The rules of the game - Understanding mountain real estate during a national downturn

Steamboat Springs — A business professor at the University of Denver who happens to own resort property in Silverthorne said this week the real estate markets in Colorado’s mountain towns are relatively immune to the current national economic downturn.

“In our resort communities, you don’t have to count on the people who live there and their jobs,” Professor Glenn Mueller said. “You count on people who are wealthy enough to own second homes.”

He teaches courses in real estate feasibility and management and real estate capital markets at DU’s Franklin L. Burns School of Real Estate and Construction Management.

Mueller was quick to acknowledge the secondary market comprising resident buyers but said, even in that sector, strong incomes for business owners and people in fields related to construction mean they have strong buying power.

Paul Clavadetscher, president of Millennium Bank in Steamboat Springs, disagreed with Mueller in one regard.

“I do think the national economy does have an impact on Steamboat,” Clavadetscher said. “With all of the negative news in the marketplace, the buyers are being more cautious.”

Still, he acknowledged that his bank is ahead of 2007 in terms of its mortgage lending business.
Realtors in Steamboat Springs acknowledge that a real estate slowdown began here last fall, and inventory — the number of properties on the market — has increased since then. But they aren’t so sure it isn’t a good thing.

“Things began slowing down in September 2007, but that’s off of 2006 and 2007,” Realtor Ulrich Salzgeber of Buyer’s Resource Real Estate told a small group of vacationers at a seminar Thursday night.

“We’ve seen a slowdown in purchases, and we have larger inventory, but we really haven’t seen a decline in prices,” Clavadetscher said. “I don’t see that we’re in a serious decline at all. I do think (prices) are settling in.”

Clavadetscher, who will observe his 15th year in banking here in June, said sellers’ expectations in Steamboat may be a little unrealistic given the rapid price escalation experienced last year.
While current bank appraisals do not indicate a downturn in prices, he said appraisals based on comparable sales recorded four to five months ago could be skewed.

The dollar volume of real estate sold in Routt County in 2006 topped $1 billion for the first time and then increased by 41 percent to $1.587 billion in 2007. At the same time, the number of transactions dropped from 3,477 in 2006 to 2,555 last year.

January 2008 dollar volume was off 2007 levels by 20 percent. But at that level, Routt County still projects to a $1 billion market in 2008, Clavadetscher said.

“That would be the third-highest year in the history of Steamboat Springs,” he said.
Doug Labor, Salzgeber’s colleague at Buyer’s Resource Real Estate, uses historical data to gauge where the market may go. He graphs supply (listings) and demand (transactions) for a decade then draws a straight line that chops off the highs and lows to produce a trend line. That approach takes out anomalies like the post Sept. 11, 2001, downturn and the surge attributable to the purchase of the ski area by Intrawest last year.

“Using this theory suggests that in 2008, the Steamboat Springs real estate market will see about 1,500 transactions. Total dollar volume will be $800 million with an average sales price of $533,000,” Labor said.

Realtors are watching closely to see if things pick up this spring. A steady stream of national news about the increasing number of home foreclosures tied to the sub-prime lending crisis and the waves being created throughout the economy add to the suspense.

Mueller said because buyers of expensive vacation homes in the mountains earn incomes that rank among the top 10 percent nationally, waning consumer confidence is not an issue.

“The top 10 percent typically have money to do a lot of different things,” Mueller said.
They are individuals (not households) who earn $80,000 or more annually, and news of waning consumer confidence don’t necessarily apply to them.

“For people buying a $1 million property in Steamboat, it really doesn’t matter.”
Clavadetscher said there is good news this month for homebuyers in Steamboat — as a result of a federal economic stimulus package, the threshold for a jumbo loan here has been raised from $417,000 to $625,000. The change means loans that comply with Freddie Mac and Fannie Mae standards could be made at more favorable interest rates than before.

Labor believes the 1,425 listings currently found on the Multiple Listing Service — a number comparable to that of 2005 — represent a positive for buyers. It gives them more choices within different product categories and price points, he said.