The Telluride Watch
Published: 2/3/06
By Peter Kenworthy
The local real estate market has gone from hot to hotter. County real estate sales soared to a new record in 2005, topping the prior annual record set in 2004 by better than $100 million. According to statistics compiled by Judi Kiernan of Telluride Consulting, total sales for the year were $724.8 million, a dollar volume rise of 17 percent over 2004. The number of sales for the year also exceeded the 2004 total but by a smaller percentage of just 4 percent. The 2005 results are, by coincidence, exactly consistent with a 10-year market trend, tracked by Kiernan, which reveals a compound annual growth in dollar terms of 17 percent, countywide, and a 4 percent compound annual growth in unit sales.
In both unit and dollar terms, it was vacant land outside of Telluride and Mountain Village, and the nearby subdivisions of Aldasoro and Ski Ranches, that led all categories of 2005 real estate sales. Those sales accounted for $106.7 million and were made up of 160 transactions. Contributing to strength in the sector were sales of Idarado lots. Erik Fallenius, owner-broker at Nevasca Realty, called Idarado a big surprise,” and said he had not expected there to be such rapid absorption of the lots at the eastern end of the canyon. Sixteen Idarado lots sold in 2005 for total consideration of $20.9 million.
The next leading categories of county sales, in dollar terms, were Mountain Village houses and condominiums with totals of $106.1 million and $104.6 million, respectively. Mountain Village condos also ranked second in unit volume and exactly matched the number of Telluride condos sold during the year at 103. There was, however, a substantial difference in the average price paid for condos in the two towns. Mountain Village units fetched, on average, $1.0 million in 2005 while their Telluride counterparts averaged $722,237 per sale. The same relationship applied to houses, with Mountain Village averaging a $3.2 million price point and Telluride $1.7 million. In terms of unit volume for houses, Mountain Village had the edge with 33 sales versus 24 sales in Telluride.
Within the overall bullish picture of county real estate conditions, one that local real estate brokers say shows no signs of a slowdown pending, there are patterns, nonetheless, that deserve attention. In Telluride, for example, the volume of houses sold last year actually slowed considerably from the prior year while price appreciation continued. Jim Lucarelli, a partner and founder of Real Estate Affiliates of Telluride, calls such a phenomenon divergence,” and says it is a natural function of restrictive supply in the face of unrelenting demand. Questioned about the large inventory of houses currently on the market in Telluride, some 54 listings, and how that speaks to limited supply, Lucarelli attributed the Telluride factor” to the seeming contradiction.
In most markets, homes should sell, on average, within sixty to ninety days. Someone moves from Greenwich to San Francisco and they price their home to move in that kind of timeframe because they're under contract to buy a new one,” says Lucarelli. In Telluride, there's not always a lot of rhyme or reason.” What happens, here, he says, is that sellers price their homes based on the highest recent comparative sales figures and are then prepared to wait many months, and even years, to get that leading edge price. Then, when they do, other sellers use the new record price per square foot as a benchmark. The result is that many houses for sale in Telluride are simply not priced in the same market-sensitive way that houses in most places are: they're for sale only at top dollar. The Telluride Factor,” therefore, serves to somewhat artificially inflate the number of listings in town. Absorption is also slowed, regionally, by having only two real selling seasons, Lucarelli says, further contributing to swollen inventory.
The upward pressure on prices is not poised to go away, Lucarelli predicts, and points to the average asking price for the 54 listed homes in Telluride that is currently at $2.8 million. Adding to that pressure are the current high replacement costs of construction that he says may now approach $600 per square foot in some instances. Enumerating factors that range from Hurricane Katrina, to escalating demand from China, to a labor drain caused by burgeoning oil and gas exploration in the county's West End, Lucarelli calls the rise in material costs mind boggling.” And the effect, he says, extends through the gamut, from nails and fasteners and copper wire to aluminum, steel, and cement.”
Within the regional market, Lucarelli calls Telluride property a tried and true blue chip investment.” He considers that demand for it, over and above other competing market segments, will continue to be strong as regional growth makes it harder and harder to move around the valley.”
Fallenius also shakes his head about the current inflation in construction costs, and he agrees about the Telluride Factor,” saying that the asking price always pushes higher and higher,” but he sees things a little differently relative to demand for Telluride property. He thinks the Telluride market is now tailing off a strong cycle with an adjustment imminent that will be largely sponsored by a countervailing cycle in Mountain Village.
The Mountain Village numbers are indicative of strength,” he says. Their cycle is in a much stronger place than Telluride's.” He points to a current softening in properties under contract in Telluride compared to Mountain Village as evidence and says that showings over the holidays for Telluride homes in the $3.0 million range were dismal.” The perception among buyers, he says, is that in Mountain Village you get more for your money.” Validating that perception, he said, is the example of a recent purchase by clients of his of a four-bedroom Knolls Estate home for $1.6 million. The clients had wanted to buy in Telluride but could simply not find comparable value in town, in terms of space and amenities, within their price range. Fallenius also cited the number of large new residential projects planned in Mountain Village as impetus to that market's ongoing strengthening.
Both Lucarelli and Fallenius see Mountain Village, twenty-four years into its development, as finally coming of age. Fallenius goes so far as to surmise that Telluride's traditional role as the hub of tourism and activity in the region might soon be usurped by its neighbor. With the coming of planned expansion in the Mountain Village core of restaurants and retail stores, as well as entertainment options, including the hoped for recreational center, he suggests that Telluride will no longer fulfill the wants and needs of people in Mountain Village.”
The two real estate brokers also agree that Aldasoro, particularly vacant residential lots in the subdivision, represents an attractive prospective segment of the market for buyers. Lucarelli says it is clearly the value area,” and Fallenius acknowledges a lot more interest,” than he has seen before. It has to do, again, he says, with a perception of value.”
In terms of the profile of buyers, Fallenius doesn't see any notable shift. The area has always attracted high-end buyers, he says, and continues to do so. Lucarelli concurs that the market has been and remains a predominantly high-end one but, even so, he assesses some change within the market's well-heeled buyers with more people now interested in really enjoying the privacy here as well as the natural beauty.” The speculative element that was once characteristic of the market seems to be far less prevalent than in the past.
This is not a place for the faint-hearted to develop spec property,” says Fallenius. Part of his warning has to do with high land and construction costs that can squeeze potential profit out of speculative deals, and part of it is the inherent nature of a market that, though small, is, in Fallenius's words, always fragile and has to be analyzed in great detail.” The real estate market here, both Fallenius and Lucarelli say, moves unpredictably through its various segments.
I never know what the next six months will bring,” admits Fallenius. Lucarelli stresses the lack of consistent volume in given segments and calls volume oscillation the wild card.” He says it's not unusual for segments of the market to go into a six- to nine-month dearth” of sales. In the case of golf course properties in Mountain Village, which have recently staged a sharp spike in sales, the preceding lull was more like two years. Such market dynamics, both Fallenius and Lucarelli contend, are not conducive to speculative risk.
Reprinted with permission from The Telluride Watch.
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