Flathead Lake, Montana

Steven Shane had a twisted holiday this year. The Aspen, Colo., real estate broker, who graduated from selling snowboards to multi-million dollar ski chalets, handled one of the most complex deals of his real estate career over the holidays. End of the year, the rich go shopping for real estate. The sale of a simple duplex turned into a six-sided transaction worth nearly $12 million and dragged in buyers from the United Kingdom, California and Colorado. All that to unload one little half-duplex in Aspen, CO.

It is no secret that the second home market is hurting — hemorrhaging — even more than the primary residential market.

Terry Weaver, chief sales officer and partner in 3rd Home, says 79 million baby boomers reached their earning peak in 1997 and began to buy second homes. Home values skyrocketed, creating a bubble, as buyers bought for investment, not enjoyment.  Weaver told journalists at recent panel discussion of the vacation-home market during the annual conference of the National Association of Real Estate Editors in San Antonio that the last four years have been the biggest challenge ever for this market. EVER.

To be sure, few second home developments are starting. I was talking to Dallas Addison today, shareholder/parter at the Addison Law Firm that handles not only golf and resort assets across the country, but also invests in luxurious second home developments. The firms’ latest is one I am dying to see and bring to these pages: The Preserve at Flathead Lake near Kelispell, Montana — the largest natural freshwater lake west of the Mississippi, a Glacier lake. Or as Dallas describes it, a Cowboy Lake Como.

Most golf clubs in the U.S. right now are under some kind of financial pressure, says Addison, though he has seen bright spots, one being a golf resort in Amelia Island, Florida that members took out of bankruptcy and turned around, and another in Scottsdale. The key seems to be in demographics: those half million dollar home buyers are having a tough time now, but the multi-millionaires are doing just fine, thank you.

Which brings us back to Steve Shane and Aspen, a bellwether for the luxury second home market. Buyers with big bucks to spend are back,  said Shane at that NAREE panel discussion of the vacation-home market. Proof: 18 properties priced at or above $5 million sold in Aspen this year, 2011, versus 14 sales at that price point in 2010. Meanwhile, 26 properties in that bracket are under contract, according to his brokerage, SDS Real Estate. Even better, it’s summer and the Texans are crawling all over Aspen.

Shane told Mary Umberger of Inman News that asking prices have adjusted down in the range of 25 to 30 percent. And the sweetest news: high net worth people who have been on the sidelines for a couple of years are finally getting back in the game.

Like most of the wealthy’s playgrounds, Aspen has never really suffered. In 2009, while the financial world tanked, Forbes magazine declared the town’s 81611 ZIP code to be the most expensive neighborhood in the country. Median sales price: $6.5 million. (Snowmass and Snowmass Village also landed on the magazine’s Top 10 of priciest ZIPs.) But Forbes also said that $2 billion in home sales in the area in 2007 was down 50 percent two years later, in gloomy 2009. In April 2010, Dallas energy exec Kelcy Warren bought BootJack Ranch, listed at $68 million, $88 million originally, for $46.5 in what was 2010’s biggest real estate deal of the year.

Steve Shane

Shane thinks we are seeing the beginning of the upswing now: first-quarter sales in Pitkin County are up 39 percent over the same period in 2010; Aspen leads the county in dollar volume, with more than $58 million in sales.

Who’s buying? Take a guess: people in the financial industry, the private-equity guys, the hedge-fund boys, anybody on Wall Street, Silicon Valley. In San Antonio, Shae told us there is a veritable steady stream of private jets from Chicago to Aspen at any given time.

Shane is listing golfer Greg Norman’s 11,000-acre Seven Lakes Ranch in Meeker, Colo. for $55 million. The estate has been for sale for about a year, but he has identified a buyer, and it may be close to a deal, he said.

What’s it like selling to celebs and the super rich? Shane, who’s wife is Christie Brinkley’s sister, says that when working with high-net-worth buyers and sellers, he usually deals with the folks they’ve entrusted to help them run either their business or their personal lives, such as money managers and in-house counsel.

And even the rich, when they want to buy a vacation home in Aspen, have to unload another property somewhere else. Which brings us back round to Shane’s holiday.

Seems a Hollywood producer owned a half-duplex in Aspen, but wanted to trade up. Shane said he didn’t see anything suitable in the MLS, so he contacted the owner of a home not listed, asked if he’d consider selling. He took the half duplex and some cash in trade for his home. But the buyer didn’t want the half-duplex, which almost sounds like having half a trust fund in Aspen. He asked Shane to sell it for him.

Shane knew someone in London looking for a good deal, who he called, who bought the half-duplex, sight unseen.

In dollar terms, he explained, the sale of that half-duplex — by the way all three transactions closed on the same day —  Shane represented buyer and seller in each for a total of six transaction “sides”. Total sales about $11.9 million.

Sure beats selling snowboards. Shane says his life as an Aspen agent to the rich and famous requires a pricey overhead to maintain. After all, to serve the rich one needs to be wrapped in their circle of trust (funds). These are not the type of people who drink $25 bottles of wine,  Shane told Umberger.

Greg Norman's Seven Lakes Ranch

Seven Lakes Ranch

Ocean condo kitchen at Costa Baja in La Paz, Mexico

Open doorways from second master bath suite to bedroom

Latino homes love open spaces: Costa Baja, La Paz, Mexico

Dallas Real Estate is changing. Several years ago, my cousin and his wife moved his parents into their home. It was a bit unsettling because I thought my aunt and uncle needed their own space. Turns out my cousins, who live in Florida, were way ahead of me.

With more Hispanics buying homes in Texas and across the U.S., builders and Realtors are noting a sea-change of differences in the kind of homes they buy. And the way they buy: 30% of Hispanic real estate purchasers did not use a realtor. And 40% of home buyers in U.S. are now Hispanic.

Realtor Oscar Gonzales of the Gonzales Group and Scott Caballero of the San Antonio Board of Realtors cited many statistics last week at the National Association of Real Estate Editors “state of the market” conference to illustrate an increasingly Hispanic domestic real estate market, not just in sunny San Antonio but everywhere. Did you know that Hispanics have moved in droves to Alabama, Mississippi and Georgia? Caballero evoked a recent Harvard University housing report claiming 40 percent of all new minority households created within the next 10 years across the U.S. will be Hispanic. Developer H. Drake Leddy, President of the Presidian, which is building San Antonio’s Vidorra and many hospitality properties in Mexico, told me of a fortress-like private community under construction north of San Antonio near The Dominion. It is owned by a group of well-to-do Monterrey families who fled the prosperous city after the tragic shootings there at The American Foundation School last August, another in a string of violence that has terrorized Monterrey and many border towns.

“You have to understand,” Leddy told me, “Think of what would happen if a shooting occurred at St. Marks or Hockaday. These parents are trying to protect their children.”

Does this mean you might have to be bi-lingual to sell your home? Maybe. Home builders and anyone hoping to appeal to this market will definitely make some changes, since Hispanics tend to have larger families and buy a different type of housing. For one thing, they treat their elders with respect, invite them into their home (as my cousins did), and don’t toss elderly parents into nursing homes. The profile of the customer coming through the door is definitely changing.

(Meantime, my son gave me a sign that reads, “be nice to the children: they select the nursing home”.)

Gonzales said new homes will increasingly be tailored to Hispanic wants and needs, which include open floor plans and dual master bedrooms for live-in grandparents. Kitchens are big enough to hold multiple cooks, must have gas ranges to cook tortillas, and nannies have small bedrooms that resemble walk-in closets, some right off the laundry area. Others have small third car garages that serve as the nanny’s room — nothing super fancy for the help. Latin and Hispanic families also like large front porches where friends can gather, quite opposite to the traditional suburban home with a rear-entry garage where you seldom see your neighbors. And the entire home is built for the convenience of two families living within. I noted, for example, that the homes at Costa Baja in La Paz were build with duo-masters, each with small kitchenettes, and exterior doors so the residents of one master could come and go without disturbing the rest of the family. Builders and developers clearly need to accommodate the multi generational family.

When there’s a market, there’s a way. Both speakers said lending practices are under development to enable undocumented workers to obtain financing for home purchases. Sort of puts the mentality of places like Farmer’s Branch, Texas and my once home town of Elgin, Illinois that tried to pass a law not permitting more than one generation to live in a house, in perspective. The Elgin law got thrown out.

As I’ve said previously, the U.S. market is benefiting from the instability of countries around us: capital flight. Foreign buyers from nations with troubled currencies or unstable societies, such as Mexico and Venezuela, are buying U.S. real estate to move away from violence in their home countries or as investments. They highlighted Texas, Los Angeles and Miami as hot markets for these international buyers. San Antonio has all but become a second home market for affluent Mexicans.

Trulia recently reported that bargain-basement Florida is currently the most popular state for international real estate shoppers, where buying a second home is seen as a secure investment. The Miami market in particular has seen a boom in home sales, boosted by foreign buyers, and was one of only five U.S. metro areas to experience more sales in May 2011 than May 2010, according to the RE/MAX May 2011 National Housing Report.

PR panel at NAREE: pitching to a shrinking pool of real estate editors

Yes, I did. It ain’t happening overnight, not even next week. But sometime in the year 2013 is the magic number tossed out by the number-crunching experts as the year our real estate market finally recovers.

Economists who spoke at the “Mid-year Economic Update” panel at the National Association of Real Estate Editors meeting last week in San Antonio agreed that unemployment and the foreclosure inventory remain the biggest barriers to recovery as the US economy struggles for breath.

“The good news is that we’re in a recovery … but we’ve got a ways to go,” said Jed Smith, managing director of quantitative research for the National Association of Realtors.

Here’s a way to get a grasp on what happened back in 2008:  $14 trillion in wealth was wiped out, equivalent to the loss of about one year’s worth of income for all U.S. workers, said Smith. As he told me later, usually 40 banks are on the Fed’s “observation” list of being at-risk for failure.

There are now 900 banks on that list.

And here’s why Mr. Smith is now my new hero: he blamed a lack of job creation, unreasonably stringent lending standards, and depleted consumer confidence as contributors to the stagnant economy. Guess who’s court those balls fall in? The Obama administration.

Count on this: distressed home sales will sop up 35 percent of all home sales for the next two to three years as we try to reduce foreclosure inventory. In most areas, foreclosures and short sales will not get worse, but will not get better; we will just ripple along until the inventory clears.

What could hurt recovery? Plenty: congressional “reforms” that could lead to higher mortgage down payment requirements, tinkering with or dumping Fannie Mae and Freddie Mac, and eliminating the home mortgage tax deduction.

A terrorist attack? Political upheaval?

Uncertainty in the European credit markets is another wild card for the U.S. recovery, since many wealthy Europeans are buying U.S. real estate, particularly in Florida and New York City. (Though capital flight helps us, as we see from the Mexican buying spree in parts of Texas.) Smith suggested easing tourist visa policies as a way of creating more U.S. buyers. Good idea.

Every panelist agreed that Real Estate is a completely local story, and national “lump-em” reports such as Case-Shiller really hurt sales in the healthier markets. U.S. home prices are down, generally, but the actual market has been stable over the last three or four years. Smith expects annual sales of about 5 million for the next three to four years.

Mark Dotzour, chief economist for the Texas A&M Real Estate Center, never pulls any punches about this: government stimuli have delayed recovery, he believes. He doesn’t think we are in a double dip because we till have not yet hit bottom.

Using his diagrams, Dotzour tells us the RE market essentially “fell off a cliff,” but the government’s “lifeline” of programs is propping up the market artificially. He’s talking the homebuyer tax credit programs, “Cash for Clunkers” auto program, loan mod programs and Federal Reserve’s purchase of Treasury debt. He thinks the market would have come back faster if the government had not interevened. I love this Dotzour-ism:

“We like capitalism on the way up and socialism on the way down,” he said.

Dotzour is particulary critical of some price metric reporting. He says that if you separate none-foreclosure inventory from distressed, nonforeclosure properties have held a fairly constant price. But when we report metrics we lump everything, overlooking the differentiation between distressed and nondistressed homes.  And, “…not every city in this country is … Phoenix or Las Vegas.”

You’ve heard it before, we heard it again: we need jobs, cheap mortgages, and to clear “shadow inventory” of homes that have been foreclosed upon but haven’t yet been listed for sale. That shadow inventory is one thing that keeps prospective buyers in uncertainty and making low or no bids.

It’s really Miller time for landlords. If there’s one area where we can find price increases, look to the rental market, where Zillow’s Stan Humphries says demand will outpace supply. Between 1.2 million and 2.2 million homeowners are transitioning from owners to renters, and rental prices in almost all metros are expected to rise about 3.5 percent to 4 percent this year, he said. Steve Brown, who was also at NAREE on Thursday, said Dallas rental prices are already up such that it now costs $200 more per month to lease than own.

Humphries also thinks the homeownership rate may slip below the traditional standard of 64 to 65 percent, but once home prices stabilize, there will  be a resurgence of buyers.

Good news take-away: we’re moving in the right direction. The pending reduction in the conforming loan limit later this year (deep breath) should have only a modest impact on the market. We may be close to half-way through clearing out the foreclosures, according to Shaun M. White, vice president of corporate communications for Re/Max International, who said the nation has already seen about 3.5 million to 4 million foreclosure sales.

The bad news is not one expert at this conference thinks the market will improve in the next few months, and not one was particularly impressed with the Obama administration’s handling of the crisis. The federal homebuyer tax credit programs were ineffective, essentially “stealing” sales forward that would have occurred at a later time.  The market’s sustained declines should end in 2012-13, but we are not going to hit bottom until (foreclosure resales) have peaked, said Humphries, which he thinks should occur this year.

penthouse at The Vidorra

Was in San Antonio last week at the National Association of Real Estate Editors conference getting a state of the real estate market report. They kept us hopping busy, and plugged the heck out of San Antonio. What can I say, San Antonio actually HAS a river walk!

The next great frontier in real estate is re-newal and re-use of urban and infill developments. Financing real estate will continue to be a challenge for years. Key “RE” words in the “new real estate era”: re-use, re-develop, re-design.

When we compute housing affordability, we need to start figuring in transportation jobs. Here’s an eye-opener: housing costs in Francisco and San Antonio are virtually the same when you figure in transportation to work, and in SA that would be in a car. Living close-in is getting more appealing, as we saw visiting a brand-new high rise condo in downtown San Antonio called the Vidorra in St. Paul Square — 55% sold out. The outer-ring “exurbs” continue to suffer with lower home values, more foreclosures. But if you snag a cheap home there, you still have to drive forever to get to work. Where is the savings as transportation costs go up? Plus commuting creates high environmental costs.

We will see more development in downtown and exurbs; this will be a renaissance to many urban cores that actually made great strides over the past 20 years as downtown’s experienced lower crime rates and acquired the amenities Americans prefer in higher density mixed use demand. Living “downtown” will be expensive, but there is a huge opportunity in the so-called inner ring suburbs for re-development to produce more affordable housing. Inner ring suburbs are in a sweet spot for re-development — they have a distinct urban feel, easy access to shopping, transit and entertainment, and are employment hubs for anchor institutions, such as the “eds” and “meds”. Great excample: Pittsburgh.

The two major age groups driving real estate are the 75 million baby boomers and 80 million-strong millenniums, their offspring, who are tech-savvy, environmentally conscious, value community and will give up space for convenience.

The millenniums do not want McMansions.

Here’s a shocker: Boomers are aging differently. They are less likely to retire, and are living and working longer. They may own several homes. In fact, keynore speaker Patrick L. Phillips, Chief Executive Office of the Urban Land Institute, told me he just bought a vacation condo in Steamboat Springs, Colorado.

“Now is the best time to buy a second home,” he told me, “but for the right reasons.”

As a nation, we are more urban than rural. Our household size is shrinking, with the exception of the large multi-generational Hispanic families.  The US is expected to add an additional 150 million people over the next 40 years. Ergo, there is a rental and housing undersupply. There are too many houses where they are not needed, too few where needed.

A whole generation has soured on home ownership, and there are rising federal mandates to shrink your carbon footprint as energy prices rise.

We will see more high density mixed use developments — they save energy and water.

We’ll see better coordination of land use planning, and efforts to renew, not build new.

The conventioanal notion of a workplace will change, with tele-computing and hand held devices.

“All of this will create a lasting change in what and where we build,” says Phillips. “Piece-mealed, poorly connected development will become a thing of the past. We can expect more concentrated development that conserves energy, water and land. We can expect better coordination of land use planning with transportation planning, so more development is oriented towards transit options.”

And the best quote of all: “Cities that incentivize redevelopment will grow strong.”

San Antonio is now the 2nd largest city in Texas