Roger Marolt: Roger This | AspenTimes.com

Roger Marolt: Roger This

Roger Marolt
The Aspen Times
Aspen CO, Colorado

It is time to pull our heads out of the snow. Look around this town and you will see that Aspen is not immune to the global economic meltdown. Yes, when it comes to skiing we are out of this world, but not when it comes to real estate.

It is time to acknowledge the reality in realty. Sure, it will be a little painful to admit that local real estate values have fallen tremendously, that annual appreciation of 15 percent or more per year is a dream from the past, and that there is, in fact, risk associated with investing in resort town property. However, and this is going to sound like the craziest thing you have ever heard, telling people the truth about investing in real estate here just might be the thing that gets our economy going again.

It is no secret that we are hardly a tourist-based economy anymore. According to Aspen Skiing Co. reports, skier visits over the holidays were down 8 percent from the previous year. There is no doubt that this is a huge number, but it does not explain the many people in our valley who cannot find jobs, have lost jobs, or are way down in the profitability of their businesses. This downturn did not start with a horrid holiday tourist season. It began more than a year ago with the bursting of the national housing bubble. Unfortunately, the effects are just now beginning (yes, I said beginning) to be felt locally.

Real estate sales and the resulting commission to brokers are few and far between. Contractors, who have been finishing up jobs started last year, have little in the way of work lined up for this summer’s building season. Service providers, everyone from housekeepers to interior designers, are feeling the pinch. So, what do we do about it?

First of all, we need to recognize that we are indeed different than most other places in the country. Few of us have any trouble with this aspect. What makes us different can be summarized fairly succinctly in two statements. Aspen is an extremely desirable place to live. And, there are people out there who have money and would like to invest it here.

Are you with me so far? OK, then here come the difficult things to get a grip on: First, Aspen is overpriced. By normal economic models predicated on predicting values based on utility (commonly known as rental rates), we are severely overpriced. And second, we are in complete denial about this.

The result is manifest on one readily observable condition: The real estate market is completely stagnant.

We are partially to blame for this condition. Over the years we have become conditioned to believe that real estate prices only move in one direction here. This is partially through actual experience with our own homes, and also from the inundation of ubiquitous real estate advertisements that have continuously told us that this is the case. As a result, although faced with direct evidence to the contrary, we have continued to market this place to buyers by telling them that Aspen real estate can, has, and will continue to defy the true laws of supply and demand. The problem is that we are the only ones who believe this. The rest of the world has figured out that it is not true.

So, how does changing our attitudes change the state of things? Well, you might be surprised about how well the truth works. The sooner we come to grips with reality, the sooner properties begin to sell again. Note that this does not imply or suggest that prices will begin climbing anytime soon. To the contrary, prices will fall, and they will keep falling until they provide the buyers with good values again. When current sellers understand that they have indeed lost money on their houses and that values are not coming back anytime soon, it may become a race to sell before values drop even farther.

The shocker is that this will be good for our local economy. What stock brokers have long known, Aspen real estate brokers will soon discover. They earn a commissions when prices fall just as easily as when prices are rising. They only need the market to move. When the sales occur, buyers will be far more likely to spend money on remodels and refurnishing their new homes after they acquire them at reasonable prices. It is far easier mentally to put money into taking care of a good sale boat (couldn’t resist) than it is into patching up a sinking ship.

The difficulty in all of this, of course, is that brokers, contractors and architects must now go back to the very customers they sold, built and designed homes for, and tell them that they didn’t get their money’s worth, that all that malarkey about forever increasing appreciation was bunk, that reasonable returns are all that anybody can expect from here on out. It’s not easy to change a mindset. But it is necessary to get us moving on the right track again.

In our past, wealthy buyers could easily justify spending millions of dollars on a house that they only used a few weeks of the year because it was appreciating at a nice annual clip. That dynamic is gone, and it looks to be that way for the foreseeable future. According to research done by Carmen Reinhart of the University of Maryland and Kenneth Rogoff from Harvard for a recent paper titled “Banking Crisis: An Equal Opportunity Menace,” in the five housing market declines documented in advanced economies of the world since 1977, the average duration of housing price declines averaged nearly five years with a decline in values of more than 39 percent.

If Aspen real estate is truly to be considered an investment, then we need to become more astute in the analysis of our commodity. As with all investments, there is a time to buy, hold, and, yes, even sell. As soon as we become credible in our assessments of the investments we have here, then we begin to recover economically.


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