Historic Lack of Inventory… It’s getting serious, folks

How to describe this ridiculous market?
On the first day of 2018, there were a total of 510 properties of any type for sale in Summit County. 182 of these were land, 304 were residences. 88 residences were priced under $700,000 and nothing priced less than $225,000 was for sale at all.
There was a six month supply of residences priced over $1 million and 3.5 weeks’ supply under $700,000. Residences priced over $1 million took an average 148 days to sell. Those on the market averaged 234 days since listed.
Residences priced under $1 million took 44 days to sell and those on the market had been offered for 120 days. Clearly the market had slowed by the end of the year.
So the market has been over-supplied with expensive homes and severely under supplied with lower priced ones.
This lack of inventory in the most sought-after segment of the market is largely responsible for the third flat year of sales in 2017.A total of 2250 properties sold in 2017, 6.8% more than the year before and only 3 percent higher than in 2015. There has been a net gain of less than 2 percent over the past three years in the total number of properties sold.
The average sale price jumped by 15 percent, however, to $650,500 – a new record by far for Summit County. The median price was $505,000, a substantial disconnect from the average and atypical for our market where median and average prices are usually very close.
Clearly all prices increased, but the high-end dragged the whole market skyward. The $million plus market now accounts for 14.5 percent of residential sales, up from about ten percent last year. As construction costs continue to increase, and because nearly all new construction is in high-end single family homes, the average price for a single family home is now well over $1.1 million.
While prices have recovered and surpassed the previous historic high in 2009, sales volume has not recovered from the Depression of 2010. It’s running about 33 percent below the all-time high of about 3000 properties sold in both 2005 and 2006.
The number of listings in July, when the inventory peaks every year, has declined for the past five years. The all-time high for listed properties was about 3000 in July of 2010. In 2017 it was 904. At this rate, there will be fewer than 800 properties of all types for sale next July.And chances are good that a third of those listed will still be land. Despite the lack of existing residences for sale, land has not kept pace with the total market. In fact the average price for 182 sales of vacant land fell to $327,300 in 2017, a decline of 4.5 percent.
This is partly because all the easy to build on lots in Summit County are gone. It is also because the homes built on these $300,000 plus lots will need to be worth about four times the lot price, or $1.3 million, when completed and there are many existing homes to choose from in this price range. And million+ range represents only 14 percent of the whole market. So about a year’s supply of land remains on the market year after year.
Market conditions like this have never before existed in the 32 years I’ve been in business. Anyone thinking of selling a residence should grab the prices this market will bring while they can.
Everything changes with time and usually before you think it will. And then it’s usually too late.

 

 

 

Short Term Rental Paranoia: There’s no conspiracy to steal local housing, folks

You know, I’ve been a Realtor in Summit County since 1985. I’ve rarely seen anyone or any group “snap up” housing for short term rental, as described in a recent Summit Daily News article about worker housing shortages. There are no evil, shadowy groups lurking out there, waiting to snatch housing from the workers.
A few million-dollar homes in Breckenridge have been bought by groups who hire a resident housekeeper and use the place for kind of an upscale hostel for European guests who are used to staying in zimmers in Switzerland. And I’m not even sure any of them are still operating.

The Grinch Who Snatched All the Local Housing.. and Other Fables

This continual outcry about how short term rentals are taking housing away from locals is just nonsense.
Any responsible Realtor tells buyers that at these prices the only kind of rental that makes any business sense in Summit County, i.e. that will break even or cash flow, is long term rental. And even then you’ll probably need to pay cash because the property won’t break even let alone cash flow if you have a mortgage in addition to taxes, dues and other costs.
And any responsible Realtor tells buyers that if they really need to rent to be able to keep a second home, this isn’t the market for them.
The shortage of worker housing stems largely from increasing numbers of owners who want to use their second home during the year.They understand that short term rentals will only defray some of the cost and often don’t need or want to rent at all.
About half of second homes in this county are never rented. Yes, you can say it’s a shame that these properties sit vacant for most of the year, but the owners can afford to do that and are paying to be able to use it whenever they want.
But there are other barriers to affordable housing including high construction costs and expensive land pushed by the severe lack of private land in Summit County. We can’t build our way out of this problem as they do in other markets.
Housing has always been really expensive in Summit County. Even when houses were $60,000 rent was $300 month and you were probably making $500. And yet about 30,000 of us have found a way to live here.
So what will happen is what has always happened. Employers will continue to raise wages slowly. The County, towns and ski resort operators will build deed restricted and employee housing until they run out of empty parking lots. Current owners will age and spend less time here and start renting long term before selling and beginning the cycle again.
And all the way along, the only thing everyone will agree on is that it is hard to live here. And I for one think it’s worth it, none the less.

Sellers Aren’t in Any Hurry… Until They Are!

“We aren’t in any hurry.”
I’ve heard this from sellers more times than most Realtors have heard the words “under contract.” It comes up when we talk about the marketing process and the outlook for a sale.
For the past year or so, if you put the property on the market at any rational price, it will sell in days or even hours.
“But we’re not in any hurry”, sellers insist. At which point I tell the sellers to either be prepared for a quicker sale than they are expecting or to wait until it is really time for them to sell.
Often the property is rented and the seller wants to keep the income up until the day before closing or the seller wants to take advantage of the strong market but wants to use the place for just a few more months before closing.
“Can’t the buyers wait?” Or worse: “We’ll just have to find the right buyer”: meaning one who will pay us now and then let us use the place for another year.
Well, good luck with that. It’s never been a great idea and it’s even worse right now. In today’s short inventory market, if you put it out there, you need to mean it. You’ll probably have multiple offers from folks who have recently been out bid or missed the chance entirely. They want to buy today. They have the money today. They want to close yesterday. Mess around too much and you may insult and lose all the buyers.
“But we’ll just find some more buyers”, you say, “there’s more where they came from.”
Well, this is a small town and word gets around about unreasonable sellers or ones who are not serious. Brokers and buyers really won’t put up with too much more than they already must to get an offer accepted. You probably won’t see offers as good or as numerous after the initial rush.
As a seller, you need to consider several things: Will the market remain like this until all the pieces – your schedule, your rental agreement, your ability to let go – line up perfectly?
Will the buyer you are asking to wait still have the money when it finally comes time to close? Will the stock market tank and take the buyer’s second home cash – and maybe the rest of the market – away? Will the buyer get hit by a bus next week? How much is the extra income and enjoyment worth compared to hundreds of thousands of dollars in sale price? How much will it cost in future sale price or peace of mind for you to lose the sale?
Time is absolutely not on your side once you go under contract. Everything happens before you think it will, even failure. Trying to slow or delay the process adds many kinds of risk and cost to you. Even in a solid seller’s market, there are limits.
So how long did you want me to take to sell your property?

 

 

 

2nd Homes Largely Unscathed by Tax Reform

So there’s a new tax reform bill now. Say what you will about who benefits and what the damages will be, real estate and second homes in particular dodged several bullets.
Despite much anticipation that the second home mortgage interest deduction and 1031 exchanges would be eliminated, they were not. Quite.
You may still deduct interest on a second home mortgage, but limited on new loans to the amount under $750,000. Interest on old loans continues to be fully deductible to $1 million. So don’t pay that old mortgage off if you want to keep the big deduction. There should be no appreciable effect on our market from this change because half of our sales are for cash and those borrowing more that $750,000 probably aren’t that worried about the interest deduction anyway.
1031 exchanges are largely unchanged which is quite a surprise. The only appreciable change is that now personal property, such as art and airplanes, is no longer considered “like kind”. This change seems aimed largely at Bitcoin which has been used to evade capital gains apparently. It’s personal property and no longer useful for 1031 exchange.
Here in Colorado, property taxes are very low (and the roads show it) so the $10,000 cap on deductions won’t affect many people. And once again, if your property has more than $10,000 in tax, you won’t feel a thing. Apparently real estate used in business is not subject to the cap.
All in all, it seems like business as usual for most first and second home owners tax-wise. The effects on the Summit County real estate market will probably minimal.
Get some advice on all of this from a real tax professional, though. If you tell the IRS that your Realtor told you that deduction was OK, prepare to be laughed at. Or worse.

Rumor, Gossip & Innuendo!

This short-term rental issue is getting out of hand…. some HOA’s are restricting rentals to a month or more, the County may soon crack down on VRBOs not paying tax, and towns are getting tougher, too. And now locals are short-terming deed-restricted worker housing and getting busted. No good deed (restriction) goes unpunished, it seems.

Speaking of affordable housing… a new hostel is being built in Silverthorne – out of shipping containers… really… cargo containers. Customers will be refered to as stowaways. You know, just to add that hip millennial edginess. So is this reverse gentrification?

And after checking in to their container… hipster/stowaways can head to Breck to sip a cocktail at the new ice bar at Beaver Run. We’ve come a long way since the hippest thing you could do in Summit County was close the cover on F lift and get stoned before your first run at Copper. No, dope wasn’t legal then.

What will the Summit High Girl’s Rugby team have to do to get noticed?… They won the state championship for the 10th (TENTH) straight year! And they’ve been undefeated just about every damn year to boot! John Elway should hire our rugby coach… if not the whole team. The Broncos could use somebody who knows how to win. Congratulations, ladies.

By January 1 Lake Dillon still had not frozen…. that makes it about two weeks behind average. And as for snow, well, it was scarce. We’ll see if we catch up, but this looks like a long, cold, dry winter shaping up. Now that I’ve predicted, it’ll probably dump for the next 3 months. And kite skiing on the lake could be damp.

The Final Word…

With no inventory, I still had my best year ever in this business.
List one, sell it, list another one… repeat 42 times.
But it worked and I passed the 1000th career sale and the $225 million mark by quite a bit. Here’s where experience and longevity paid off.
Had I not been sending this newsletter four times every year for over 30 years, I’d have been out of business.
Thank you for your support for over 3 decades.
Years like this remind me of just how important it is.
Chuck Leathers, CRS    owner/broker     Chuck Leathers Real Estate Company

Market Plateau In Its Third Year – But Prices Continue to Soar

The continued lack of property for sale in Summit County will hold sales to around the same number, 2150, as in the past two years.  
The lack of inventory however, has pushed average prices up quickly this year to about $650,000.  Prices may not finish this high by the end of the year, but they will certainly remain above $600,000 for the first time in history.  sold thru 3 qtrs
The last time our market experienced double digit price increases, from 2007 to 2009, it was followed by about seven years of slow or negative growth.
Even that period wasn’t a disaster though.  Average prices declined by a total of 17 percent between 2009 and 2011 and have now increased by about 38 percent to new record highs.
Over the past 30 years, Summit County real estate has gained an average 6.6 percent per year.  This is pretty strong performance compared with any other investment despite what your stock broker tells you.
Yes, there are dues, taxes, maintenance and other costs.  But you can’t spend a ski week in your mutual fund or rent it out when you aren’t using it.
The question is: why has the inventory continued to drop over the past 5 years?  Why are there so few sellers?  
Here are a few possible reasons.
Boomer inertia.  When you’ve owned something for several years, maybe paid it off or rented it enough to pay for a lot of it, there’s no apparent reason to sell it.  It’s working.  And just now you’re retiring and will finally be able to use the place for months instead of weeks.  It’s the plan.  Just stick to it.
Value.  You bought in 2008 or 2009 at a (for then) record price and have been waiting for the value to recover to the level you paid.  Now it has and prices seem to be going higher so you wait a little longer to finally make a little profit on the place.  You and about 5000 other owners who bought in those years are not selling.
Other arrangements.  During the seven lost years you decided to put the property in trust for the kids.  They’ll inherit and get the stepped up basis and lower the capital gains when they sell.  Or you gave it to your favorite charity and took the tax advantages.

Avg. Price red line

 

 

Stuck in place.  You’d love to sell the place and buy a bigger one, but the replacement property you want has become really expensive… if you can find one.  And you don’t want to sell before you buy, but you can’t buy until you sell.  You’re stuck.
Waiting for tax reform… and the tooth fairy.  Any day now the capital gains tax and all income taxes will be eliminated or greatly reduced and you’ll get all the money instead of just two-thirds when you sell.
So there are a lot of different reasons why no one is selling. 
What will change this?  Why would people suddenly decide to sell in normal or greater numbers?
Death.  Boomers who built this market with the most disposable income in history will begin to pass away in greater numbers.  This is a gradual process that will take another few years to really impact the market.
Taxes.  Tax “reform” that changes the current advantages of property ownership: depreciation, mortgage deductions, 1031 exchanges, etc.   If the government stops subsidizing real estate purchases, many will sell.  This happened in the mid-80’s when depreciation rules changed.
Income inequality.  Certainly the absolute number of very rich people will increase as the general population increases, but the percentage of population with the disposable income to buy a second home will decline as income inequality increases.
Catastrophic economic decline.  Another depression of the magnitude and suddenness of the 2009 melt down will drive a lot of marginal owners to sell.   But by then prices may be down again and we’ll have 3000 properties for sale and sell maybe 1000 as happened in 2010.
Random tweets.  Second home buyers and investors in general require stability and certainty to risk their money.  We have neither right now and business conditions could change at any time.
Climate change.  No snow, no skiers.  Less snow, less skiers.  Pretty simple, eh?
This is a market like we haven’t ever seen in Summit County before. For over 20 years, prices never declined in Summit County and then only went sideways for a couple of years.
Until 2009… the year we became a normal market with ups and downs and plateaus.
But the reasons to buy a second home in the mountains have not changed.  Successful owners are the ones who bought to enjoy living in a unique area different from where they come from.  They are in it for the long haul, not fix and flip profit.
Going forward they will be the ones who cope best with our new cyclical market, who don’t watch the day-to-day price changes like it was the Dow.  Who take the enjoyment of living in Summit County as part of their lifetime compensation.
And this is probably the best reason to buy and never sell in Summit County.

 

What to Know About Shared Ownership – Your options range from solid to sketchy

Occasionally buyers and sellers ask about shared ownership.  How does it work, what is a share worth, are there any available?  
It’s a complex question and every share situation is different.  Sharing a property can work well for some, not so well for others and the difference is in details of the share set-up.
Often the owners are a group of friends that go together to buy a property and share the use.  It’s pretty loose.  Often they don’t bother with a written partnership agreement or maybe even a calendar of use.  They are all friends, after all, and have owned the place forever and there’s never been a problem.  Then one of them wants to sell his share.partnership-cut-650w
What do we do now? How do we decide what price to ask?  Do the others get a chance to buy it first?  How do we decide who to let into the partnership?  If none of this is written down anywhere or hasn’t even been thought about, new owners are walking into an unknown situation.
Other times the owners have covered all of this in a written agreement, maybe even formed an LLC to run the property.  These partners generally have a set calendar of use, a budget, rules and an exit strategy.  This kind of shared ownership has more value and is saleable because new owners can understand what they are buying into.
The most organized situation is a Quarter Fee Association or some other arms-length management entity.  It administers the unit, sets and enforces the rules, collects dues and maintains the property.  These shares are freely transferable and pretty easy to buy and sell.
Any shared interest will be hard to finance and shares generally sell for cash.  Sometimes another partner or the seller will finance for the new owner.  Sometimes, one partner got the loan and sold shares without telling the lender so the lender thinks there is one owner.  You can imagine the risk in this.
The best financing strategy is for the buyer to use a line of credit from another property for the cash to buy the share.
Generally, quarter ownership is the smallest fraction that maintains its value.  There are fifth shares, tenth shares and timeshare weeks but anything less than a quarter is generally hard to sell for what you bought for.
As to time shares, you only need to know that they are not real estate and not an investment.  The real money for timeshare operators isn’t from selling all the weeks.  It’s the ongoing dues from 52 owners for each unit.  You can always rent a week or two just like at a hotel without buying into the “opportunity” to trade weeks.  Just say no to time share.
If you are part of a small share partnership and want to sell, your easiest exit is if another partner buys you out.  If many of the partners want to sell, selling the whole property will bring the partners the most return.
No matter what kind of shared interest you have or want, be sure there’s a written agreement that outlines all of the rights and responsibilities of the owners.  
Otherwise you are a test pilot.

Ridiculously Low Inventory Still Hinders the Market

This has been an exceptionally up and down year for sales in the County.  
In the first nine months, three have had significantly lower numbers sold than in the previous year.  September was the latest with eleven percent fewer sales than the previous year.  This is troubling because August, September and October usually bring the highest number of closings for the year.buyers-sabotage-02
August was up by only four percent.  October needs to be busy to bring the market back up to last year’s total number of sales at 2107.
There have been two months with significantly more sales than the year before.   The rest have followed last year pretty closely.
Average prices, on the other hand, are still well above $600,000.  Again, this is the first time in history that the average sale price has been above that number.  It looks like prices will stay at this record high for the rest of the year.
Both of these trends are the result of the near total lack of attainably priced inventory.  At the start of October, the number of properties offered fell back to just over 700, about the number that were offered last May.
There have never been even close to 1000 properties on the market at one time this year.  
And many properties that are listed are vacant land.  There were only 440 residences for sale at the beginning of October and only 235 of those were priced at under $1 million.
For reference, 1179 residences sold for less than $1 million through September while 239 sold for more than that.
Yes, the million-dollar market is still over supplied and the under $1 million market remains severely under supplied.
New construction can’t fill the gap in Summit County.  There isn’t enough land left to build on and that which can be built is too expensive to make sense of building lower priced residences.
There is no relief from this situation.  When demand spikes in the future, the affordable/attainable market will disappear.  
With Dillon Valley East one-bedroom units going for nearly $200,000, it probably already has.
The model for this kind of market is Aspen.  It, too is surrounded by National Forest or deed restricted land and is largely built-out.  There is essentially no affordable housing for 40 miles and prices average in the mid-millions.
Summit County has already experienced the demise of the under $200,000 market with only 100 or so sold this year, usually in minutes.  A grand total of seven residences sold for under $150,000.
While prices may… probably will… decline in the future, we’ll probably never see the average price under $500,000 again.
No wonder no one’s selling.

Rumor, Gossip & Innuendo

radioThe solitude of a 14,000 foot mountain top… along with 300,000 of your closest friends.  That’s the estimate of how many times Colorado’s 14’ers get climbed per year. It’s getting attention due to the dozen or so deaths on those peaks this year.  Having often found a giggling group of Texas kids in T-shirts and flip-flops up there, it’s always been a mystery why more of them don’t die.  Guess Darwin was wrong.

Resistance is futile… prepare to be assimilated.  Most of Utah skiing is now owned by Colorado companies.  Aspen Skiing bought Deer Valley this year and Vail assoc. jumped on a lease that Park City had failed to renew in time so every ski area in striking distance of the Salt Lake airport save one is owned by two Colorado companies.  And most major skiing in North America is in the same boat.  In Summit County… home planet of the Borg. We don’t even think about it any more.

After a couple of years without a big bike race… one came back this summer.  The Colorado Classic spent a day racing around Breckenridge.  It’s not as epic as the USA Pro Tour, but it’s good to have the event return for a while.  As both ski and bike racing have proven, however, Coloradans would rather be doing than watching, so crowds and the revenue they bring, are hard to come by.

No college, no theater, no nuthin’… certainly not a 48 unit complex in Dillon next to the CMC building.  Once again, forces in Dillon want to stop development as happened with the Lake Dillon Theater (went to Silverthorne) and the Colorado Mtn. College expansion (went to Breck).  With no new buildings for 20 years and a town center that has never launched, recent town approval for the Dillon Flats complex threatens to break the streak.  Maybe guard gates like in Beaver Creek would cut down traffic.

And finally… Summit County governments are trying to come up with regulations to limit those annoying drones.  You know, they make pistol shot shells in .44 magnum… just sayin’.

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