Local Links:
The Telluride Association of Realtors September 2007 Newsletter
Telluride Consulting's September/YTD Overview
The Upside of a Down Market
Robert Frank, the Wall Street Journal's Wealth reporter recently penned a book entitled, Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich. He captures the essence of this fast growing demographic. A look back to the 1990s and those of us smart enough to purchase then have done very well. That time was a great window of opportunity to purchase luxury real estate. Presently, we're in another similar cycle as the mid-1990s.
My take: what's being touted as one of the worst housing crises in several decades is also one of the best times to be eyeballing luxury real estate. There are more one-of-a-kind properties, great values and more time to decide. It's a perfect storm for buyers who are relatively immune to interest rates and credit cycles.
Mr. Frank says that the fact that real estate is discretionary for the rich is its strength and weakness. The wealthy do not have to buy. Lifestyle motivates their real estate purchases. The luxury market in a place like Telluride continues to move up, not down with several recent eight-digit sales ($10m and $13m homes in Mtn Village, a $13.4m home in the Preserve, a $13+m ranch home on Wilson Mesa and a recent $26m sale of a 1,200-plus-acre ranch (vacant land).
There are more rich households on the planet than ever before and that market continues to grow. According to Frank, the number of millionaires and billionaires has doubled in the past 10 years. In terms of wealth building, very few items do as well as luxury real estate.
Frank cites a recent study conducted by Capgemini and Merrill Lynch, which shows that those with investable assets of least $1 million increased their real estate holdings in 2006 by 50 percent, increasing the percentage of real estate in portfolios from 16 to 24 percent. "That tells me the wealthy are seeing opportunities in this market; they see this market as a time to put more money in at a time when others are taking it out," he says. "What benefits the wealthy are long-term investments that will appreciate over time. That's how the rich see real estate and that's why even if they can't remember the last downturn, they know that real estate is a great long term investment."
Vacant Land Sales in Aldasoro Spike
Currently, there are 12 lots for sale in Aldasoro with an average Days On Market of 420 days and a median asking price of $945,000. If you backout a unique 36.78-acre parcel asking $3.195 million that has been on the market for 487 days, the median asking price of the remaining 11 lots for sale drops to $915,000.
One lot is currently under contract: it is lot 156 and it sits on 1.82 acres. The asking price is $789,000 (originally priced at $950,000) and it's scheduled to close April 1, 2009. This lot has been on the market for 452 days.
So far this year seven lots in Aldasoro have sold, including three this summer. The median sold price of those three properties is $850,000 with a median lot size of 4.18 acres. Last year at the same time there was only one lot sale in Aldasoro. Still, with 11 parcels for sale, that is over a year’s worth of inventory to be purchased.
Vacant Aldasoro lot sales do not seem to have seasonal fluctuations lately as about half the lots in the past year have sold this past winter/spring versus summer/fall.
Telluride Real Estate Versus National Outlook
Nationally, there is excessive housing inventory and the absorption rates have definitely slowed. The national housing market has a signficant way to go on the downside. Just as appreciating home prices led to increases in consumer expenditures, it is likely that depreciating home prices will lead to decreases in consumer spending. The stock market has difficulty ahead. Add the signficant credit turmoil currently on the table, along with more fallout expected in the coming months, and it leads to a negative effect on the national pysche, BUT appealing purchase opportunities for savvy investors sitting on cash. Whether it's Telluride or some other place that interests you, now would be a good time to have a sharpened focus on real estate, especially those who are cash-heavy and choose to purchase real estate that should offer compelling returns in five years.
Locally, we are also slowing down (# of transactions YTD down 12%; and down 28% for the month of August). It remains to be seen if this national marketplace and the Telluride marketplace are going to go into a meaningful decline. My local outlook is that we are going to see price corrections in the Telluride marketplace into next spring, yet at the same time, super high-end properties will continue to sell here ($7.5m, $10m, $13m, $13.1m, $14m in the past 60 days).
Obviously, some forms of corrective action are needed in order to have these issues remain as short-term problems. Otherwise it will be very corrosive to the economy.
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