging. Aspen was no longer setting trends, but began chasing them. Has anything changed in that regard?”
“T: No, those tendencies towards conformity continue. Listen to the town’s leaders; the common argument is that we have to do this, that and the other thing to compete with everyone else. And, like everywhere else, we are now designing and building homes that will only exacerbate our sluggishness.”
“R: For example? T: Well, there is a simple axiom in real estate: Land appreciates in value; sticks and stones and even gold-plated bathroom fixtures don’t. Manmade components of real estate lose value with each passing day. Even steadily escalating replacement costs (you know, inflation) are usually not enough to offset the natural deterioration and obsolescence of whatever is ‘in’ now.”
“Back when properties in Aspen were truly appreciating at astronomical rates, houses were relatively inexpensive in comparison with the cost of the land. That trend is completely haywire now. Like modern suburban development, most Aspen properties are comprised of houses built lot line to lot line that cost up to three times as much as the underlying land that they sit on.”
“In this scenario, even if the land appreciates at a brisk 10 percent a year, the entire property only increases one-quarter that much, or 2.5 percent. Factor in normal wear and tear on the buildings, and you can easily end up with a property worth less than it was the year before, even in a strong economy!”
“R: What about second homes? T: They’ll be the first to go since they are totally discretionary. I think a shift is already occurring and manifesting itself in the popularity of time shares. They are incredibly lousy investments, but people are willing to risk the smaller outlay at this point in the game. At the same time, this temporary manic rush into time shares inflates all local real estate prices to unsustainable levels.”
“R: So, are you predicting a crash, then? T: Well, I will say this: It’s more likely to occur when everyone at the party is intoxicated.”
I have wondered why there were never any reports on how much appreciation there was in Aspen. Sounds like very little. The home to land ratio is out of whack all over the US, as dirt prices got so high, only ‘luxury’ homes penciled out.
Ben,
What happens to all these luxury homes when the price of dirt reverts to historical levels (e.g., something close to $0 around LV)? My gut tells me that without high dirt prices, it will be hard to sell a glut luxury McMansions for $1m a piece, but maybe Robert Toll knows something about hidden value that I am missing.
GS
IMO, the homebuilders started believing their own propaganda. But they did take the precaution of selling a good chunk of their personal stock positions.
“Q: Do you think owning a house in Aspen is a good investment? Turner: No.”
“Q: Ah, could you be more specific? T: You can read as well as I can. The City of Aspen 2005 Cost of Living Index Study revealed that real estate in Aspen has appreciated by only about 2.5 percent annually for the past six years. That’s far below the national average of almost 12 percent per year over the same time period. Those trend lines haven’t inverted since the silver crash.”
“That report you cite; nobody gives it any weight. It’s obvious that our local governments don’t know anything about numbers, finance, or economics.
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I would say this is good for Aspen. In San Francisco RE has gone up 400% in 5-6 years now. As a result employers are unable to attract or pay for these huge mortgages. They are looking at hiring in other states or countries to keep competitive. An affordable cost of living (housing) would save the mess we are in now today in the Bay Area. The guy in this article is not looking at it over the long term.
Believe it or not Nevada has the same problem. Teachers, nurses, police can’t afford a house. & people turn down jobs because of it.
Things are tough all over. Flagstaff is the same way; second home’s everywhere. The timeshare thing is a good indicator of a wobbly market. I know a former corporate exec that paid $10k for one of these things. He told me, ‘I didn’t even want it.’ Never uses it and can’t sell it either.
“San Francisco RE has gone up 400% in 5-6 years… ”
Where did you get this figure? If you are talking median home prices, that statement is untrue.
Read about Sales of expensive homes up.
“So far this year, sales of North Texas homes priced below $120,000 have fallen about 13 percent. During the same period, sales of houses costing between $120,000 and $200,000 have grown 14 percent, and sales of higher-priced houses have shot up 20 percent and more.”
Aspen is one of those places where the prices are “if you have to ask you can’t afford it”. It’s kind of a fantasy land like Telluride where movie stars and the uber rich buy. Like Telluride, Aspen is basically the end of the road. It’s too far to drive from almost anywhere, but they have airports with flights to Denver and elsewhere.
The Colorado Ski towns that would be a better read on market conditions are Vail, Breckenridge, Dillon, Steamboat, Eagle, Glenwood Springs, and maybe even Granby and Georgetown.
Aspen and Boulder are two places you should try to avoid when drawing conclusions about Colorado. Both those towns have been shooting themselves in the foot for so long they don’t even flinch anymore.
Exactly.
Comparing Aspen to 99% of other locales on earth is pretty much pointless. A lot of the houses are occupied two weeks of the year.
If I recall, the median home price there *15 years ago* was something like $1.2 million or $1.7 million.
12% nationally? Either there is a national bubble, or inflation is a bit higher than the Fed says, OR, both. How can anyone see 12%/year nationally as not a bubble, I don’t know. That’s higher than the longterm return on stocks.
As an avid skier, I would prefer that the Colorado ski towns be inhabited mostly by skiers. Aspen is a fun visit, as well as a great mountain for challenging runs.
Whenever I read the Aspen region papers, the locals are complaining about the congestion. There’s only a certain number of people that can squeeze onto a two lane mountain road and streets in the small town.
Movie stars can go to the Himalayas instead because even the movie industry is starting the foreign outsourcing trend these days.
ahhh..I love this:
T: Well, I will say this: It’s more likely to occur when everyone at the party is intoxicated.”
Yup…kinda like you’re 17, party at your house while the parents are out of town, you’re all tanked up and the cops show up.
The cops are showing up at just about everyone’s party these days!