A lot has happened since my last report at the beginning of the third quarter, both locally, nationally and internationally. The famous Aspen mantra, “we are recession proof,” has been exposed. The recession of the mid 70’s (at that time the worst since the depression), the worldwide recession from 1980-85, the crash of Nasdaq and the Big Board in March and December 2000 respectively, and 9/11 were severe for much of the rest of America, but not so bad from Aspen’s point of view. This meant that the negative effect was more on a seller’s expectations of hoped for increases in value, than a true loss of value. The breadth and depth of this current downturn has shown that Aspen is not always recession proof. Another Aspen mantra, “we are the last to be hurt by economic downtrends and the first to recover,” is also being challenged by the length and severity of the meltdown. We may have been the last resort to be hit by the current recession, but it is not clear when the tide will change.
Another local real estate company reported that the third quarter Aspen real estate activity in 2009 is up over the previous quarter for the first time in over a year. Also they reported that the number of transactions was up in the ‘09 third quarter over the third quarter in ‘08 by 10%, and the dollar volume was up for the same period by approximately 1.5%. As Waylon Jennings once said, “it wasn’t love, but it wasn’t bad!”
In other words we may be seeing more activity, but it is going to take longer to emerge from this severe period than we hoped. Of the 30 + properties under contract in October many of these properties are now closing at 30 % below the originally listed prices and 20% below adjusted asking prices. Stirling Homes, Inc. has over 10% of those 30 + contracts. Buyers were reluctant to make a move, unless they believed we were at or near the bottom of this downswing. If Aspen real estate brokers were buyers in this market, they would be or were value buyers, just like every other buyer. It’s the nature of the beast. The Mexican stand off between buyers and sellers is now receding, as sellers have become more in tune with the realities of the economy. Buyers are beginning to respond.
The West End has been the busiest sector of the upper valley market. There have been 14 West End closings so far in 2009, and the average price per square foot is just under $1100. Ten of the closings have occurred since September 1, ‘09. There were 13 closings for this same period in 2008 in the West End, with nine closing before mid September ‘08. The average price per square foot was $1300. There are 4 West End properties under contract, though one is an under built Victorian asking $3600 per square foot. That property is in a long escrow. The average actual contract price for three of those four properties per square foot is just above $900 per s.f. Have we hit the price bottom yet? In one year’s time, the price per s.f. has been reduced by more than $300! That is approximately a 30% loss in value as compared to the same period in ’08.
Our inventory has swollen, and there are over 240 properties listed in the upper valley for over $5M, and over 50 for sale for over $10M. In Colorado there are over 30% more foreclosures in July 09 than July 08. In Aspen there have not yet been as many foreclosures as there were in the 2000-2002 period. We have also seen a few short sales, which is when a property is sold for less than the accumulative encumbrances. A number of property owners used their properties like ATM machines in the halcyon times. They were able to parlay their equity into larger and larger loans, as property values continued to escalate. The downswing has put these property owners in jeopardy.
There have been three sales over $12M in the upper valley in this quarter. Though this is encouraging, the upper end of our market has always been somewhat impervious to economic changes. This top of the market liquidity is a bit less strong than in earlier down swings.
There was no question that our market needed a correction. Corrections are necessary and actually essential to an on going healthy market. However, no one dreamed that the correction would be so severe. Stirling Homes, Inc., like all other surviving brokerages, is working hard and in a very focused way. We are the oldest rental and property management firm in Aspen, and though rentals are also dramatically lower than last year, that income coupled with real estate sales is extremely helpful in keeping us on an even keel. Though the worst of the recession may be behind us in Aspen, the economic recovery generally will be uneven and anemic. My fearless forecast is that we may have not yet hit the price bottom, but we are close. We cannot expect that we will recover so quickly as in down turns of yesteryear.