Jackson Hole Real estate hitting bottom in Q4
2009-10-07
Today’s column is about the local real estate market.
I’ll start
with some bad news, go onto some good news and then do two risky
things: predict the future, and say things some may find unflattering.
Finally, I’ll throw in a metaphysical concern.
For short-attention-span readers, here’s the summary version.
The bad news: The local real estate market has suffered even greater woes than the ones trumpeted in last week’s Jackson Hole News&Guide
lead story: “Market for real estate halved.” An even more breathless
headline could have read “Jackson Hole real estate sales down nearly
4/5 from peak; dollar volume down 2/3.” Things are even worse in Teton
County, Idaho, where the headline could have been “Real estate market
down 85 percent in two years.”
The good news: Things appear to have stabilized. They’re not rebounding, but at least the free fall has stopped.
The
risky prediction: The local real estate market will hit bottom this
quarter, although I refuse to go from risky to dumb by guessing when
growth will return or how fast it will occur.
The potentially
unflattering observations: Real estate agents are not unlike investment
bankers, and our extraordinary sense of entitlement has helped fuel the
real estate market’s collapse.
Finally, the metaphysical
concern. I doubt we’ve learned anything from what we just experienced.
As a result, I doubt we’ll change our ways.
In Jackson Hole, the
real estate market peaked in the fall of 2005; in the Teton Valley, the
peak was just two years ago. After peaking, the Jackson Hole real
estate market entered a slow but steady decline for a couple of years,
then went into free fall in early 2008. The Teton Valley enjoyed no
such transition period, going from boom to precipitous bust in just a
few months.
One result of the bust has been that our local real
estate industry has really suffered. I know, I know – who cares? To
state the obvious if unflattering reality, real estate agents are
viewed locally with the same “wildly overpaid for doing nothing”
disdain as investment bankers are nationally. But real estate agents
are people, too, and if you’ve ever been tempted to take pity on them,
now’s the time to do it.
In particular, since the local real
estate market peaked two years ago, the dollar value of total sales has
fallen from $1.13 billion to $318 million, a drop of 72 percent. Take 6
percent of that, and the total commission pool has fallen from $68
million to $19 million, a $49 million whack. Ouch. Then divide that
pool by the number of agents, and the mean per-agent commission income
has fallen nearly in half, from $98,000 to $55,000.
Considering
that this income has to cover the industry’s overhead, and considering
the collapse came on the heels of several fat years, it’s not a pretty
scene right now for our local real estaters. One clear consequence is
that there’s some shakeout ahead. What’s less clear is whether the bust
will result in any meaningful changes in how business is done. As with
investment banking, the most likely answer is “doubtful.” When things
are booming, the money is just too good.
Can’t get much worse
As
I note above, I don’t know when things will begin improving again, and
it will likely be quite a while before we see another boom. However, it
does seem to me that the fourth quarter of 2009 will mark the bottom of
the market. I say this for three reasons. First, when a market drops
70-80 percent in two years, things really can’t get much worse. Second,
the national economy has stabilized, and the local real estate market
tends to follow the broad arc of the overall economy. Third, and most
crudely, the curves in each are flattening out: clearly so in Teton
Valley, less so in Jackson Hole, but they’re getting close.
There’s
also the fact that inventories are shrinking. The number of years of
inventory for sale in the Teton Valley has been declining for the last
couple of months; in Jackson Hole, after growing sharply over the last
nine months, it’s finally starting to drop.
Why is the market
bottoming out? The simple answer is that sellers are finally starting
to realize that buyers are no longer willing to pay super-high prices
for Tetons properties. The last year or so has called a lot of economic
fundamentals into question, but not the fact that, when supply exceeds
demand, prices have to come down.
The more interesting question
is why has it taken so long for prices to come down. My sense is that
it’s the result of a larger truism about Jackson Hole: our
extraordinary sense of entitlement. In this particular case, things had
been so good for so long that many property owners – speculators and
long-term owners alike – had come to believe they deserved to make a
profit on their property, regardless of what they paid for it or when
they bought it. Because changing market conditions didn’t affect that
sense of entitlement, owners continued to ask prices far higher than
buyers were willing to pay. Slowly, painfully, reluctantly, that’s
finally starting to change, so we’re starting to see a bottoming out in
the free fall in sales.
Looking ahead, while real estate may
have reached bottom, the future remains sketchy for both the
construction trades and commercial real estate. And as I’ve written
about before, the long-term outlook for the Teton Valley is bleak: So
many farms have been turned into residential developments that there
are decades’ worth of platted-but-undeveloped lots over the hill. As
long as those lots don’t get developed, they’ll serve as so much dead
weight on Teton Valley’s economy. If they ever do get developed, Teton
Valley’s quality of life will take a significant hit.
Will we learn?
But
as with the country as a whole, it seems likely we’ve weathered the
worst of the economic storm. Now that we can catch our breath, the
question is whether and what we choose to learn from the experience.
Just
as Wall Street apparently hasn’t learned from its excesses and
subsequent collapse, I don’t see where we’ve learned anything from
ours. In 2007, construction and real estate in the two Teton counties
combined to provide more jobs and more income than any other sector,
including tourism and retail. And my sense is that, just as with Wall
Street, all anyone in those fields cares about right now is “getting
back to normal,” whatever that means. Which is sort of like an
overweight, out-of-shape person who has just suffered a massive heart
attack focusing solely on getting back to his gluttonous,
over-indulgent ways. At a minimum, such a dramatic occurrence should
lead to reflection; ideally to making needed changes. As a community,
we’ve just experienced an economic coronary; it remains to be seen what
our collective reaction will be.
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Jonathan
Schechter, whose column appears every other week in this spot, is the
executive director of the Charture Institute, a Jackson-based think
tank. Complete versions of his columns, including graphics, are
available at charture.org .
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