Crowded price points begin to see declines

Real estate absorption rate exceeds beyond 40 months in some categories

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Routt County sales volume 2005 through 2008

— The slumping Steamboat Springs real estate market is backed up in the second month of 2009 with an oversupply of inventory that is stretching absorption rates beyond 40 months in some categories.

Dollar volume for the preceding year was less than half of the record year of 2007, and unit volume, the lifeblood of rank-and-file Realtors hunting commissions, was less than one-third in 2008 of where it stood in 2006.

Is there relief in sight?

If the Steamboat Springs real estate market is going to show signs of renewed life this winter, February is due to send a sign.

"We'll know in February and March," Nick Metzler, of Colorado Group Realty, said. "Those are typically the best months of winter because that's when people who are attached to Steamboat are visiting."

Metzler isn't overly optimistic the last two big months of the ski season will produce the turnaround the real estate community is hoping for. He thinks it will take more time to bridge the gulf between sellers and buyers.

"There is a gap in the perception of property values right now," Metzler said. "Homeowners saw the tremendous appreciation that took place in 2007 and have a number in their head. The buyers are thinking a different thing. Buyers are looking for the bottom, and sellers are waiting, in most cases. Eventually they will get tired of waiting."

Last year's real estate dollar volume of $725 million was less than 50 percent of the record year of 2007.

Bruce Carta, of Land Title Guarantee Co., reported that dollar volume in 2008 was 45.7 percent of the $1.587 billion put up in 2007. The 2008 numbers landed between 2004's $636.9 million and the $885.9 million sold in 2005.

The big difference between last year and the middle of this decade can be seen in unit volume - 2005 broke $886 million on the back of 3,241 transactions, according to records Carta gleans from the Routt County Assessor's Office. That compares to just 1,077 transactions last year.

The trend of declining transaction volume revealed itself even in the record dollar year of 2007. After peaking at 3,477 transactions in 2006, the number slid to 2,555 in 2007 as fewer people made purchases, but of pricier properties. The trend was amplified by some very large purchases of development ground.

Doug Labor, of Buyer's Resource Real Estate, uses transaction volume to help project absorption rates in different real estate categories.

An absorbing subject

The absorption rate could be described as the amount of time one might expect to see existing inventory listed on the Steamboat Springs Multiple Listing Service before it sells.

Labor said it's difficult at the beginning of 2009 to decide whether to calculate absorption rate based on the trend that has evolved during the past five years or based solely on the correction of 2008.

The two periods produce very different results for homes of all types, he said, depending upon the price range.

For example, there currently are just eight listings for townhomes priced between $300,000 and $400,000. Based on the 12 transactions in that price range last year, the eight represent an eight-month supply. However, if you look backward to the preceding five years, he said, it looks like just a three-month supply.

In the more competitive market for townhomes priced between $700,000 and $800,000, the absorption rate is likely to be slower. The 25 units on the market could take 29 months to sell based on the five-year average of sales data. Or, based on the three sales that took place in that category in 2008, it could be a supply that won't be absorbed until 100 months out.

A similar trend can be observed when you generate absorption rates for single-family homes, Labor said.

There are 91 single-family homes listed between $250,000 and $500,000 on the market, a nine-month supply based on the five-year average. However, just 55 in that range sold in all of 2008, about half the number Steamboat has seen each year this decade. So, based on the 2008 sales pace, the absorption rate is 20 months.

The numbers increase in the range between $500,000 and $750,000, according to Labor's calculations. There are fewer homes for sale in that large price bracket - 74. That is precisely how many sales in that range were recorded in 2006, and six fewer than in 2005. So, the absorption rate based on the five-year average is 14 months. It increases to 47 months when the projection is based solely on the 19 sales in 2008.

$2 million home demand

For the 70 single-family homes presently listed at prices between $1 million and $2 million, Labor said, it still holds true that the absorption rate is longer when it is based on 2008 versus the five-year average (42 months compared to 24). However, in the case of the 79 homes priced at more than $2 million, the absorption rate actually projects to be shorter based on 2008 (43 months) than when compared to the five-year average (54 months).

Labor interprets current data to mean some of the greatest demand last year was at the high end of the market.

Metzler said that although some of his prospective buyers in the past year have disengaged from the real estate market, there still are buyers interested in acquiring real estate in Steamboat. However, they don't feel a great deal of urgency because of the number of properties on the market, a situation underscored by Labor's calculation of absorption rates.

Metzler said he thinks the Steamboat market is undergoing a healthy correction at the outset of 2009. He is wary of talking about price decreases across the board in the Steamboat market. They are certain to vary, and in some cases, we won't see prices go down at all. But he said overall, price decreases in the range of 15 to 20 percent are likely.

The biggest drops will be seen where the local market has the most inventory at a certain price, Metzler predicted.

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