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Posted: March 01, 2009

Q1 real estate report: Second homes on hold

Mountain resort sales have plummeted, but prices haven't

David Lewis

Here’s a quick quiz for avid ColoradoBiz readers. Which of the following does not belong: a) the Fall of Carthage; b) the Rape of the Sabines; c) the Chicago Fire; d) the Hindenburg Disaster; e) Hurricane Andrew; f) Hurricane Katrina; g) the Colorado second-home market?

You are correct. The answer is g).

It was no fun being a Sabine or a Carthaginian, it got awfully hot in Chicago and on the Hindenburg, and awfully wet under Andrew and Katrina. Similarly, the state’s second-home market has become terrifically cold and terribly dry. But it appears to be short of a full-blown disaster. Unless, of course, you are a Realtor who can’t quite make it through this particular drought or, perhaps, a desperate seller.

That’s because the Colorado second-home market exhibits welcome signs of hardihood. Mountain resort real estate sales activity has dropped by one-third to one-half, depending on the location.  But median prices have — miraculously? — maintained, or almost. For instance, a report released in late January by Land Title Guarantee Co. indicated that the number of Pitkin County real estate deals in 2008 dropped 40 percent from 2007, while the dollar volume of these transactions fell 46 percent. In next-door Garfield County, the number of real estate sales dropped 44 percent to 1,560, while sales dollar volume sank 41 percent. Summit County’s numbers also show a sharp drop in transactions and an increase in the value of the median single-family home. (Pitkin County includes Aspen and Snowmass; Garfield County includes Glenwood Springs and Carbondale; Summit County includes Keystone, Breckenridge and Dillon.)


Villa in Beaver Creek Resort — listed at $4,595,000, with five bedrooms and 5.5 baths. Photo courtesy of Slifer Smith & Frampton Real Estate

The anecdotal evidence supports this notion of near-price stability. Telluride is geographically isolated, and the town also is home to Gen. Norman Schwarzkopf and newcomers Jerry Seinfeld and Kelly Ripa (although Oprah moved out, sob). But it does not appear to be the exception to this rule. Telluride-based Telluride Mountain Real Estate crunched some 2008 numbers and concluded that, “Sales are down; we’re doing half the sales that we did the year before this one,” broker associate Garrett Simon says. “But homes have appreciated, still. We did the numbers, and in the town of Telluride there was almost an $80 per square foot to $90 per square foot price gain. Prices actually went up last year. ”

Current prices also seem to buttress the impression that surviving and/or successful real estate workers are maintaining a collective stiff upper lip. More than that, real estate pros appear to be dwelling somewhere on the Pollyanna-ish side of cautious optimism. Doug Freyschlag is president of Greenwood Village-based Alpine Quarters Inc., which brokers one-quarter shares of mountain properties in Breckenridge, Keystone, Frisco, Copper Mountain, Steamboat Springs, Winter Park and Vail.

“The mountain markets are not doom-and-gloom, but we work in all these markets, and I know all the mountain markets are soft,” he says. “Even the bigger markets like Vail and Aspen.” The market is not really a downer, Freyschlag says. Rather it is in a “wait-and-see pattern. For the most part you don’t see price drops. People are waiting. Activity is definitely down, but prices are holding.” One reason for some optimism is that so many of Colorado’s mountain resorts are built-out or nearly so. Telluride is. Vail is. Aspen is.

In Aspen-Snowmass-Carbondale, “Most people who are familiar with the area know that this is an extraordinarily special place, and it’s not like we have all this new development coming down the pike later that could really diminish values,” says BJ Adams, owner of Aspen- and Snowmass-based BJ Adams & Co. “It doesn’t take very long for the market to do a quick turnaround and go in the other direction. Every time we go back and look at the market, we slowed down, but when it recovered, it recovered very quickly. Then everybody is saying, ‘Oh, we missed the bottom.’”

In Steamboat Springs, Peggy Garrett, broker associate with Steamboat Village Brokers Ltd., could not agree more. “I’ve been in this business for 27 years and went through the 1982 oil recession,” she says. “There are a lot of good deals to be had right now, but the buyers are still hesitant.” This is a common theme among mountain resort Realtors. Bachelor Gulch Village-based Catherine Jones Coburn, a broker associate with Slifer Smith & Frampton Real Estate, covers the territory in the Vail-Beaver Creek area. Like Adams, who has been in the business for more than 25 years, Coburn has been selling mountain real estate for decades. “This is definitely a challenging market, more so than I’ve seen in the 28 years that I’ve been selling real estate,” she says.

What’s different about this market compared with past crummy markets? “The biggest thing I’ve seen is that it happened so quickly. In the past when markets got softer, it was over a period of time. This was an abrupt ending to a very strong market,” Coburn says. Like credit derivatives, one big problem with the real estate market is a “mark-to-market” snag. That is, it’s tough to value » an asset when there are no comparable assets to measure it against or, bluntly, when mass confusion brings about an unbridgeable gulf between the notions buyers and sellers have about market value.

“The problem we are having is that a lot of the sellers are in denial as to the fact that the market is being impacted by the global economy,” Coburn says. “And the buyers think the world is coming to an end, and therefore everything should be a fire sale; everything should be 25 percent to 30 percent off list price. Properties are staying on the market longer, and they are accumulating, so it becomes more competitive with those properties that are still available.”

One common reaction to the confusion is to do nothing as much as possible. “People say, ‘I’m not going to buy now; I’m going to wait,’” Coburn adds. “I don’t think that’s such a good thing to do. Prices have slipped a little bit, but by the time you figure out it’s time to buy, the only reason you know that is because all of a sudden the prices start going up.”

All of this is of more than academic interest because second homes are vitally important to Colorado, not to mention the Colorado real estate business. And, luckily, these homes are of academic interest to the queen of Colorado second-home research, Linda Venturoni, president of Dillon-based Venturoni Surveys & Research Inc. Starting in 2004, Venturoni has conducted second-home studies of first- and second-tier resorts including Avon, Vail, Breckenridge, Aspen, Glenwood Springs, Ouray, Crested Butte, Durango and Winter Park. “Second homes turned out to be the largest economic driver in most of the counties we studied,” she says, varying mostly by the proportion of local second-home stock and their owners’ income levels.

Her research has turned up all sorts of valuable info. Did you know that in Summit County, two-thirds of the housing units are second homes? That Eagle County (Vail-Beaver Creek) and Pitkin County (Aspen-Snowmass) tend to have more out-of-state owners? Or that, for the sake of local economies, the best buyers are either the wealthy (with all their maids, nannies and catering staff) or the relatively lowly condo dwellers (with all their renters and visitors)?

Like the real estate pros, Venturoni finds a silver lining in today’s gloomy, soggy, clouded economy. “Because of the lower (construction) costs and the availability of  builders and construction workers,” she says, “some of the resort communities right now are actually seeing this change in the economy as an opportunity to do more with their affordable housing programs.”

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Readers Respond

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Interesting article, but what about the effect on price as inventory builds up? Or how about the impact from a difficult lending environment? Also include the recent spike in RE prices in these areas and how this is no longer sustainable when you do a follow-up. By Chip on 2009 03 06
I really think you missed on this one, nice try to keep the prices up in the mountains. this kind of article continues to prove that you are not in the real world. Everyone has been effected by this down turn and if you believe that the rich are not effected you may need a padded cell. Mountain prices will fall and the question is how far and how soon. With people getting laid off left and right with less 2 income families there is no way to go but down for the near term. I don't know what data you are looking at but start talking to more real estate agents not just high end and you may see a trend. Good luck with your convincing the people who will not buy until this market turns. They will be far and few between.... As they say a fool is born everyone day. By Steve on 2009 03 05

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