BLOG NOTE: This blog post is from 2014. To view our most recent blog posts, click here.
Last week, the Aspen Board of Realtors sponsored its annual review of the Aspen real estate market. Statistics were presented that showed 2013 was another good year in the recovery phase of the local real estate market. Despite a significant decline in the overall inventory for sale and a large increase in the number of transactions, the total dollar volume of real estate sales in Pitkin County has fluctuated within a fairly narrow range of $1.25 billion to $1.35 billion over the past six years, with an average annual volume of about $1.30 billion.
By all measures, this is a fairly unusual pattern for such an extended period of time. Normally in a market recovery phase, one would expect to see the sales volume steadily increasing. In fact, the total volume of sales for 2013 was $1.31 billion was about 12 percent below the total sales volume for 2012 of $1.491 billion. So how can this pattern of stagnate total sales volume be explained?
The most likely explanation is what’s happening outside the Aspen area on the national and international stage. Although, we often like to think that Aspen is somewhat insulated from the rest of the world, that’s probably not realistic due to its reputation as an international resort. With roughly 50 percent of all properties in Pitkin County owned as second homes, the highest percentage of second home ownership in the United States, one can see how the market is to a great degree dominated by people who do not consider Aspen their principle residence. They are likely to make real estate decisions based on factors outside the Aspen area.
So, what are the national and international factors that might be at playing an important role in determining the outlook for the Aspen area real estate market? One of the big ones might be demographics. Baby Boomers, a generation of 70 million, have dominated the country’s economy and, to a great extent, the Aspen real estate market since the 1980s is in the process of retiring. The youngest Boomers, born in 1964, are turning 50 and the oldest are turning 70. Studies show that when individuals reach retirement age, they significantly reduce spending.
On the other hand, the children of the Baby Boomers, a generation of 80 million called the Echo Boom, where born between 1982 and 1995. The oldest of the Echo Boom generation are in their early 30s and won’t hit their peak earning and spending years for another six to 10 years. This gap in spending between the waning spending habits of the Baby Boom generation and the beginning of the peak spending years of the Echo Boom generation could be one of the factors that could explain the relatively flat nature of the Aspen real estate market for the past six years.
Another factor could be the continued slow recovery of the national economy since the end of the last recession. Most economists feel that the national economy must maintain an annual growth of at least 3 percent to constitute a full recovery. For the past five years, the U.S. economy has only mustered an average annual growth of 2.65 percent. Some economists predict that 2014 will be the first year since 2005 that the U.S. economy will exceed a 3 percent annual growth rate, while others are predicting more of the same. What’s happening in the Aspen real estate market could reflect the slowly improving national economy.
Other factors that may be impacting the Aspen real estate market could include the upward trend in interest rates and the economic slowdown in some of the key emerging international economies, such as Brazil and China. The slowing economies in countries such as Brazil could damper foreigner’s interest in buying property in Aspen. A combination of these outside influences could help explain why the Aspen real estate market is recovering so slowly from its low point in 2009.