House of Cards Part 5: Reshuffling the deck
Everyone has an opinion about the future of housing in Routt County as interested players in the real estate business look for footing in a shifting landscape.
Glossary of terms
Absorption rate: The number of listings divided by the rate of sale. For example, a market with 2,100 available properties that sells 300 properties in a year has an absorption rate yielding a seven-year supply of properties. The rate has to be adjusted periodically to account for changing listings and transactions.
Federal Reserve System (the Fed): U.S. central-banking system comprising 12 regional central banks owned by private banks. Governed by a seven-member (each appointed by the president for 14 years) board of governors, the Fed regulates interest rates, availability of bank credit and sets other monetary policies such as legal reserve requirements for banks.
Inflation: Sustained, rapid increase in the general price level, as measured by some broad index number of prices (such as Consumer Price Index) over months or years, and mirrored in the corresponding decreasing purchasing power of the currency. ... There is no one single, universally accepted cause of inflation, and the modern economic theory describes three types of inflation: (1) Cost-push inflation is due to wage increases that cause businesses to increase prices to cover higher labor costs, which leads to demand for still higher wages (the wage-price spiral), (2) Demand-pull inflation results from increasing consumer demand financed by easier availability of credit; (3) Monetary inflation caused by the expansion in money supply (due to printing of more money by a government to cover its deficits).
Economic diversity: Varying the industries and labor force demographics in an area to provide greater strength in a local economy.
Location-neutral business: A business in any field, including production, technology or consulting, that does not rely on the local economy for its operation. Often small operations in which employees conduct business by computer or phone.
Source: Steamboat Pilot & Today
Steamboat Springs In the summer of 2007, Matt and Stephani Murphy put in a $440,000 offer on a house in Stagecoach's Red Hawk Village neighborhood. Another prospective buyer made a higher offer on the same day, and the Murphys lost out on the house in the modest subdivision south of Steamboat Springs.
The Murphys, who were recent transplants from Los Angeles, figured maybe it wasn't the right time. So they rented a place at Sundance Creek Condominiums in Steamboat, and they held out.
Their patience paid off, aided by a drastic turnaround in the real estate market.
"I had a baby, and we were just busy with other things so we didn't really get back in the market, which was the best thing that could have happened for us," Stephani Murphy said. "For us, we ended up getting a bigger house than we originally planned on purchasing for so much less."
On June 29, the couple closed on a three-bedroom, 3 1/2-bath, 1,950-square-foot home in Red Hawk Village for $297,000. The property last sold for $555,000 in April 2007, according to the Routt County Assessor's Office.
The transaction pace of the local real estate market has slowed dramatically from the frenzied pace of 2006 and 2007, and folks like the Murphys are taking advantage of it. Sales prices that were unimaginable just a year ago are the new norm, but stricter lending requirements and a general uneasiness about the economic climate is keeping many sellers and buyers from finding common ground. Whatever the future of Routt County's real estate economy, there's no shortage of opinions about if and when it will return to the record levels of the mid-2000s.
When Red Hawk homes started reappearing as short sales around February of this year, Matt Murphy couldn't help but take notice of the distressed prices. Short sales take place when property owners can no longer make their mortgage payments and their banks agree to sell the properties at a lowered price to prevent the costs of going to foreclosure.
Not only did the Murphys capitalize on drastically reduced prices, they qualified for a one-time $8,000 credit on their 2009 tax return; the credit for first-time homebuyers is part of the American Recovery and Reinvestment Act of 2009.
"I just think if we didn't get in now, we never would have been able to afford," Matt Murphy said.
Standing in the entranceway of his Sagebrush Circle home - where he and Stephani moved at the beginning of July with their 18-month-old son, Cole - Murphy said that if his family still lived in L.A., he might have entered into a risky loan to buy a house for twice as much money. If they'd bought during the height of the market, the $300,000 that got them a house in Stagecoach in summer 2009 would have netted only a condo or a house even farther outside of Steamboat Springs.
"Now with all the foreclosures and the short sales that have gone through, all these families have been able to afford that, and that's great. It's unfortunate for everyone else, and fortunate for all of us," he said.
For the past 1 1/2 years, Matt has been a framer for Albertini Construction, first working on a 20,000-square-foot log home near Clark, and recently helping with additions and renovations at Vista Verde Ranch, a luxury guest facility in North Routt County. Murphy hopes those projects will last for another six months to a year, he said.
"I think we might bridge the gap, and the economy might straighten out within a year or so, but who knows. Hopefully. It would be great," he said.
The market now
When the Murphys moved to Steamboat Springs three years ago, they walked into a real estate market where prices and sales volume were at a record high and available listings were at a record low.
In the first two quarters of 2009, the Steamboat Springs Multiple Listing Service, which tracks data for registered Realtors in Steamboat Springs and surrounding areas, recorded 163 transactions, said Doug Labor, broker-owner of Buyer's Resource Real Estate and manager of MLS statistics.
At that sales rate, Labor expects to see about 320 sales in 2009. With just more than 2,300 residential, commercial and property listings available, that rate of sale saddles the market with supply that would last about seven years, he said. A typical rate of supply is about a year, Labor said.
At the end of 2008, Nick Metzler - a broker-owner for Colorado Group Realty - saw a gap between what buyers were willing to pay and what sellers were willing to accept.
"I can look back from, say, March to October of 2008 into March of 2009, it's the first time in my career - minus just after 9/11 - that there was almost no market, meaning the sellers were up here and the buyers were down here and there were just almost no transactions," Metzler said.
To an extent, that gap remains, he said.
"There is and was a gap, and I think that just is something that happens over time : the demand on the inventory slows down, and then it just takes awhile," he said.
Metzler has been directly involved with four homes sales between $1.5 million and $2.5 million this year. Every deal is different, he said, but all four sales included a price reduction.
"That's how the market will come together; sellers will come down more and buyers will come out of the woodwork thinking they're getting a good value, or vice versa," he said.
In July, David Baldinger Jr., managing broker-owner of Steamboat Village Brokers, said he had more showings than he did in any month this winter.
The first quarter of any year traditionally is the slowest for real estate transactions, Labor said; the third quarter comes in first, followed by the fourth and then the second. From 2003 to 2008, the first quarter averaged 268 sales. In the first quarter of 2009, there were 59, Labor said.
Sometime in the third or fourth quarter of 2008, prices in certain sectors started to drop, Baldinger said. When prices come down, buyers start to bite. He and Metzler said buyers might be slow to return out of caution.
"This is a hard and deep enough time financially for the whole country that people are going to be very careful, and that's really the bottom line. Banks are being : extremely conservative, buyers are being conservative, and they're just moving slower. They're still coming, they're just moving slower," Metzler said.
Steamboat and the outside world
Nationally, there have been some signs of a pending recovery in the economy and the housing market.
Just this week, there was news that housing prices in 18 of 20 major U.S. cities increased 1.4 percent in June, marking the first time the S&P/Case-Shiller index increased two months in a row since mid-2006. Consumer confidence also increased in August after two months of decline.
On Aug. 12, representatives of the Federal Reserve Board expressed confidence in the health of the national economy. The Fed extended its low short-term interest rate, predicted inflation would stay under control, announced an October ending date to its program aimed at buying $300 billion in Treasury bonds, and said it planned to continue a plan to buy $1.25 trillion of "agency mortgage-backed securities."
July's trade deficit numbers also were released Aug. 12, showing an increase in imports and exports, with the gap increasing from $26 billion to $27 billion. The increase could signal strengthening global markets.
Although national new-home construction and permits dropped slightly in July, single-family home construction grew, as did the number of permits issued for single-family homes.
Local financial analysts and those involved in the Steamboat Springs real estate market list macroeconomic factors, including consumer confidence, stock market strength and available wealth, as cues for rebounding demand in the Steamboat Springs housing market.
Labor said second-home owners, retirees and location-neutral business owners were key demographics of the mid-2000s housing boom.
In Harry S. Dent's "The Roaring 2000s," a book about demographics, the author predicts baby boomers will drive vacation home demand until 2013; Labor said the retirement demand from the same population could hold those highs steady through 2026.
"The kind of underlying factor : that has been fueling our market, prior to this recession, has been the baby boomer population, and I still feel that interest from baby boomers is still out there, but they're waiting for their own personal finances or positive news," he said.
Elizabeth "E.A." Black - a consultant specializing in financial literacy who has worked with Millennium Bank and the Yampa Valley Housing Authority - said consumer confidence has to come back in major markets for Steamboat to see the kind of rebound it might hope for.
"Everyone is nervous and they don't know what to do, so they're not doing anything. : I just think it's going to take time," Black said in mid-July. Much of the money that fueled second homes and other big-ticket items has dried up, she said.
"All of these financial services people made a lot of money, and they were the kind of people who came to resort communities throughout the country, and that's why I think it's going to take us a little longer to recover," Black said.
Differing paths forward
Steven Hofman - who served as an assistant secretary of labor under President George H.W. Bush and is a former director of research and policy for the Republican leadership of the U.S. House of Representatives - moved to Steamboat Springs in December 2008 after buying his land in the Dakota Ridge neighborhood in 2000. A "kids ski free" ad first brought Hofman and his family on vacation here in 1994, he said.
He sees the recent low volume of this resort-town housing market the same way one might look at a place where the sole industry has rusted away.
"Because housing is such a large segment of the economy : (it's like) you had the equivalent of a base closing, that you're a one-plant town and that plant has just closed," Hofman said.
When Hofman talks about the market he thinks drove the mid-2000s housing boom here, he can't help but think about baseball.
In the new Yankee Stadium there is a cluster of seats - a top-of-the-line infield section with perfect views of home plate where seats at one point sold for $2,500 apiece - where hardly anyone sits.
"That stadium was built for an economy that existed two years ago," said Hofman, now a corporate business strategy advisor who enjoys going to see the Yankees play but would never consider buying a $2,500 ticket.
"People created all of this luxury product for an economy that no longer exists," Hofman said. "The same thing applies to a lot of the construction that happened here in Steamboat."
Looking out from his front porch in Dakota Ridge, Hofman can point in almost any direction and land on a house that's on the market. Some of them were built on speculation during the boom, and others have gone on sale since the national recession began. Hofman expects all of them to be empty for a while longer.
Scott Ford is a financial consultant who moved to Steamboat Springs in the early 1990s and has worked with the Steamboat Springs Chamber Resort Association, Steamboat Springs School District and Colorado Mountain College's Small Business Resource Center. He acknowledges the hit on Steamboat from the rest of the economy, but is optimistic about affluence making its way back to the mountains.
On the recovery side of an economy, a recession creates catalytic events in people's lives, he said.
"On the upside of this recession, we will grow and we will grow more affluent," Ford said. Finding a "new normal" could take time, he said, but Ford expects a return in consumer spending, followed by a return in real estate volume, then a return in construction. Since retiring, Ford has worked on the Community Indicators Project and the Routt County Livability Index.
What Hofman sees happening on a national scale is not a typical recession, but a shift from one business model to the next. Hofman said it's a change that will move the weight of productivity from the financial sector to a to-be-determined area of the economy, and it will need at least 10 years to solidify.
"In my judgment, the era of the 8,000-square-foot home and all the economic activity that is thrown off of that is over," he said. An employee in any economic sector creates an average $6 or $7 of economic activity for each dollar he or she is paid, Hofman said.
"When you have a huge sector of our local economy that's a fraction of what it was, then you're taking away six to seven times the productivity," Hofman said. Those who represented a thriving affluent class drove much of that activity, he said.
"People will come here who want to live here, but a lot of what drove the economic activity was build it and they will come - people are not going to be coming because they can't afford it," Hofman said.
Ford said that although some people might not be as wealthy as they used to be, he thinks a market for second-home owners and location-neutral businesspeople remains in mountain towns. Steamboat will get its share, he said.
"I think we'll see our development continue to be driven by individuals who will make the decision that because of the amenities in this community, 'I will move to Steamboat,'" Ford said.
The signs of recovery
Metzler points to property showings as his No. 1 indicator of returning business for Colorado Group Realty.
"We are seeing an increase in showings in some of our areas," he said in mid-August. He said that spike could be attributed to August being a traditionally strong month, or it could be the start of a turnaround.
In early August, Metzler showed homes to interested second-home buyers who said they weren't looking in 2008 because their business back home was down. In early August 2009, those buyers said business had picked up, he said.
Doug Labor, whose Buyer's Resource works exclusively with buyers, looks for increased Web site hits, phone calls and general inquiries to gauge his office's volume. He also checks tourism and skier visit numbers for signs of the economic situation across the country.
"Because we only represent buyers, we are seeing some half-decent activity with our Web site hits, which leads me to believe there are a lot of people circling the area, circling the market from a distance, and they're just waiting to see some positive indication of things turning around," he said.
Steve Downs, a Steamboat Village Brokers agent who has been selling real estate in Steamboat for 34 years, said there are elements of the market here that could help insulate it from macroeconomic factors.
Compared to larger areas, not as many people bought on speculation, he said. Families invested in multi-generational second homes, giving those properties a degree of stability. Resort-minded buyers viewed Steamboat as a value, and for years came here as other markets sold out, he said.
"You don't know the bottom of the market until it starts to go up - well, has the market turned and started back up? No, that would be a lie, and people are waiting," Downs said in mid-July.
Labor said the bottom could be an emotional point - when "every article you read, every newscast you turn to, every report that anyone's aware of, and it's all bad news."
"The tricky thing with that is you never know you've hit the bottom until six months after the fact," Labor said.
Prices per square foot for single-family homes in Steamboat Springs are lower now than they were in 2008, according to Colorado Group Realty's 2009 mid-year market statistics. The report includes numbers for the first half and second half of each year since 2007.
Average price-per-square foot of a single-family home in downtown or the Fish Creek Falls area during the first half of this year was $314, according to the report.
That number was $383 in the second half of 2008, $405 in the first half of 2008.
Entrepreneur and software developer Jens Owen sees opportunity in decreased or corrected home prices.
A Steamboat Springs resident since 1994, Owen has started, grown and sold two location-neutral technology companies: Precision Insight and Tungsten Graphics. When it came time to look at starting a third business, Owen wanted to reach a broader audience, he said.
By early fall, he hopes to open the doors of the Storm Peak Innovation Center, an incubator for location-neutral technology businesses. Owen purchased space for the incubator's headquarters on the 10th Street side of The Victoria in June 2008. The first 10- to 12-week incubator session is scheduled to start in January 2010.
He has worked with Noreen Moore, business resource director for the Routt County Economic Development Cooperative, to create networking opportunities for technology professionals in the Yampa Valley.
Increased access to the Internet has allowed more opportunity for computer-based workers to live here, Owen said. Decreased home prices help make a career move to a resort town more plausible.
"Timing-wise, as prices were going up from a housing (standpoint), we were kind of getting close to edging ourselves out of the market or the opportunity," Owen said.
Things were still pretty strong for software professionals as recently as summer 2008, he said, but some of those workers might now be looking for new opportunities.
"At the same time the economic slowdown has allowed for some really good talent to become available," he said.
Inside the incubator, Owen plans to have a digital media gallery; a glass-walled conference room; a flexible workspace; and a coffeehouse-style meeting area.
The idea is fashioned off TechStars, a technology business incubator that runs summer programs in Boulder and Cambridge, Mass., and includes seed money, mentoring and networking opportunities.
Participating business founders will be required to come to Steamboat for their incubation session, and after that, are free to distribute around the world, Owen said. He suspects at least some of those businessmen will stay; his last business, Tungsten Graphics, employed 18 people, with three living in Steamboat, five scattered around the U.S. and 10 based overseas. He thinks incubator clients will tend to stick around and keep businesses in Steamboat, though it's not a requirement, he said.
"It's going to be a natural evolution for many of the entrepreneurs to want to continue to be based out of Steamboat," Owen said.
Randy Rudasics, manager of the Bogue Enterprise Center at Colorado Mountain College and volunteer small-business counselor for SCORE, said local construction and real estate have softened in the recession.
"I've seen several people come through in the past year who were real estate agents who wanted help putting together a small-business plan, but almost all of them kept their license," Rudasics said. Most of those enterprises have been one- or two-person projects that are unlikely to add more employees, he said.
In the next three to five years, Rudasics expects to see a diminished available labor pool and skill set in professional areas, especially those related to the construction industry.
"My concern is that some skilled labor has left the valley because there wasn't any opportunity here recently, and when some of that opportunity comes back, we will have a tough time recruiting folks here for all the traditional reasons: cost of living, confidence in the long-term economy, things like that," Rudasics said.
E.A. Black, the consultant and financial literacy teacher, said economic diversity - be it through Owen's location-neutral businesses, Hofman's new business model, or a return of construction and real estate - will help expand and strengthen the economic base.
As the number of people with high incomes has dropped, Black said it's hard to say when Steamboat Springs will pull out of its economic slump.
"We need consumer confidence, stability and certainty, job growth and time : and hopefully time will heal our financial wounds," she said.