Vail Valley: Cheaper housing an OK recession investment
Vail, CO Colorado
VAIL VALLEY, Colorado ” Deed-restricted homes could be gaining value faster than free market property in Colorado’s Vail Valley, officials said.
Affordable homes are often criticized because the value the homes can gain is often capped, said Don Cohen, director of the Economic Council of Eagle County. But that cap doesn’t mean as much during a recession, he said.
“Right now, nobody’s equity is going up anywhere,” Cohen said. “But for deed-restricted, if you go to sell, there’s no guarantee, but you can probably sell at least at the price that you paid for your home.”
Free market housing prices in the county are flat, according to County Assessor Mark Chapin.
“What we’ve experienced so far doesn’t lead me to believe the market is going radically down, but it’s flat,” Chapin said.
The limited availability of affordable homes in the county also contributes to their value at a time when people’s finances are tight and free market home prices are flat, Cohen said.
Two homes were recently available in Miller Ranch. Four people were interested in buying them, Cohen said.
“Even that demand has slackened but it certainly hasn’t gone away,” he said. “There is nowhere else in the open market where there are multiple buyers in line for a property.”
A year ago there would have been 20 or 30 people in line for the homes, Cohen said.
“Normally when it’s a scare commodity it pushes the prices up but because they are legally held down, that completely changes that dynamic,” Cohen said.
Eagle County Housing Director Alex Potente agreed deed restricted properties are a better investment when housing markets are flat or declining.
“It does appear that in a flat market, properties that are priced below market value because of deed restriction will appreciate at a greater pace,” he said. “In comparison to a non-deed-restricted unit, it is likely that you could well see appreciation in excess of what the free market is producing.”
Several factors make that the case, Potente said. Deed-restricted properties generally sell more quickly and have fewer transaction costs, he said. There has been more interest in deed-restricted properties than free market homes as a result, he said.
“That’s sort of par for the course with the free market, its much more volatile,” Potente said. “It’s a better investment ” they pose less risk.”
The collapse of the housing market is going to change the way people value their homes, Cohen said.
“We’ve gotten deduced throughout the country to looking at housing like a stock portfolio,” he said. “And this complete implosion of the market is going to reset the whole national psyche.”
Over the past few years, people’s expectations of home prices has inflated, Potente said.
“People have been misled by the rate of return on free market properties over the last three or four years,” he said. “I think people have expected 15 percent returns.”
Returns have been closer to 4 or 5 percent, he said.
The low number of building permits issued in 2008 could drop homes prices, according to Chapin. But that’s purely speculative, he said.
“That would say there aren’t a lot of new structures being built,” he said. “You could have a lot of properties come out into the market for sale.”
If that happens, home prices would likely drop, he said.
The worse the divide gets between wages and area homes prices, the more acceptable deed-restricted housing becomes, said Melanie Rees of Rees Consulting.
The Crested Butte-based consulting company completed a study of area housing last year that said the county was in a housing crisis. The study identified the growing gap between what local workers can afford and the price of free market homes.
“Generally we do see that the free market can flatten and the deed restricted (property) is still going up,” Rees said.
Potente said there is still Interest in deed-restricted housing despite the tough economy.
“We are seeing more traffic in deed restricted properties than I think the market is as a whole,” he said.
But although affordable homes might be outgaining some free market houses now, it won’t last forever, Chapin said.
“Over the long term you will see a greater return in the free market,” he said.
Staff Writer Chris Outcalt can be reached at 970-748-2931 or firstname.lastname@example.org.