What is your Aspen home worth---whatever someone is willing to pay for it.
If you bought your home in the past 1.5 years will you be underwater in a 1.5 years. I think so. Why?
1. higher interest rates---when rates go up the cost of a mortgage goes up. Rates are near all time lows in nominal terms and are currently very negative in real terms (ie lower than inflation). The most recent inflation numbers were 7.9%---a 40 year high. Monthly payments on a $1m mortgage at 3% is about $4,200 a month at 6% its about $6k per month and at 8% (where real interest rates would be about 0) you are talking $7.4k per month. That is a lot more $$$s to come up with every month. BUT you say Aspen buyers are all cash and they are flush. Well ok, but if you think the businesses Mr. Rich owns ain't borrowing money or the assets they own won't go down if rates go up well maybe you are the perfect Aspen buyer.
2. Crypto, NFTs and meme stocks---if these things don't tell you there has been too much money chasing too few assets ---well you also might be the perfect Aspen buyer---but to me it says asset bubble and when rates go up that bubble will get popped (see point 1).
3. Rational people seriously discussing WWIII. It's true. I don't think a world war will be good for asset prices in general and roaring fork valley real estate in particular. Wars tend to create inflation (see point 1 about higher rates) and living in a really remote location we are likely to get supply chain constrained. Yes maybe there will be less nuclear fallout in Aspen than the coasts but really if you want a bomb shelter I would suggest a random acre of land anywhere in flyover territory and get a GC to start digging holes and pouring concrete. Of course there is an acre of land zoned for a hotel at the base of Aspen mountain that just changed hands for $76.25 million if you are interested but maybe $50k for 10 acres in Nebraska makes more sense and you can use some of the $76,000,000 to pay for your shelter and supplies.
4. Houses going under contract in less than a day. You might say that is a sign of demand, I would suggest it's a sign of unhealthy demand or maybe even dare I say ......... a mania.
5. Price increases that bear no resemblance to affordability-earnings. (see point 8 below)
6. Covid relocation is a story not a fact. There has been no significant increase in the school population. There is a story that people are moving here from the cities now that they don't have to go into the office. I would suggest that is a 'story' without much basis in fact. Yes people move here and they also move away from here---if this was true we would see our schools busting at the seems---instead the student body population is largely stable. And now that Covid has become endemic people are returning to the office---yes you can work from home 2-3 days a week but going into the office is increasingly a requirement and with the private jets falling off the Aspen runway the commute from Aspen isn't always easy.
7. Second (and 3rd and 4th homes) tend to experience more price volatility. Home owners want to hold onto their primary homes, not so much their 3rd home.
8. Supply is increasing---real estate supply takes awhile to come on line in the best of times, and after COVID between worker shortages and supply chain challenges new home supply is taking longer than usual, BUT supply is coming. Maybe not so much on Red Mountain in Aspen but it is in Snowmass and for sure it's coming to the mid valley. Homes in the mid valley were changing hands for $350 a square foot 3 years ago and are now flying off the shelf at $800 a foot. There are 100s of homes being developed in the mid valley to meet that demand, a number of which are being built by first time GCs working without plans. Do you know anyone whose W2 pay has gone up 130% over the last 3 years or even more as interest rates rise? To put this simply 3 years ago a family with income of $250k a year could buy a 3500 square foot home in the mid valley for $1.2M, put down $300k and have a $900k mortgage costing them around $4k per month. Same house today is gonna cost about $3m---they are going to have to put down around $600k and their monthly mortgage is gonna be about $13k per month. I guess if their earnings have gone from $250k to $600k a year they could swing it---but it didn't.
9. Aspen real estate is a great place to hide your money if your 'dodgy' (Russian, Chinese, Middle East etc). That was for sure true---until we saw the Biden administration slap sanctions on Russian Oligarchs. If the US is going to freeze bank accounts, grab super yachts and suspend passports why would a home on Red Mountain or Wild Cat ranch be safe.
10. Asset prices are DOWN. NASDAQ is in a bear market (down more than 20%) and the S&P is in correction territory (down 13%). Bitcoin is way under all of its moving averages. And my favorite way to track new hot money wealth ARKK fund is off a whopping 60+% from its all time high. Ouch.
Bottom line If you want to buy a home that has appreciated by 200+% over the past 3 years in a market that is dominated by second and third home buyers (ie speculators) in a mania as rates are going up, supply goes up, demand by primary home owners is unchanged, and asset prices are declining have at it---me I will continue to sit this one out. And if I had bought a home 5 years ago I would be selling it now---in a couple of years when new owners start wanting to sell their homes as maintenance and hassle eat into the joy of their Aspen home my guess is the clearing price will be MUCH lower than it is today.
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