Roger Marolt: Roger This
August 6, 2010
I do not believe that the housing market in Aspen is poised to recover anytime soon. Yes, the rich are still rich and have lots of money to spend. Yes, this is one of the most beautiful places on Earth. Yes, there is limited amount of space to build on here and they can’t make more of it. Yes, interest rates are historically low. Yes, the local inventory of houses for sale is at a level higher than anybody could have imagined three years ago, offering buyers plenty of choices. Yes, prices have dropped anywhere from 25 to 45 percent from their peak. Yes, there is a noticeable uptick in activity and interest lately. Yes, buying a home here is investing in a.) yourself b.) your family c.) a lifestyle d.) all of the above. And yes, in spite of all this I think our real estate market will be treading water in the tank for quite awhile yet.
And, of course, after making such a monumentally important and impactful statement, you want to know why; why do I insist on being so sacrilegious?
Well, sacrilegious or not, just because I say it doesn’t mean it’s going to happen, so cool your Lear jets. It’s just speculation, and it’s not like nobody in this town has ever speculated on anything, right? In fact, speculation in ore, dirt and ideas is our heritage. We need to preserve that. Besides, as you know, I am always wrong, so what I posit here should bring great joy to the broker-licensed masses.
But, don’t think I made my opening statement just to be smart either. I really don’t think the local real estate market is close to recovery. The way I see it, we are experiencing a monumental shift, as in, things are going to be different now. That is, the number one, by far, built-in feature that traditionally has enticed people to buy homes here no longer exists.
That’s right. The greatest amenity any home in this town has had to offer prospective buyers over the past four decades, double-digit annual appreciation, is history. You can say what you want about proximity to town, privacy, acreage, river fronts, mountain views, outbuildings, great rooms, powder rooms, heated garages, deck space, storage space, media rooms, game rooms, pool rooms, swimming pools, vaulted ceilings, custom kitchens with granite countertops and reclaimed hardwood flooring, master suites, master baths, and masterful works of art hanging on the walls, the thing that really, truly, and honestly has sold real estate in Aspen has been the brokers – did I just say that? – I mean, huge capital gains.
That’s off the board now. The beans have been spilled. Time has told. Not only is Aspen not a full-proof investment with a guaranteed return, your slice of the pie might even end up whip cream-side down when the time comes to flip it.
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Here’s how it used to work: You bought your house in Aspen. It cost $11,280.52 a year in property taxes. The utilities amounted to $18,502.14. Snowplowing piled up another $3,450.20. Property insurance was an even seven grand. The petunias and peonies in the garden surrounded by manicured grass cost $7,180.23, as if money grew on trees. Throw in a few plumbing, electrical and painting issues for another $8,000 or so, and you realized life in Nirvana wasn’t free. So you rented it out when you could and that brought in $50,000. But after the property management company took its fees, commissions and expenses, you netted only $17,000. But, and it’s a big but, the doggone thing appreciated 12 to 16 percent a year (depending on which real estate office newsletter you subscribed to), or about $750,000! Ka ching! Ha! Ha! You really do have to spend money to make money, but it’s been a pleasure doing business with you, Aspen!
And that was the magic formula. It didn’t matter if you didn’t spend even one minute in your beautiful Aspen home enjoying the scenery from the hot tub. It didn’t matter how much it cost to maintain it. It didn’t matter what the property taxes were. Peanuts! It was increasing in value so fast that you could easily justify owning it … even to yourself!
The math isn’t so easy anymore. And, if you are only in your home away from home for nine days at Christmas and a long weekend over the Fourth of July all those costs add up to one huge pile of guilt. When you take away the “investment qualities” of a vacation home it converts the thing into a 6,000-square-foot obligation. Who needs that? I’ll tell you who doesn’t: you, me and not even the richest person on this planet.
Here’s an interesting fact for you: Do you know that wealthy people in this country are defaulting on their mortgages at a higher rate than everyone else? It’s true. As reported in the July 8 edition of The New York Times, the delinquency rate for homes with mortgages over $1 million is about 14 percent, versus 8 percent for homes with less debt. There has been endless analysis and commentary on these findings, but it boils down to one thing in my mind: Bigger houses are far more expensive to operate than smaller ones. It’s not proportionate either. Plus, vacation homes are typically more expensive to maintain than primary residences. And, vacation homes in ritzy communities are the most costly to maintain of all. You can deal with lost appreciation. That only counts on paper. Operating costs, on the other hand in your wallet, are paid for with cold, hard cash. That’s what hurts, every single month. And, that’s what people are running away from.
So, you do the figuring. If wealthy people are giving up on their expensive houses more frequently, is it a stretch to think that they are also not getting back into them as readily? This is what worries me. That’s why I think we had better figure out another reason for people to come here besides promising them they’ll make a profit.
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