Housing bust could affect local economy
Weakness in the nation’s housing market, compounded by huge trade deficits, the cost of oil and a historically weak dollar, has roiled economies throughout the world. And because the booming housing market was for years the most robust sector of the U.S. economy, the steep declines in house sales have most economists predicting a painful correction—if not a full-blown recession.
“My sense is the national economy could be tipping toward a recession,” says University of Colorado associate dean and professor in economics Keith Maskus, who cites a soft national housing market and associated credit woes as leading causes of the economic decline.
Colorado’s housing woes
The nation’s sales of new homes fell by 26 percent in 2007, the most precipitous plunge since 1963. This may be an ominous sign for Gunnison County’s economy, which for the last two decades has been driven in large part by real estate sales and construction.
“We’ve been caught up in that whole housing boom, just like everybody else,” says Western State economics professor Dr. David Plante.
The housing slump has cut across almost all of the country’s geographic and demographic lines, and the subprime-lending crisis has been especially acute in the fast-growing Western states, including Colorado, which was reported to have had the nation’s highest foreclosure rate through much of 2006.
While the brunt of the state’s sub-prime meltdown has been borne by the less expensive real estate markets on Colorado’s Front Range, local real estate sales have also flattened, and prices, especially in mid-categories, have inched downward. “It’s definitely a buyer’s market,” says Darci Gillespie, of Crested Butte’s Prudential Becky Hamlin Realty Inc.
However, Gillespie says, luxury home buyers are still interested in Crested Butte, giving it some protection from the vagaries of the broad home market. “We’re kind of insulated,” she says. “Our high-end market is continuing to do well.”
Still, Dan Fitchett also an agent at Prudential and a partner in the Eagle Resort Development, says a spike in local real estate purchases, driven by the sale of the ski area, left some investors holding property they’re having a tough time getting rid of. “The problem with the Crested Butte market is a lot of people were speculating after the ski area changed hands,” he says.
Although Eagle Resort has sold all but four of its units, Fitchett says, 14 are on the market for the second time, indicating that people bought them expecting to turn them for a quick profit. He says the more mature resort markets like Aspen and Vail haven’t fluctuated as much because people are buying vacation homes intending to hang onto them for several years.
Aspen mayor Mick Ireland argues that some Colorado resort markets are immune to recessionary pressures due to the increasingly wide income disparity between the ultra-affluent and everyone else. He says places like Aspen and Crested Butte can still expect construction growth due to maturing wealthy baby-boomers. “When you’re 20 to 24, you buy hot cars, and when you’re 50 to 54 you buy real estate,” he says. “There’s a big wave of potential real estate buyers coming through.”
Ireland says it’s a mistake to believe things like the price of fuel will deter these potential buyers. “We’re talking about the super rich here… Their median income is about $400,000 a year,” he says. “All this stuff about gas prices… You think they even know how much gas costs?” he asked. “These people have accountants that take care of those things… Who cares about the price of gas? Who even knows?”
County commissioner Jim Starr agrees that some resorts will be insulated from an economic downturn, but he doesn’t think that’s the case here. “That’s true for the really high end. Certainly for Aspen,” he says. “But we’re not there.”
Starr says softness in the local economy may already be manifesting itself in declining arrivals into the Gunnison-Crested Butte Regional Airport this ski season. “I think we’re already seeing the effect in enplanements,” he says.
Even if Crested Butte does attract a number of the very wealthy, not all economists believe the super rich will necessarily dodge the economic bullet. Ireland admits that such a disparity of wealth could portend disaster. “What we’re seeing is the greatest concentration of wealth since 1928,” he says. “That should give you the heebe-jeebies if you’re a follower of economics.”
Of tourism and local precedents
While most economists aren’t projecting a depression or economic collapse, local historian and Western State College history professor Dr. Duane Vandenbusche says economic downturns have precedents and should be expected.
According to Vandenbusche, Gunnison was nearly reduced to a ghost town during the depression of the early 1930s and Western State—then called Colorado Normal—fell to a mere 300-person student body.
He says times were so tough that some students were forced to barter in lieu of paying fees in order to stay in school. “Kids would pay with potatoes or fruit,” he says.
Vandenbusche says one potential economic hurdle for the Gunnison Valley during an economic downturn is its dependence on tourism-related enterprises like recreation. “During a recession, the first thing people cut out are non-essentials,” he says.
Plante agrees. “We’re a tourist-based economy,” he says. “They tend to get hit hard in a recession.”
A bright side, says Plante, is that a soft dollar will draw tourists from abroad. “The weakness in the dollar will attract foreign visitors,” he says, “particularly from Europe and Japan.”
Gunnison city councilor Ellen Harriman says City of Gunnison sales receipts are still up, but she’s worried about what is happening in Crested Butte and Mt. Crested Butte.
“The problems in the north end (of the valley) make me think it could happen here,” she says. Mt. Crested Butte reported an 11 percent decrease in sale tax receipts last year—although much of that drop was attributed to the loss of the Club Med resort.
A 39-year resident, Harriman has seen her share of economic downturns, but is not overly worried. “We can weather any downturn,” she says. She also points to the government offices of the Forest Service, Bureau of Land Management and the Division of Wildlife as sources of economic stability.
However, Harriman did allow that now might not be the best time to contemplate the “Gunnison Rising” annexation. “How sustainable is a large new development in the face of a recession?” she asked.
Strength in commodities
While the tourism and real estate industries may decline in the coming months, Colorado’s quickly expanding extractive industry may be set to continue at full bore.
Maskus says Colorado’s trade goods, such as natural gas and agriculture products, will likely lessen the impact of the recession he’s predicting.
“The state is positioned relatively well. Certainly the good news is our export of commodities,” he says. Still, Maskus says, inflationary pressure on commodities like gas are likely to continue to drag on the state’s economy.
Other Coloradoans don’t see a silver lining with the rush to utilize the state’s natural resources. Although the regulatory environment has tightened considerably since Democrats took control of both the state and federal legislative bodies, according to Gunnison local resident Ralph “Butch” Clark, all bets are off if the state spirals into a serious economic decline.
Clark notes there are now competing economic interests—on one hand, the folks who make their living from Colorado’s scenic and wildlife values, and on the other, those who benefit from the state’s incredible mineral wealth. He says wildlife values can be severely compromised by industrialization of natural resources. “In parts of Wyoming, the deer population collapsed by 40 percent because of the oil and gas industry,” he says.
But if the bottom falls out of the tourist and recreation industry, Clark predicts, that’s when the environment can be in danger. “There will be a desperation to see something happen economically,” he says.
Local green builder Steve Schechter isn’t so sure. He says extractive industries like molybdenum mines could be put on hold during an economic downturn. “If there’s a big recession, people won’t be consuming as much,” he says.