Since the 1960’s, the economy in the U.S. has been heavily influenced by the baby boom generation. The strong growth in the U.S. economy which began in the 1980’s is attributed to the baby boomers starting their peak earning and spending years. The boom in resort market real estate that started in the 1990’s and continues to this day has its roots in the continuation of the baby boomers earning and spending trend as they reached their 40’s and 50’s when people start buying second and third homes in resort areas. However, with 10,000 baby boomers retiring each day, the influence of the baby boom generation on our economy is beginning to fade. This trend is expected to continue and become more dramatic over the next decade. But there is a new generation of earners and spenders that are about to take the place of the boomers. 

According to Pew Research, this year the millennial generation, which is that segment of the population born between 1985 and 1995 and numbers 73 million, is projected to overtake the 72 million baby boomers to become the largest segment of the American population. The wealth of millennials will grow by five times in the next decade. They are also expected to inherit over $68 trillion from their parents, the wealthiest generation in U.S. history, in what is being called the Great Transfer of Wealth. At 73 million, millennials make up 13.6 percent of the U.S. population. Millennials tend to remain single longer and when they do marry, will likely have fewer children. They also tend toward sharing items from cars to real estate more so than previous generations.

Architectural style and interior design trends of residential properties evolve over time. The traditional mountain Tuscan style homes characterized by sloped roofs, paneled doors, heavy stone exteriors, textured plastered walls, rough cut woods and granite countertops, popular and built in the 90’s and early 2000’s in the Aspen Snowmass real estate market, can seem dated next to the very contemporary and so called “mountain modern” homes being built today. Log cabin style homes could also fall into the traditional category as well. 

The common perception among real estate brokers, architects and builders is that contemporary style homes sell quicker, easier and at a higher price per square foot than the more traditional mountain styles in the current Aspen Snowmass market. This feeling is evident from the great number of new homes being built in Aspen with a contemporary state-of-the-art style of architecture and interior design. Assuming this assumption is true, what type of sales premium could you expect if the home you are selling is one style versus the other?        

To determine if that perception is correct and what sales premium might exist, over 50 home sales in the past year in the Aspen area were reviewed. Of those sales, roughly a third would be considered a contemporary style, while two thirds were a traditional style. Although every property is distinct by nature and location, there are some discernible patterns. Besides looking at final sales prices per square foot, the number of days on the market was also reviewed. 

The third quarter of 2019 is over and the Aspen Snowmass residential real estate continues its strong trend for the year. So far this year, the total sales volume of residential properties in the Aspen to Snowmass market stands at $972 million, about 4.3 percent ahead of the pace at this same time in 2018.  If this level of sales volume continues for the remainder of 2019, then the total sales volume will reach nearly $1.3 billion, about 2.6 percent greater than 2018 total volume of sales.

In terms of number of transactions, so far in 2019 there have been 314 total transactions which is slightly below the number of 323 at this same time in 2018. If this trend continues, we should end the year with around 419 total residential transactions in the Aspen Snowmass market which is slightly below the average of 465 transactions for the previous two years. At the same time, the total inventory of residential properties in the Aspen Snowmass market has declined modestly from about 580 listings at the beginning of the year to about 569 at the end of September.

In September, the market saw a spike in pending listings from an average of 46 per month to a high of 73 in September. This increased the percentage of current listings under contract to 9 percent which is a record high for percentage of pending listings since the market bottomed in 2009. This ratio has trended upward over the past ten years from a low of 2 percent at the depths of the last recession in 2009 to 2010 with the average being in the 5 to 7 percent range. This spike in pending listings bodes well for the final quarter of 2019. 

Other indicators of market strength are the 90-day, 180-day and 270-day moving averages of total sales volume. Throughout 2019, either the 90-day or the 180-day moving averages have been above the 270-day moving average. This indicator means that the market should continue to improve, or at least maintain its current pace. The combination of the high percentage of pending listings and the positive moving average indicator would signal that the market should continue to see upward pressure on average prices across the market for the foreseeable future.    

Although the overall Aspen Snowmass market seems healthy, different segments of the market are stronger than others.

As the Aspen Snowmass real estate market moves into its final quarter of 2019, all signs are pointing to another solid year for real estate sales with no signs of slowing down. If the market keeps up its current pace, the total volume of sales 2019 is projected to increase about 5 percent over the 2018 volume. Since the Great Recession ended in 2009, the 2019 real estate market may end up being the second best year for real estate sales in the Aspen Snowmass area, second only to 2017. With that favorable news, the one notable weak spot is the market for mega spec homes priced over $10 million.      

Mega spec homes are the large homes primarily built by developers over the past three years for immediate resale. Many of these homes are eight to twelve thousand square feet with nose bleed prices of $2,600 to $3,500 per square foot. These homes are works of art designed by some of the best architects in the country and constructed by some of the best contractors as well. They’re outfitted with state-of-the-art design features and every possible amenity anyone could want or desire. They have everything except buyers. 

At this time, there are roughly 119 homes on the Aspen Snowmass market priced at $10 million or more, all but 14 of which are located in Aspen. Of these properties for sale, 27 percent or roughly 32 are new mega spec homes built in 2017, 2018 and 2019. The problem is that in the past three years, 12 of these mega spec type homes have sold, and 7 of those sales took place back in 2017. So far in 2019, only two of these large expensive new spec homes have actually closed, although a small number are currently pending. At the current absorption rate in what is now a strong market, there is still and four-and-a-half-year supply of these mega spec homes. If you add similar homes currently under construction to this inventory and even a modest real estate market slowdown, it could take years to sell the inventory of these new spec properties.

An inverted yield, the trade war with China, Brexit and recession have been the top economic topics covered by the news media for most of the summer. For over two years now, leading economists have been predicting a recession starting within the next 18 months. If that had been the case, a recession should have come and gone by now. So what’s really going on with the economy and what impact could the current economic outlook have on real estate markets like Aspen and Snowmass?

The current economic expansion started in 2009 at the end of what’s referred to as the Great Recession, and as of a month ago, is the longest expansion in U.S. history. During the current expansion, the stock market has reached a record high in July and in the past month has experienced a 3 to 6 percent correction. At the same time, other economic indicators such as the unemployment rate, now at 3.8 percent, and wage growth at a 3 percent annual rate have continued to indicate a solid economy. During this economic expansion, the U.S. GDP growth has fluctuated between 2 and 3 percent. For 2019, the GDP growth rate is projected to be about 2.5 percent. Despite these encouraging signs, some believe a recession is about to begin.     

The most talked about early economic indicators are consumer spending that makes up roughly 68 percent of the U.S. economy, the inverted yield curve and the Conference Board Leading Economic Index. To try to understand what’s really happening to the economy and the likely direction of the real estate market, let’s examine each of these indicators and what they’re telling us. 

The use of auctions to sell real estate has become more common in recent years as an alternative to the more traditional listing and negotiated sale method. Historically, real estate auctions are more popular during periods of market downturns when properties are more difficult to sell, or with institutions, such as banks, that are interested in selling property quickly. In some countries, like Australia and New Zealand, real estate auctions are common even when the market is healthy. But in most cases, the auction method is used to sell real estate that, for whatever reason is difficult to sell or distressed and the seller wants to sell faster than the time necessary using the more traditional listing and negotiated sale approach. 

What are the pros and cons of selling or buying a property through the auction method? If you’re a seller, the biggest advantage is speed. The traditional approach to selling real estate can involve a lengthy process of listing a property for sale, waiting for the right buyer, which can take months to years, negotiating a contract with a due diligence period and final closing 60 to 90 days after contract execution. On the other hand, a real estate auction can go from signing an agreement with an auctioneer to final sale in 30 to 45 days. The downside for a seller using the auction method is often price.   

The first half of 2019 is over and the Aspen Snowmass residential real estate market seems headed for a strong year. So far this year, the total sales volume of residential properties in the Aspen to Snowmass market stands just shy of $700 million at $691 million, about 8.3 percent ahead of the mid-year 2018 pace.  If this level of sales volume keeps up for the remainder of 2019, the total sales volume will reach almost $1.4 billion making it one of the best three years for real estate sales in the past decade. In terms of number of transactions, so far in 2019 there have been 217 total transactions which is about the same as in 2018 when there were 215 transactions by mid-year. If this trend continues, we should end the year with around 450 total residential transactions which is in line with the pace of the last two years.

The total inventory of residential properties in the Aspen Snowmass market has also declined about 12 percent from about 580 listings at the beginning of the year to about 510 at the end of June. Also, the ratio of total listings to listings under contract stands at 8 percent. This ratio has trended upward over the past ten years from a low of 2 percent at the depths of the last recession in 2009 to 2010 with the average being in the 5 to 7 percent range. In addition, the 90 day moving average of total sales volume has been trending upward in the past three months and has crossed above the 270 day moving average in the past month. The combination of these three factors would indicate continued upward pressure on average prices across the market for the foreseeable future.    

Real estate investing is one of the great wealth builders but only if you know what you’re doing and know how to avoid costly mistakes. Real estate investing can include both residential properties and commercial investment properties. Residential and commercial properties have similar issues to deal with and also issues that are distinct to each property category. According to the consumer comparison website Finder.com, 78% of Americans confess to making at least one financial gaffe during their lives. If you’re buying expensive residential property or investing in commercial real estate, a slip-up in a real estate deal could easily cost millions of dollars.

One of the most common mistakes investors make is not assembling a competent team of advisors. Experienced investors surround themselves with competent experts in real estate law, taxes, insurance, leasing and asset management. Even if you’ve competently mastered real estate investing in a particular market, you can be a novice when you venture into other markets. Having good advisors reduces your chances of making expensive mistakes.    

The economy is growing, the real estate market is strong, but some properties languish on the market for months and in many cases years. Of the 550 residential properties currently listed for sale in the Aspen Snowmass area, 150, or 27 percent, have been on the market for over a year, of which 85 have been for sale for over two years. The number of properties that don’t sell in a year or more is likely much higher as some sellers temporarily remove their properties that don’t sell from the market after a lengthy period and then re-list them a short period later.

The more expensive the home the more likely it is to sit unsold. About 60 percent of the properties that have been on the market for over a year are priced over $5.0 million. On average across the country, the highest priced homes take 153 percent more time to sell than typical moderate priced homes according to Realtor.com. The average home in America sells within about 53 days. About 10 percent of luxury homes nationally spend more than a year on the market, but in a luxury resort market like Aspen and Snowmass, that percent is almost three times greater. 

We’ve all heard the phrase “cash is king”, but in the real estate world, it takes on a whole new level of importance. Buyers investing in Aspen and Snowmass real estate may have several reasons to choose the Aspen Snowmass area over other ski resorts to buy a home or condo. Those reasons might include the overall quality of the community, the lifestyle, the great mix of available outdoor activities, the choice of top restaurants, the nightlife and the sophisticated cultural environment. However, many other resort communities can claim many if not most of these amenities as well. But when you think about buying real estate in a resort community, you’re making a sizable investment. 

Resort communities, particularly ski resorts, have a history of booms and busts.

When the economy is strong, resorts thrive on disposable income and their real estate markets tend to boom. When the economy goes into recession, the opposite can happen as owners sell real estate holdings to raise money, or in the worst cases, lose their properties to foreclosure. If property owners have the patience and capacity to wait out recessions, they are typically rewarded when the market health returns.    

The last two years have not been kind to many residential real estate markets around the world. The political turmoil in Great Britain as a result of the confusion over Brexit is taking its toll on the once-booming London real estate market. London, one of the world’s most expensive real estate markets driven by the influx of foreign buyers over past decade has seen sales volume drop by 59% in the past three years, and values are down 14% from their 2014 peak.

In Australia, the once hot decades old residential real estate market, is also experiencing sharp corrections in real estate values and volume. Prices in Sydney and Melbourne, once hot international markets, have seen prices fall 9% to 11% in the past year with another 8% drop expected in the next year. An overall decline in values of up to 25% are predicted before the correction runs its course.

Dubai, another international bell weather real estate market, has also recently experienced a decline in residential sales and real estate values of 25% to 45% since that market hit its peak in 2015. Multiple factors including political uncertainty, slowing international economic growth and increasing interest rates are causing these corrections in international real estate markets. 

But, despite the slowdown in some international real estate markets, the Aspen Snowmass real estate market seems on track for another strong year in 2019.

If you’re one of the 532 homeowners who are trying to sell a home or condo in Aspen or Snowmass, here are some things to consider. With the current level of sales activity, there is more than a year supply of properties currently on the market for sale with the average listing taking roughly eight months to sell. If you’re attempting to sell a home for $10 million or more, you’re faced with a four and half year supply with some properties being on the market for up to seven years. If you’re a seller, there is a lot of competition particularly in the higher priced categories. As a rule, inventories of unsold homes tend to increase in those situations where buyers don’t see value at certain price levels.

When buyers are more demanding, they expect more for their money. 

If you’re one of these owners trying to sell your home in a sea of other properties, how can you distinguish your property from the others and give yourself a competitive advantage? Surveys of luxury home markets across the country by the National Association of Realtors and Realtor.com, a listing website licensed by the Realtors Association, have come up with some common themes that help luxury properties sell faster and for more money. Assuming your property is priced correctly for its location and current market conditions, there are specific design features that are attracting buyer attention.

Whether the property is located on the east coast or west coast, or in Aspen or Snowmass, these features seem to be what buyers in 2019 are looking for.

For the past several years, retail real estate has been the black sheep of the investment real estate industry. Reports of declining mall sales and failing properties have filled the industry publications. Fears that on-line retailers will kill brick and mortar retailers have kept many investors away from retail properties forcing up capitalization rates and making retail property purchases challenging to finance.

Evolving technology along with changes in consumer behavior is creating disruption in the retail sector. Where and how people buy goods is changing rapidly. The biggest factor impacting retailing is the trend from sales taking place in brick and mortar stores to online sales. Currently, only 9 percent of total retail sales take place online, but that number is increasing by 15 percent with about 64 percent of U.S. households having an Amazon Prime account. This trend has led to a record number of store closings of eight to ten thousand per year, and space absorption has turned negative for malls and lifestyle centers across the country. 

Retailing as We’ve Known It is Changing

You often hear the phase “canary in a coal mine” used as a metaphor to describe an early warning of things to come. The phrase originates from a practice in the coal mining industry to warn miners of dangerous conditions before the advent of electronic sensing devices. The practice was to carry caged canaries into the mining tunnels to protect miners from dangerous gases such as carbon monoxide. If the concentration of dangerous gas was high, it would kill the canary before killing the miners, therefore acting as an early warning device of sorts. 

In the world of luxury residential real estate, are there any reliable indicators that would warn us of impending danger in the luxury residential markets? A quite reliable one seems to be the direction of the stock market. Historically, the stock market and real estate market have moved in similar directions. Back in the 1920’s and 1930’s during the Roaring Twenties and Great Depression, real estate values reached their highest levels in Manhattan in the third quarter of 1929 just as the stock market peaked. After the stock market crash, real estate values declined 67 percent through 1932 while the stock market lost 90 percent of its value over the same period. High-end property values were the most correlated to the downward move in the stock market. This pattern has repeated itself over the years particularly in the luxury and resort real estate markets.

The first quarter 2019 results are in and the statistics are sending us clues on how the residential real estate market in Aspen and Snowmass is likely to perform for the remainder of 2019. We started the year with roughly 526 active residential listings throughout the Aspen Snowmass market and ended the first quarter with about 588, a 12 percent increase in the inventory of residential properties on the market. During most of the first quarter, the market averaged about 47 properties pending under contract, but as we approached the end of March, the number of pending contracts doubled to 99 indicating an acceleration of properties going under contract. 

The first quarter also ended with a relatively healthy total sales volume of $301 million and 86 sales of residential properties in the total Aspen Snowmass market. This compares favorably to the $290 million total volume and 96 sale transactions in the first quarter of 2018; and is the best 1st quarter results since the 1st quarter of 2015 when the market achieved a total sales volume of $318 million from 93 transactions. By itself, the 2019 first quarter sales volume would indicate that the Aspen Snowmass market should end the year with anywhere from $1.3 billion to $1.5 billion of total sales. 

The most critical aspect of selling a luxury home in a market like Aspen is listing the property at the correct market price. Listing a property too high can result in a greater loss of value as listing it too low. Properties that are perceived as overpriced may not get shown to potential buyers because brokers with valuable clients may not want to waste time and effort. Studies have shown that 60 percent of potential buyers will look at properties that are perceived to be priced at market, while only 10 percent of potential buyers will look at properties perceived as overpriced by only 15 percent. Many sellers often think they will always have the opportunity to accept a lower offer, but chances are offers won’t be made if buyers think the property is unrealistically priced.   

Properties that are overpriced and sit on the market for extended periods may become known as “problem properties” and be more difficult to sell. Studies from the National Association of Realtors show that when selling luxury homes, the first thirty (30) days are critical. Homes in the highest price bracket spend a median 134 days on the market. Homes that take longer than 180 days to sell spend an average of 774 days on the market and obtain about 77 percent of original asking price, while homes that were sold in less than 180 days sold on average in 80 days and at 93 percent of initial asking price. There may be many reasons why a property doesn’t sell, but the most common is that a home is overpriced. 

Is the Housing Market Slowing Down?

If you’re a buyer or seller of residential real estate in the Aspen Snowmass area, it’s helpful to understand what’s currently happening in the market. To figure that out, let’s take a deep dive into some key numbers. The total Aspen Snowmass real estate market consists of roughly 8,600 privately owned residential units consisting of condos, duplexes, town homes and single family homes. Approximately 60 percent of those properties (i.e. 5,200) are located in the Aspen segment of the market, and the remaining 40 percent (i.e. 3,400 properties) are located in Snowmass Village, Old Snowmass and Woody Creek.

Opportunity zones are taking the real estate world by storm. As part of the Tax Cuts and Jobs Act of 2017 passed by Congress and signed by the President in December 2017, the Opportunity Zone legislation creates compelling tax incentives to invest in designated low-income areas of the country to create real estate development and job growth. The driving forces behind the Opportunity Zone legislation was an unlikely group of philanthropist consisting of Sean Parker of Napster and Facebook fame and former junk bond king Michael Milken, along with a bi-partisan group in Congress lead by Senator Tim Scott of South Carolina.

In the early 90’s, the Internet became accessible for commercial use. The Internet Protocol is a digital method that allows data to be sent from one computer to another and allows worldwide communication among computers in a standardized fashion. What started initially as a platform to send basic data such as email communications has grown to be the primary platform for virtually all communications, finance, entertainment and commerce. The Internet has changed the way we live and work. It’s the platform that runs smart phones, retail, finance, investing and virtually every part of our lives. It’s also set to become the platform for the next generation of devices from autonomous vehicles to the Internet of things, the interconnection via the Internet of virtually every device in our homes and workplaces. Few could argue that the Internet has not had a profound impact on many industries including the real estate industry.