that's a wrap (on the 20-21 ski season)

By the numbers:

person                        Cost of pass        Days               cost per day          special note

Me                                $2,567                75                    $34.25                caught 3 start of season rope drops

Wife                               $1801                42                    $42.90                broken foot missed 2 months

Son                                $374                    104                $3.60                   100 Days and straight A's

Daughter   (ugh)            $374                    7                    $53.42                bought food on hill every day

Other fun highlights.  

Campground lift didn't open till second week of February.  It was a shit snow year---if we didn't live on a ski run in snowmass those numbers would be much much lower (And the cost per ski day much higher).

My daughter hates HATES skiing.  Only done with friends under extreme duress.  And then offset by buying food on hill.

I never bought food on hill.  I didn't ski Aspen this winter (COVID gondola fears), nor Buttermilk (with no Bacon why go?)  

Wife broke her foot in a COVID (maybe) haze in early November---her insurance paid out $766 which is why her lift ticket costs are less.  

Best question on a chair lift from someone from North Carolina---'does the snow ever get too deep for you to ski?'  My knee jerk asshole response was 'NO'.  But to be honest the season opening rope drop on the rolling blacks off of high alpine the snow really was too deep on the flat sections---was kinda humorous to watch everyone hit the flat bits and just come to a halt.

Second best question from an out of town guest.  "are lift tickets really that expensive?  Is there some secret to getting less expensive lift tickets"  Yes they are that expensive and no there isn't a way to get less expensive tickets---maybe ICON but you got to read the fine print and it doesn't help much if you only ski 5 days a year.

So that is it for this year---a lot of quick short days made possible by home location, with many of those not very entertaining but heck its always nice to get outside and let electricity take you up and gravity take you down.

Aspen Vs. Steamboat

 just a quick compare and contrast (and yes the price of everything has gone up crazy)

                                       Aspen                                                    SteamBoat             

lift ticket                            $2850( Aspen only)                            $1k (ikon ulimited multi mountain)

Burger fries beer                $32 (white house)                                $ 19 (back door tavern)

Home                                  $3.7k a foot in town new construction  $1k a foot in town new construction

                                           aspen (good bit underground                      boat new construction home 

I have tried to compare apples to apples.  I am sure some folks will say the decor at white house is much nicer than back door (and they are not wrong), or the Aspen home finishes are much nicer (3.7x nicer---unlikely, maybe 30% nicer but of course steamboat has a bigger garage and is all above grade, and the lot in Steamboat is about 85% bigger).

The big question---is Aspen 3 times better than Steamboat?  

The smaller question is with Ikon and Epic passes covering pretty much every season pass you could want for less than 1k how the heck is Aspen Ski Co getting away with $2.8 times that.  I will say that Ski Co includes an Ikon base pass with the $2.85 k purchase price, but ......well it reminds of that old Aspen marketing slogan---exclusive by design.

Do tulips rhyme with Havens?

 When the conversation turns to financial bubbles,  tulip bulbs always have a starting role.  In the mid 1600s the price people were willing to pay for tulip bulbs went------up.  A lot.  And then crashed.  I could give you quotes about the price of various qualities of tulip bulbs in florins but that really doesn't tell you anything.  What does tell you something is near its peak it would take a skilled laborer 10 years of work to pay for 1 tulip bulb.  That is a lot of labor to buy a bulb.

Can it ever be rational to participate in a bubble.  I have long argued yes.  If most everyone else is in on the game and you chose not to participate your ability to buy stuff (not including tulip bulbs) will be limited.  If you go along for the ride---well at least you can keep up with the Jones's.  To bring the point home in more current assets assume everyone in the country is making money in Dodgycoin (the new cryptocurrency I invented yesterday) and it goes up so much that pretty much everyone in the world is worth an additional $25m except for you my dear reader who decided that Dodgycoin was well....dodgy.  If everyone else has an additional $25m in assets what do you think happens to the price of homes, or Tesla or airfare?  Economic theory would suggest they go up.  Bottom line, choosing to sit out a widespread financial bubble is risky---its a bit like shorting the stock market.  When you are right you really gain against everyone else, but when you are wrong it can really hurt your purchasing power relative everyone else.  And it's everyone else you are competing against to buy stuff so maybe it's time to open that coinbase account.

Ahhhh you might ask---what the hell does that have to do with the Havens?  The Havens is a building development at the base of Snowmass ski area.  It is comprised 10 single family homes ranging in size from 2,500 to 3,300 square feet.  They sold for between $5.7M and $8.4M or about $2,600 a square foot.  The project sold out in 42 days.  My guess is the new owners will be able to move in 1.5-2 years.  The homes will be tight to each other, not have much of a view, share an underground parking garage with an elevator that brings you up in the middle of the project at which point you have to lug your stuff to your house.  Oh yea and the HOA fees run around $36k per year (estimate prior to construction so that might be a low ball on HOA fees and that doesn't include any 'special assessments').   Overpriced?  You make the call---clearly 10 people didn't think so, but lets take a look at some 'comps'.

There has been a lot of development in the base village over the past 3 years.  Most of those units sold for between $1k-$1.5k a square foot.  Here is a link to an example--a 4 bed 4 bath new construction home that sold 9 months ago for $1.25k a square foot.

1,250k square foot snowmass base

Or if you are willing to live up Wood road and walk about 300 yards with your skis you could have bought this beautiful new construction home for $1.44k a square foot and gotten great views, an attached garage and HOA of $1,200.  

$1,400 a square foot, views, and $35k less HOA

Or if you were looking around a year or two ago you could have bought into the 1A townhomes in Aspen.  I think these are great comps---base of Aspen vs base of snowmass---new construction and similar type finishes.  These homes have similar HOA fees ($35k ish) but of course the home is about 80% bigger so HOA per square foot in Snowmass is about 80% more on a relative basis.  And you get an attached 2 car garage, and YOU ARE IN FUCKING ASPEN.  Historically, Aspen has traded at a 50-100% premium to Snowmass, so paying 2% more per square foot to be in Snowmass vs Aspen seems......off market.  The linked home sold less than 6 months ago.

lift 1A townhomes

What do you think?  Are the Havens priced a bit high relative to their 'comps'?

Remember the skilled Dutch laborer who had to work 10 years to buy 1 tulip bulb in the peak of the mania.  I decided to have some fun with numbers to try to figure out who might be able to afford these vacation homes.

I assumed 'they' started working at age 25 making $250k per year and their earnings went up $100k per year.  I assumed the buyer is now 45---that their total effective tax rate was 40% (i.e. w2 income), that they saved 50% of their income each year and that their investments returned 7% a year compounded annually after tax.  At age 45 this hypothetical family of 4 (maybe double income maybe single income) is worth $13.6m.  If their investment returns were 9% (which would be HUGE remember its after tax and fee returns) their net worth would be $16.2m.  If their returns were 7% and their W2 earnings only went up $50k per year their net worth at age 45 is $8.5m.  Even at only $50k per year their W2 earnings are $1.25m  a year and the original couple is earning a healthy $2.25m a year.  As Adam Sandler might say "not too shabby".

The base line family that is worth $13.6m and making $2.25M per year decides to buy a 2,700 square foot home in the Havens for $7m.  Assume they have a $3.6m primary home with no mortgage.  They decide to put down 50% of the purchase price and take out a $3.5M mortgage.  They now have investable assets of $6.5M and they have added to their expenses about $265k per year for the next 30 years ($188k a year for mortgage, 36k HOA, $18k utilities, $8k insurance, $15k taxes).  Looking at that annual nut I am gonna eliminate the family whose income only went up $50k per year.  If you have any financial sense at all I just don't see someone whose after tax income in $375k being able to swing $265k expense for their vacation home.  Even the original hypothetical family is gonna be stretched spending 40% of their after tax wages a year on their Havens home.

How many families are there out there making that much money since they were 25?  And do they all want to live in Aspen-Snowmass---answer it sure seems like a lot and yes.  It seems like people are getting carried away and some folks might not be thinking about what they really can afford.

Let's see what happens to this family if it turns out they maybe stretched a bit and decide in 3 years to sell.  Lets assume they sell their home for $2100 a square foot ---that would give them a sales price of $5.7m.  After commission and transfer taxes etc they would net $5.3m.  They also will have spent $800k on 3 years of mortgage payments etc and only been able to live in the house 1-1.5 years.  Let me ask the rhetorical question that is so obvious, 'Would they have been better off renting?"  And if you toss in the cost of $800k into the mix their break even is about $3100 a square foot when they sell.  Possible?  Sure.  Likely-----hummmmm.  

Bottom line observations

1.  Has there been a fundamental shift from living in the city and burbs to living in vacation towns?  Not according to school enrollment data.

2.  Lower priced homes are starting to sell at a premium to higher priced homes.  For example $10-20M homes in prime locations are selling at a lower per square foot cost than $2-8M homes in average locations.  This leads me to believe the truly rich got the homes they want, while the upper middle class-low ultra high net worth is reaching and bidding up prices on homes they think they can afford.  I remember during the 2008 GFC in general it wasn't the people with net worths over $500m that were finically stressed even if their net worth dropped in half---its was the partners at Goldman who were worth $50M and lost half their net worth and struggled with their second homes on Nantucket.

3.  I think my hypothetical family (and the financial system) has more leverage in it than anyone is accurately measuring.  The family put down 50% on their Havens home.  That is not like 2008 when people put down 10% or less.  But there are different assumptions built into their decision which might be less obvious.  What if they went with an adjustable loan and rates rise?  What if tax rates go up?  What if their investments don't go up 7% a year?  What if they go down?  Of course maybe the value of the Havens continues to appreciate at 15% a year, but what if my assumption of $2100 a square foot is wrong?  What if the price they sell at is $1500 a square foot which would be in line with the comps? (answer they get back $250k of their downpayment of $3.5m).

The price of stuff isn't that informative.  Remember the tulip bulb that cost 10,000 florins?  That doesn't tell you squat.  A tulip bulb costing 10 years of skilled labor---that tells you something.  Who can afford a Havens home?  Not someone only earning the minimum threshold to be in the top 0.1% of the country (that number is $1.6m a year).  It would seem to be an even more select group.  A cohort who is making $2-4M a year.  A cohort that is way less that 0.1% of the US population (remember the really rich are going to be buying bigger nicer, better located stuff that costs less per square foot).  Or maybe its people reaching and assuming that their Dodgycoin gains will cover the cost.  The trick with a bubble is knowing when to sell or .........making sure the government bails you out.

no soup (or food trucks) for YOU

 Every now and then the city council under duress from the locals considers allowing food trucks in Aspen.  This came up at a recent town council meeting and the town council in their most excellent business wisdom decided to ask the local restaurants to vote on whether they would like to have their restaurants have food trucks  managed and owned by themselves in front of their restaurants.  Pretty much every restaurant voted NO.  Uh ok where to start.

In most cities food trucks are not associated with a restaurant little less parked in front of their restaurant.  That sounds stupid, although a creative business guy like myself would suggest its another channel to sell and probably the $8 steak tacos you could sell in front of 316 steak house would not compete with the same customer who is spending $75 on a cowboy steak (just the steak mind you that doesn't include taxes, or tip or veg or potato ---I guess a glass of water is included, but no sauce).  

But what if the town council decided to let other food providers not the existing restaurants open food trucks in town and what if our existing restaurants couldn't compete and went out of business------ohhhh what happens then.

My guess is that if food trucks crush the local restaurant business (which really I don't think is likely see above) then land lords might find that they don't get their rents paid.  And what happens if land lords can't find anyone to rent restaurant space at high rents?  Then they lower their rents (or open a 3rd Gucci store).  

My view is more competition would be a good thing.  Local restaurants are for anyone but locals.  I know I have mentioned this before but the White House french dip sandwich is now close to $30 after tax and tip.  No drink.  No fries or even slaw.  Just a not very big but pretty tasty french dip sandwich at a bar is $30.  

I don't hate restaurant owners.  My goal is not to put them out of business, but it would be awesome if people earning less than 7 figures a year could afford to eat in Aspen every now and then.  The best way to make that happen is to increase competition in the restaurant space and if that winds up pressuring land lords to lower rents; well I don't think anyone in town will cry for Mark Hunt.

Interestingly the only member of the city council who saw how back ass stupid their approach was was Skippy Mesiro.  When Skippy is the only person in the room who can see clearly ya know you have jumped the shark.

Interestingly housing in the 'lower end' of the market continues to be well bid.  But stuff over $10 million is starting to sit.  Seems like the smart ultra wealthy got in early, bought what they want and are done.  The folks with average homes in average locations are continuing to have champagne dreams, but I can't see how real estate doesn't implode at some point.  There are only so many people who can afford a $200-$300 a head meal at 316 or $5m for an average 3.5k square foot home in snowmass village surrounded by 500 similar houses.

menu at 316--note the steak doesn't even come with sauce (that is extra)

housing ---not calling a top but........

 I am going to go all old school economist and talk about ...........supply and demand

Since the pandemic hit about a year ago there seems to have been an exodus from the big cities to lovely places like Aspen.  With all the rich folk leaving the city for lovely rural mountain towns (or at least buying a bolt hole in the mountains to escape the big city lock down) the supply of homes in Aspen has shrunk to nothing while the prices have soared.

First let's take a look at supply.  I have taken a look at the supply and right now there really ain't much of anything.  Leaky homes that haven't been updated in years asking 40% more than they were a year ago.  Housing is what we economists call an inelastic market--its hard to quickly create more housing to meet demand---that said every builder (and even guys who have never built per my last post) is building.  Spec homes are being built at all levels.  New subdivisions are being built down Valley.  In Aspen everything from $45 million spec homes to new affording housing is coming to market.  And in Snowmass Village our neighbor is doing a gut rehab right now with visions of selling their home for more that $1600 a square foot (and more likely $2k a square foot in their dreams).  Those houses will start to hit the market in the next 2 to 5 quarters.

Old people also typically add to supply when they sell their big family home and move to a retirement community or small house, townhome, condo near or in cities where there is better access to services (hospitals) and can walk to restaurants etc.  Older folks didn't do that during the past year of COVID, but there is no reason to think they will continue to live in their 6k square foot home in Westport, Wilmette, Orange county etc.  As COVID burns out there is no reason to think the 75 year olds are going to want to deal with that big old house (or maybe even that vacation home) any more.

Let's move to the demand side of the equation.  

First let me blow up a myth----everyone didn't move from LA, NYC, and Dallas and enroll their children in the Aspen school district.  As a matter of fact let me give you some data

                     School District                    enrollment change from 2019-20 to 2020-21

                    Aspen                                            -3.6%

                    Telluride                                           -2%

                    Steamboat                                        -3%

                    Roaring Fork Valley                         -6%

If there was a massive exodus of families from the big cities to small mountain towns they didn't enroll their kids in the local school.  Maybe they went remote this year, and plan to enroll next year.  Or maybe they will return to the big city.  Either way if you can't commit to enrolling your child in the local school maybe you aren't really thinking about living in the mountains for the long hall.

Another potential source of weakening demand is the bloom coming off the rose of living in a remote area.  Aspen wasn't the only place to see their real estate market go nuts over the past year, places like Martha's Vineyard did as well.  Aspen and the Vineyard are both great places to vacation but when your Porsche breaks down or you need real medical attention you are looking at a life flight to Denver or Boston.  Your child's sporting events require taking a ferry or driving over a pass in the snow, and winters on the vineyard get pretty cold and gray the second year around.

Also offices and business community synergy ain't going away anytime soon.  Travel, internet and networking is all more challenging from remote communities and if you actually want to order in Indian food ---well forget about it.

So do I think the top in mountain community real estate is in place.  Eh maybe not yet, but do I think demand is going to go down and supply is going to go up over the next year---hell yea.  And with rising mortgage rates and tax rates I think my neighbor best get that rehab done ASAP and get it listed because he might find after paying current rehab prices he is losing money when he goes to sell his home.  And what goes up super fast can come down just as fast (or even faster) we saw that in housing in 2008-09 and well GameStop last month.  As for the long term fundamentals there is not a population boom that is creating new demand for housing, nor outside the top 1% has there been much increase in wealth or earnings soooooo as an old school trader (George Soros) once said ----sell it when you can, because if you wait to sell it when you must you are going to hate the price you get.

bubble bubble toil and.....this is not an April fools joke

 It seems the country is in the midst of a housing bubble.  Where did all these buyers come from?  It's like during COVID 35% of the country decided they needed to buy a home which has depleted the housing stock country wide to close to zero.

And whatever the country does Aspen does on steroids.

As you might remember we sold our home in Chicago Nov 3rd and made a huge mistake by not buying something the next day in the roaring fork valley.

In the past year housing prices across the entire valley are up 30-50%.  There are almost no homes for sale now and if you buy land finding a decent builder with capacity could take a year.  Figure if you buy today and move super fast maybe-- just maybe you can move in 2 1/2 years (yea the permitting process has a line out the door, architects, builders and all the subs are booked out years).

Anyhow we saw 4 homes recently.

This is the first one we saw in Snowmass Village (horse ranch).  

crap 80s build with leaks everywhere

They are asking 1k a square foot.  They were asking $700 a square foot in 2019 and you probably could have bought it for $650.  We walk in and you can see water damage everywhere, smell mold and feel moisture through the floor.  A quick look at the exterior shows more water damage on the walls and deck.  Basically no need to do an inspection.  It's a 35 year old house that hasn't been maintained and needs to be scrapped.  FYI buildable lots were selling in this hood for $1m a year ago and now you are looking at spending $4.5 for a scraper and then you got to pay for demo and landfill on top of that.  The people looking to buy it were in their 70s---by the time they can move in they will be dead or on oxygen.  As an added bonus the listing agent has done some cat fish photo shop whatever pics of what the place might look like after gut rehab--course that ain't gonna fix the leak in the roof or the foundation.

Next up 

another home asking $1k a square foot---off faraway road.

brr its cold in here

When you have every window open in mid march at 9k feet well ya know they are trying to cover up a smell.  Why bother, they also had candles and diffusers along with two pots collecting water dripping out of the ceiling.  While it wasn't raining outside it was raining inside.  This is an open house with an active leak, mothballs and mold smell which could be yours for $1k a square foot.  It also comes with mouse crap in the corners, a beautiful 1997 kitchen aid dishwasher and a plywood door to the garage.  

Next up down valley ---a 5 min walk to downtown Basalt.  A 3.2k square foot home for sale for $2.8 million.  Uh that is $875 a square foot and too small for our needs.  Check out the hood and its very tight to your neighbors (like you can look out the master bedroom window into their back yards and see their rusting out cars).  We were told there was an additional 1.3k of FAR available to build on which would be a neat trick because the house is in a hole---so while the MAN might say you can build mother nature says no way.  Did I mention all windows open again, cracks in tiles and walls and bouncy floors.  Houses in this hood were selling for $400-$500 a foot 3 months ago---so yea they are asking about 90% more than houses were selling for in January for cracked walls, mold, and either miss laid flooring and or foundation leak.  

Oh yea and they lied about the size of the garage ---quoted at 700 square feet but my trusted tape measure puts its at 450.  Agent said well you need to include the mechanical room--I said no you don't and BTW that only puts it at 530 feet.  When people lie on the first date---well I have trouble with that.

Which brings me to the best which I saved for last.

only a fool would buy this

Ahhh where to start---maybe with the finish---he just raising the asking price $200k.

So this house is new construction--I figure hey get involved before finishes and maybe we get make sure we get stuff we really like.  Excellent.  This is what happened.

1. We asked for blueprints---after two weeks we got non-construction grade blueprints (the house is currently being framed).
2. We asked for a spec package detailing what I am getting for my $2.5 million (what kind of cabinets, windows, appliances, fixtures etc---the builder-developer, architect, designer couldn't deliver that
3. we went and looked at the house---there were no blueprints on site, but the builder, owner, developer and it turns out architect is also a tradesman swinging a hammer--there are two other semi-competent guys doing framing and one 14 year old kid hammering nails into things and then pulling them out---But for any of you who have ever been involved in a building project when was the last time you went on site and didn't see plans (answer never--and why because they don't exist he is literally making it up as he goes along---how he got permits is anyones guess)
4. when I asked the builder, developer tradesman dude what happened to the lower level being at grade so the lower level had windows and a walk out patio he said the grading was too expensive once they got into it so they didn't do it---which also saves them building a deck on main floor--what other corners do you think he will cut, and of course with no spec package you have no legal recourse because he hasn't made any promises as to what he will actually deliver
5. when i asked about the panty in the non-construction grade plans he sent me he said the house was big enough not to need a pantry---but hey he doesn't cut corners except losing 6 windows, one pantry, one bedroom and a deck
6. when i asked about the square footage he obfuscated but finally came clean that he was including the garage space (aprox 850 square feet) in the livable space of the home quote for the home
7. when i asked how many other homes he had built he said 3 or 4 (Come on is it 3 or 4 and are you including this one in that number) when I asked if I could see those homes he said the only one I could see he and his family were living in---ie the only reference he would give me was himself
8. When I asked who the architect was he said ----ummm well I stole the plans from Peak and now I am the architect.  When I asked him what certifications he had he looked out the window
9. when I asked about adding solar he said he didn't have experience (right answer is sure we can do that have to price it out with a good solar sub) same with radiant heat---he said "I don't like radiant heat and with the foundation poured we can't do that'---builder buddies tell me if there is any truth to that lie
10.  and on and on and on

So is it possible that someone gets are really well built house with good finishes for ----well now $2.65M and rising and it doesn't have construction grade finishes, warp, crack etc---sure and if you buy a powerball ticket you could win that as well.  But when every Tom Dick and Harry is starting to build homes you know its bubbly--how close to the top is anyones guess and what pops it even more so but if you don't need a rain coat to walk around in this last house a year after you move in I will be amazed.  And in the meantime thank GOD for COVID ---wearing the N95 mask while house hunting really helps keep the mold spoors out of your lungs.