Is now a good time to buy Aspen real estate?
Aspen, CO Colorado
The question I’m asked most these days “is this a good time to buy Aspen-Snowmass real estate?” The second most frequently asked question is “are we going to see property values in Aspen drop substantially like they have in other markets before this real estate downturn will run its course?”
Nationally, home prices have fallen an average 18 percent from their peak in the first quarter of 2006. Prices are expected to fall an additional 10 to 15 percent between now and mid-2009. What’s important to note is that these are national averages, which mean some areas of the country have seen declines greater than 18 percent and some have seen less.
The primary reason for the dramatic declines in real estate values across the country is the credit crisis and the general de-leveraging of our financial system. Approximately 5 percent of mortgages are at least 30 days past due at the end of the third quarter, according to national credit agencies, up from 4.6 percent in the second quarter and 3.5 percent a year earlier. In weak markets like Florida and Nevada, delinquency rates now top 8 percent. Despite this, even in markets that have seen the greatest decline in average property values, such as South Florida and Southern California, there are prime neighborhoods and communities that have not experienced any significant declines in value.
The reasons for this dichotomy are the prevalence of leverage and “location, location, location.” Property owners in communities and neighborhoods where buyers are more likely to buy properties without using financing, or buy using a lower loan-to-value ratio, (typically wealthier areas) are likely to weather a real estate slowdown much better than areas where properties are highly leveraged, and where property owners and lenders may need to significantly discount properties to sell quickly. The other factor in real estate pricing is location. In real estate, the best located properties always appreciate well in good times and hold their values the best in bad times.
So how is the Aspen real estate market faring compared to the rest of the country? Is this a good time to buy or should we wait for a more significant decline in prices?
The real estate slowdown started in the Aspen area about 12 months ago. Since then, we’ve seen a 28 percent decline in the number of transactions and a 41 percent decline in the total sales volume from the previous 12 months. In addition, the average price and median price of a property sale in the past 12 months are 18.7 percent and 41.6 percent, respectively. They are below the average and median price of a sale in the previous 12 months. Those statistics, however, do not mean Aspen real estate prices have dropped dramatically. Although the total number of transactions has declined 28 percent in the past 12 months, the number of property sales over $10 million has declined about 61 percent. The decline in sales over $10 million has brought the average and median sales price number down significantly but that does not mean property values have declined.
Despite the obvious slowdown in Aspen’s real estate market and a few properties selling at discounts below prices at the height of the market, buyers are wondering whether Aspen’s real estate values are going to decline more dramatically like the rest of the country.
A significant decline in Aspen real estate values is unlikely for two main reasons. The first is the lack of leverage in the Aspen market. In the past 12 months, 61.3 percent of total value of real estate purchased in Aspen was bought without financing. In the previous 12 months, that figure was 69.1 percent. Aspen is a highly un-leveraged real estate market and is not subject to the same de-leveraging forces playing out in other markets around the country. The second reason Aspen is unlikely to see a significant decline in value is “location, location, location.” Aspen represents the “A” location in the world of resort real estate. As noted earlier, well located real estate and markets historically have not typically suffered the same degree of value declines as less well-located property and markets.
In addition, the inventory of properties on the market for sale in Aspen and Snowmass is starting to decline modestly. At the beginning of September, approximately 463 homes and condos in Aspen and 197 in Snowmass were on the market for sale. Today, the inventory has declined to 419 in Aspen and 164 in Snowmass. This modest decline is more the result of expired listings and properties being withdrawn from the market rather then sales, but a declining inventory is one of the first signs that real estate is beginning to recover.
It’s always difficult to call the bottom in any market. However, there is growing evidence that Aspen’s real estate market may have in fact bottomed. In the past 33 years, Aspen has only experienced six years, including the current year, where the average real estate sales price has declined from the previous year as reported by the Aspen Board of Realtors. Aspen has never seen a decline that lasted more then one year. Following every year that the average sales price declined, Aspen’s real estate market’s average sales price increased an average of 27.2 percent.
Recently Warren Buffet, chairman of Berkshire Hathaway and considered by many as one of the greatest investors of all time, wrote an article for The New York Times where he said “Be fearful when others are greedy and greedy when others are fearful.” He went on to say “In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary … so, I’ve been buying American stocks.” Buffet also made a similar call in 1974 at the bottom of the 1968 to 1982 bear market.
So is this a good time to buy Aspen-Snowmass real estate? It’s hard to be absolutely certain, but if history is any prediction of the future, this may be the best opportunity to buy Aspen-Snowmass real estate that we’ve seen in 33 years.
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