Here is an interesting article from the Park Record today. If you would like more information or additional statistics on Park City's real estate market please email me at jr@utahskiproperties.com. Jason Adjusted for inflation, prices now are down 18 percent from 1981 A recently-written thesis on Park City's condominium market from 1981 to 2010 reveals that sale prices when adjusted for inflation have depreciated. The study, completed in September by Brady Larsen at the Massachusetts Institute of Technology's Center for Real Estate, concluded that over 30 years nominal, or actual, prices of condominiums have increased by 100 percent, but prices when adjusted for inflation have decreased by 18 percent. That's startling and depressing news, but Larsen said the reason is timing. The same data reveals that between 1990 and 2010, prices adjusted for inflation have increased 70 percent. Why share such a depressing statistic when a different timeframe is so much more positive? To illustrate the cyclical nature of the market, Larsen says in the study. "I think the buyer should be informed," Larsen said via email. "A graph that shows price fluctuations based on 30 years of actual sales transactions seems like a gold mine to me or should I say a silver mine?" An even longer snapshot would have given readers even more useful information, but there weren't enough condos for a fair comparison prior to the 1980s, he said Tuesday. The purpose of the study was to identify what factors contribute to fluctuations in the market, and Larsen's findings were surprising. Whereas prices in real estate markets are dictated by supply and demand, in ski towns the skiing determines the demand. Larsen discovered that the most important factor in predicting the demand for ski town real estate was the number of skier days an industry measurement unit representing one person skiing for one day. Another important factor was the amount of disposable income nationally during the prior year predictably because people needed to feel good about their incomes to take ski vacations. These factors appeared to be more important than market supply. For this reason, Larsen described prices in Park City as inelastic an economic term used to describe products or markets for which demand does not diminish when prices rise. Larsen said Park City's market is a "healthy and well-behaving" market. Still, it has seen an 18 percent decline in prices adjusted for inflation over 30 years. For perspective, Larsen said, it is important to understand that 1981 was the end of a peak in inflated prices. Record construction and high inflation rates resulted in a decline of prices that lasted several years. Prices did not return to those 1981 levels until the boom in the latter part of the last decade, Larsen said. Despite the fluctuations, prices have steadily increased over the past 20 years even with the 40 percent drop in 2009 at 2.69 percent annually, he said. Furthermore, using the factors that influence Park City's market to predict future trends, Larsen forecasts future increases. In a realistic scenario, Park City's prices will increase 3.6 percent a year for an almost 71-percent growth in the next 15 years. In a worst-case scenario, prices decline and construction drops off for five years, but appreciation begins again in the sixth year and continues steadily through 2024. "I do not believe that price appreciation alone merits a long-term investment in a second home (condo) in the Park City market," he said Tuesday, "unless the purchase is strategically timed to take advantage of positive cycles. I do believe that now could be a strategic time to make such a purchase."
by Andrew Kirk, OF THE RECORD STAFF
Posted: 02/22/2011 04:25:25 PM MST