Double Digit Price Increases Return… We’ve seen this movie before

First Quarter sales dropped slightly for the first time since 2012 from 391 last year to 358 this year. After the Lost Decade that began in 2009, first Quarter sales, and sales in general, have never recovered to the high point reached in 2006.
In 2006 first Quarter sales reached 543 properties and there were routinely around 3000 total sales per year in the mid-2000’s.

You can only analyze it so much…
This is why we live here after all!

Last year 2258 properties sold in Summit County, 24 percent fewer than in 2006.

Prices, however, have been on a rampage increasing by over 15 percent last year alone, the largest one year increase since 2007. Lack of inventory has exacerbated the inflated prices.

Each new listing hits the market with perhaps 400 automatic notifications going out to buyers who have been waiting for new inventory. This has made multiple offers routine with outrageous terms like escalator clauses, huge down payments and waived due diligence.

Understandably, new buyers feel whipsawed by the quick action required and the prices and terms they need to match on the first couple of tries. Then they either decide this market is too crazy for them or they get aggressive.
More of them are choosing the first option and the number standing in line is diminishing. That is another reason sales have been flat for three years.

This is exactly the kind of market we saw in 2005, 2006 and 2007. Buyer frenzy for scarce inventory drove double digit price increases. Then came the Bush Depression of 2009 and by 2011 the average price had dropped by 20 percent and sales by more than half.

That was the first time ever that prices had declined by more than 5 percent and for more than one year in Summit County. There had been a couple of dislocations like 9/11 and the Dot.com bust that had caused soft prices for a year, but prices were essentially flat.

That has changed now. Although our society seems to have adjusted to chronic chaos and uncertainty, the overwhelming confidence that characterized the 25 year period from 1984 to 2009 is certainly gone.

Summit County is a luxury second home market and as such depends almost entirely on consumer confidence and growing disposable income. Economic uncertainty causes consumers to think twice about luxury purchases.

Because there are twice as many Americans as 50 years ago, there are also twice as many with the resources and confidence to buy second homes. But many are Boomers who have done so already. Our buyer market is now largely made up of those wishing to move up from the entry level properties and a lower number of affluent youngsters than during the Boomer years.

Those who have their place in the mountains are generally going to keep them now that their retirement plan is in place. So the immediate future is probably characterized by continued low inventory and fierce competition for it until the next economic cycle begins. That could be tomorrow or ten years from now.

Don’t get caught up in the frenzy just because everyone else is.
Buyers and sellers in this market should act based on their own desire to be here in the mountains, to enjoy the life here.
Get informed, but don’t try to outguess or overthink this.

Do what makes sense to satisfy your own needs and dreams then enjoy the results.

 

 

Dealing With a Raging Seller’s Market Requires Strategy

Trying to buy a property in Summit County? Here’s what to expect.
Since October of 2017, there have been the fewest number of properties for sale in history. The number of properties priced under $700,000 has hovered around 100 for six months. A thousand will be sold this year.
For the past six years, the inventory has declined steadily each year. In the first half of the year, we should have about 1500 properties of all types on the market. The inventory should peak at around 2000 properties in July. This year we have under 550 properties for sale and last July the peak was under 1000. This year it will probably be less than that.
Buyers for the lower half of the market have been waiting for the next property to be listed. Every active Realtor in Summit County has several buyers on automatic notification so that they know instantly when a new property appears. New listings routinely get four or five hundred notifications sent out.
A couple of dozen buyers respond, several travel to see the property in its first few days on the market and often a couple of those make an offer. Sometimes the offer comes from a buyer who has not seen the property but has their broker walk through for an iPhone video.
Usually an accurately priced property is gone in a day or two. Only the most unrealistically priced properties stay on the market longer than that. Even million dollar plus properties will sometimes sell in a few days, but that market segment remains oversupplied.
Buyers who have been through this process and lost out have begun to add an “escalator” clause to their next offer. In short, this tells the seller that the buyer will beat any other verifiable offer by a certain dollar amount, usually with a cap, sometimes not, typically resulting in a sale at more than the asking price.
So what does a buyer have to do to get an offer accepted? The best chance begins with a full price cash offer with the escalator. Every contingency or other out for the buyer lessens the odds of success. Buyers even waive inspections, appraisals and loan conditions.
Buyers who need a mortgage should put as much cash down as possible and have a pre-qualification letter in hand from a lender to go with the offer.
Personal letters to the seller from the buyer explaining why their offer should be accepted are common and sometimes result in the seller taking a lower offer for sentimental reasons.
The point is that buyers need to convince sellers to take their offer over another and it takes planning and strategy to get this done.
This will change when a normal inventory returns and it’s not such a brutal seller’s market. But for now, this is what it takes.

If You Need Rental Income to Afford Your Second Home… Read This

The short-term rental market is changing. Every year brings more regulation, more license fees and taxes and political pressure for fewer short term units and more long-term worker housing.
Three forces are driving these changes:
First, towns and counties can’t raise enough sales and property tax revenue to fund operations so they are turning to other taxes and license fees to bring in revenue. Because tourism is the largest part of our economy, lodging is the logical source for new revenue.
Towns are going as far as to pursue online travel companies for taxes on bookings at their sites and tracking down bandit landlords on social media and Craigslist.
Second, because half of second homes are never rented, many neighbors who don’t rent don’t want short-term renters next door. Short termed properties tend to bring more traffic, parking and noise issues among other things. Many homeowner associations are limiting rentals to several weeks or more.
And third, there is a continuing perception that somehow short-term rentals are stealing housing from locals. Never mind that instead of making owners rich, short-term rentals can only help defray the cost of a second home and a long term tenant rules out occasional owner use. Also, properties that are affordable for locals to buy are generally not good prospects for short-term rental.
In addition, because so many absentee owners rent through VRBO and AirB&B, towns and associations are starting to require a local manager to monitor the property. This and licensing helps governments keep track of who’s renting and helps them collect the lodging taxes.
There will never be enough local housing and tourism will only continue to grow. If your property isn’t subject to these changes yet, it will be sooner or later.
Ask questions about these issues if you are a prospective buyer and if you are an owner, pay attention to the news.
And beware of managers who project astronomical income from renting your property short-term.
Our main short-term rental season is from Thanksgiving to April 15 in the best of years, 150 days or less when rents are the highest for the year.
Summer rentals bring half as much.
If you use a manager, you’ll pay a hefty commission out of your gross income.
If you use your place at all for Christmas, New Year’s, MLK week, Presidents week and all of March you will cut into your best revenue period.
If you are dependant upon rental income to do more than defray some of your costs, you may not be ready for a second home.

 

 

Consider An LLC to Protect your Assets

from National Assoc. of Realtors Magazine January 2018 | By Bruce Ailion
If you are a second home owner or thinking of becoming one, you may want to talk to a lawyer about setting up a limited liability corporation or other legal entity and operating the second home as an LLC.

In case you are sued by someone using the property after you bought it, you can limit your damages and protect your personal assets against losses.

Suppose a contractor makes negligent repairs to a deck and it collapses while tenants and guests are having a barbecue. The judgment in a case like this could easily exceed the equity you have in the property and even the coverage limits on your insurance policy.

Or let’s say the carbon monoxide detector is faulty and the property has a 20-year-old furnace that develops cracks, releasing gas indoors. Tragically, a family of four staying in the property is killed. The owners could face four wrongful death actions caused by negligence.

These are rare occurrences, to be sure, but they point to the gravity of risks that investment property owners can face. In fact, the scenarios illustrate one of the main differences between real estate and other types of investments like stocks or bonds: real estate can carry risks that exceed the investment in the asset.

Of course, an owner’s first layer of protection is insurance, but owners might fail to recognize that their losses can exceed coverage limits.
Investing in real estate can be a smart decision. The right property can outperform other investment vehicles.

But it makes sense to have sufficient insurance and to consider setting up an LLC or other type of entity to separate your liability from your personal assets.

Rumor, Gossip & Innuendo!!

Frisco Bay is going to be deepened…. Can cruise ships be far behind? The project has no expected start date yet, but is in the planning stages. 75,000 cubic yards of dirt later, Carnival cruise lines will be able to pull right up to Main St. where colorful locals will weave baskets and hats for happy cruisers to take home. Steel drums, anyone?

Having won about half of the medals from the Korean Winter Olympics… residents of Silverthorne have changed the name of the town to Goldthorne. Doesn’t roll off the tongue like Goldenthorne would, but townies didn’t want to be confused with that other Golden down in the Front Range. Silverthorne must have the highest gold medal per capita number in the world right now.

Now if Lindsey Vonn (82 wins) and Mikaela Schiffrin (43 wins) would just move to Silverthorne… every other ski town could just give up. Well, they only live 30 miles away. We could just claim them. You know… East Vail, West Vail, Eagle/Vail, why not Silverthorne/Vail?

And the debate is on… should Colorado host a Winter Olympics? We turned them down once before and there are great arguments both for and against. Some think we should have them just to get I70 fixed properly. Good luck with that. Seems that Nordic events couldn’t be run in Summit County, though. Olympics big-wigs think it’s too high here. Wimps.

It surfaces every Spring so maybe we should change the name of mud season… the innovators at the Town of Breckenridge are considering DNA testing (Really!) to track scofflaws who don’t pick up after their dogs. Fill in your own joke here.

The Final Word

There was a time in my 32 year career when I thought I’d seen it all and could forecast what would happen next in our market.
I am not ashamed to say now that I have no idea what’s gonna happen next.
The best any of us can do in these circumstances is to be ready for anything.
Really… anything.
So as Red Green down at the Possum Lodge used to say: “Remember, I’m pullin’ for ya. We’re all in this together.”
Call me any time and until then, keep your stick on the ice.
Chuck Leathers, CRS owner/broker

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.

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