The next phase for real estate in Telluride.

  When David Leonhardt wrote in his August 21, 2005 New York Times article “Be warned Mr. Bubble’s Worries Again” (Link #1) and warned us of the housing bubble, most of us in the real estate business were reluctant to accept the bubble theory and its potential consequences. The more euphoric article by Damon Darlin, “Some New Math on Homes; Housing Bubble? What Housing Bubble?“ also published in the New York Times on April 1, 2006 (April Fools?) (Link #2) was a lot more to our liking. The Koolaid we were drinking and sharing with others included:
* Political stability through more families owning their homes, a sound political objective
* Demographics were favorable with a younger population than Europe and strong immigration, a strong demand for homes
* Unprecedented liquidity in the mortgage market because of mortgage backed securities
* Historically low interest rates
* Very creative financing vehicles for anyone that could fog a mirror

  However, when an article surfaced in Fortune Magazine’s November 1, 2006 issue, “Can the Economy Survive the Housing Bust?“ (Link #3), having been born and bread construction, I had to take notice. The National Association of Home Builders Housing Market Index anticipated a very significant down turn in the real estate economy and the author of this article, Jon Birger, drew parallels with previous economic downturns and how this N.A.H.B. index had been a leading indicator in previous downturns. This article was too scary and I, like the investment strategist in the article, tucked it away and did not even share it with my broker associates as I normally do. As eluted to in the article, the S+P 500 dropped to below 700, but this was 2 years plus later after running up to almost 1,600 in November 2007. The severity of the implosion of the National Housing Market and subsequent freezing of liquidity in the Financial Market and grand scale of chaos and mayhem in the Equity Market was unparalleled and unforeseen by most; but now that the sky has fallen, where do we go from here? What has changed from the bubble years? The mantra still is, if more people own their homes, this will be a stabilizing effect on the nation and the economy, interest rates are still low, mortgage backed securities still provide the crucial liquidity and we are still a young and vibrant nation that can pick itself up by the boot straps and move on.
So where are the bright spots? For starters, the National Association of Home Builders Housing Market Index bottomed out last December and January and builder confidence is improving significantly in April and May with the logic being inventories are shrinking; therefore it is just a matter of time before the industry starts moving again. This of course is on the national level. How does this affect Telluride? The second home market usually trails the national economy. The national economy has to be expanding for a significant period before people will sell their shares, take some profit and build or buy a vacation home in the mountains. This is why I anticipate that our traditional second home market will not be leading the charge in our Telluride real estate recovery. 
We will continue to have buyers pick up discounted value properties, but I predict a two prong from the bottom up recovery: the first will be the younger, already local residents that will buy, build, fill in, remodel, etc. to get a part of the American Dream. But the second and, in my opinion, most important segment of our real estate recovery will be the next influx of urban refugees or relocatees from other areas. This is the group that as a community we need to pay the most attention to for many reasons. As we have morphed from a mining community to a tourist community, to a partial second home community with the economy being driven by real estate and construction, we need to facilitate the next phase of the maturing of our wonderful community, a future that is not tied to a particular industry being mining, tourism or construction and real estate.
  The unparalleled quality of life that we locals enjoy has been noticed by our visitors and our future should be focused on economic diversification through attracting young professionals that telecommute and may need to travel a few times a month to east or west coast to conduct meetings. The Telluride Airport expansion / improvement and the potential for the Q400 aircraft will provide safe, reliable and convenient air service in the not to distant future, this is where our focus should be. This will bring more vibrancy to Telluride and should wake up the Mountain Village from its slumber. On a practical note, the inventory of real estate in the Telluride region will not expand for a long time as very few building permits are being issued. The discounts from previous highs are significant and the opportunities for dreams and future lifestyles are here now. As a piece of advice for all my friends in the real estate profession, as Darwin said, “it is not the strong that survive, but the ones most capable of change.“ We have to re-invent ourselves so we can service our clients better. For more Telluride real estate news and opinion, please visit us at http://www.TellurideMLS.com. Thank you.

Sincerely Yours,

Dirk de Pagter

Link #1: Be Warned: Mr. Bubble’s Worried Again
http://www.nytimes.com/2005/08/21/business/yourmoney/21real.html?pagewanted=print

Link #2: Some New Math on Homes; Housing Bubble? What Housing Bubble?
http://query.nytimes.com/gst/fullpage.html?res=9D01E5D71230F932A35757C0A9609C8B63&sec=&spon=&pagewanted=print

Link #3: Can the economy survive the housing bust?
http://money.cnn.com/magazines/fortune/fortune_archive/2006/11/13/8393160/index.htm