Part One of a series, exploring the rapidly changing real estate market in Pagosa Springs
Nearly $150 million dollars worth of Pagosa Springs’ real estate changed hands in 2004, a 62% increase over the $91,630,136 volume for 2003. It appears that the Baby Boom generation has discovered Pagosa Springs.
“The number one investment for baby boomers is vacation property or second homes. Whether it’s a home, a timeshare, a cabin, or a piece of land that they can go camp on–it’s a tremendous economic wave in the marketplace,” said Mike Heraty at The Source.
JoAnn Laird at Galles Properties echoed this idea. “Baby boomers are fleeing the cities. They are buying now to get a foot in the door, even if they don’t intend to move here for three years.”
“They are refocusing,” Heraty said. “The baby boom generation is looking for a more community-based lifestyle as opposed to getting 35 acres with a gate and a fence and creating their own little world.”
“In January 2004 things changed,” said Jim Smith, of Jim Smith Realty. “There was a new attitude. People started coming in and buying things.” “People with money,” Stephanie Hill, an associate with Jim Smith, added. “I’ve had a lot more cash transactions.”
“And a lot more 1031 exchanges, too,” stated Mark Espoy, also of Jim Smith Realty. A 1031 Exchange refers to the IRS code that allows the exchange of income producing or investment real estate for other real estate to avoid paying capital gains taxes.
People are taking money out of the stock market and putting it into real estate, many local realtors told me. “It is a trend nationwide.” “Real estate is safe.” “You can’t go wrong with real estate.” Yet, according to The Motley Fool, April 4, 2002, the stock market is a better investment over the long term. “Burned by the market in the short term, many investors think residential real estate is a better place for their money. Over the long term, they have been wrong. Invest in stocks for long-term growth, but choose your home as carefully as you do any investment. That’s because for most people, a home will be something like their personal bank.”
However, The New York Times reported in July 2004 that while on the surface an investment in the stock market appears to promise a greater return than an investment in real estate, that perception does not take into account the ability to leverage an initial housing investment. Very few people pay cash for real estate. According to James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, if you bought a home for $100,000 in 1980, by 2004 its value would have increased to $400,000 — for a gain of $300,000.
“Assuming you only made a 10 percent down payment on the home — or $10,000 — that means your initial $10,000 investment grew to $310,000,” Hughes said. “That’s a gain of about 3,000 percent, which is far better than the stock market. If you had invested the $10,000 in stocks, it would have grown to $110,000 in the same 24-year period.”
According to the National Association of Realtors website, the median price of an existing home in the United States in 2004 was $184,100, an 8.3 percent increase from 2003. In December 2004, the median existing-home price in the West was $281,200, up 11.9 percent from the same month a year earlier.
The average home price for a single-family home in Pagosa Springs in 2004 was $230,862, only a 1.3 percent increase over the average home price in 2003 of $227,868. In 2003 that increase was much higher, at 12.5 percent over 2002. However, according to Lee Riley of Jann C. Pitcher Real Estate, “in the last 60 days, the average home price [in Pagosa] went up $15,000.”
So what is going on here? Why the sudden boom in real estate in Pagosa Springs? I sat down individually with realtors Lee Riley, Jim Smith, Mark Espoy, Stephanie Hill, Mike Heraty, JoAnn Laird, Susie Long and Todd Shelton and asked them what they thought was key to the resurgence. All of them mentioned several key things. First was Stan Seligman and Great New Homes coming in from Grand Junction and buying up lots in Pagosa Lakes and Meadows and building production homes. Second, was the purchase by National Recreational Properties, Inc. of what Jim Smith said were about 250 improved lots in Pagosa Lakes and 100 unimproved lots in Chris Mountain II. Third, was media coverage, including a favorable article in The Rocky Mountain News in 2003 and the recent national media coverage of The Village at Wolf Creek. Fourth, the acquisition of approximately 20 downtown area properties by David J. Brown and several downtown properties by other speculative investors, developers and local businessmen. Fifth, the Aspen Village and Harman Park developments.
This series of articles will delve into each of the five critical areas mentioned and explore all aspects of the real estate market. Next week: Great New Homes.