While home prices are imploding all over the rest of the country,
euphoria persists in Aspen. Surely, experts say, the bust can’t happen
here. It already has.

Appraisers seldom loudly contradict prevailing wisdom. But they have
been writing it instead: The Aspen market has been largely flat since
last summer.

Residents can see it in the new wave of open houses. Luxury condos
(when was the last time a condo was just “pedestrian”?) are yanked off
the market, and quietly re-installed a short time later with a large
price cut.

This newspaper at one time had a section entitled “The Real World”
which featured real news from outside Pitkin County. In The Real World
today, one dream has been shattered: That home ownership is the Holy
Grail — a dream to be fought for. The “perfect storm” of a mortgage
mess, credit crunch, and falling home prices has caused a
re-examination of the once-fabled American dream.

Nationwide, home prices have fallen an average of over 14 percent from
early 2007 through early 2008, Standard & Poor’s reported last
month. That sparked New York Times writer David Leonhardt to dust off
the “rent ratio” — a tool which predicts when, in The Real World, it
might be better to rent than to buy.

The rent ratio is a simple way to bypass all the pros and cons of
renting or buying: The mortgage deduction, hideous homeowner fees, lost
earnings on a down payment, or the direction of the market. If you like
easy solutions, this is it.

The rent ratio is the market value of a home divided by the annual (not
monthly) rent it could get. When it exceeds 20, it’s better to rent
than buy. On a $500,000 home, the ratio would advise a rental deal when
the annual rent falls below $25,000 (about $2,100 monthly). Or, any
renter willing to pay that much should consider buying when the price
of the same place is below $500,000.

Historically, Leonhardt noted, the ratio has been under 15. But since
the dream of ownership became hotter, pushed by go-go mortgage deals,
it’s soared above 20 in “hot” coastal markets like New York, Boston,
Washington, Los Angeles or San Francisco.

While the bubble cooked, the asking price no longer mattered. Buyers
judged affordability according to the monthly mortgage they could
negotiate. Mortgages didn’t go up though sales prices did.

Now, on the other side of that mountain, the rent ratio has fallen
below 20 in those once-hot Eastern markets but remains above 20 or 25
in parts of San Francisco and Los Angeles.

Leonhardt dismisses the usual advice of real estate agents preaching
the gospel that buying is always better because it “builds equity,”
allows renovations at will, and frees buyers from nasty landlord
nightmares. This sermon, he says, is a “useful fiction.”

Pitkin County has unusual complications. The market has been loaded up
with homes bearing strange names like? “monster,” “fractional,” and
“time-share.” The West End of Aspen, once alive with modest miner’s
cottages, is now a ghost town, eerily quiet at night as cash buyers
would rather let their homes sit empty than be scratched up by
proletarian renters.

In 2006, when the market peaked, developers found Jesus in a penthouse.
The rush got so hot the City Council had to douse it. First, it
toughened up regulations. Later, it threw up its hands, deciding to
regulate the mess by treating its symptoms. It declared construction
“holidays” on Sundays, or pristine periods like Christmas week, the
Fourth of July, or Food & Wine weekend.

Now, we can’t figure out if the Klanderud Council left the barn door
open or got victimized by pent-up demand, its own “infill” program, or
the divine touchdown of Jesus in every imagined penthouse atop every
formerly cruddy building in town. The jury on the Ireland
administration will be out for quite a while.

Long ago, Pitkin County created a dual market, protecting local
homebuyers from the condo-bondage free market. Prices were “affordable”
on the condition that buyers forego the white-hot appreciation of the
free market. We couldn’t build enough employee housing to keep up, but
dreams persisted.

The Burlingame Ranch project came around, on the edge of town, to be
derailed momentarily as City Hall recently blew a decimal point or two.
The scandal is resulting in a massive shortfall and cries for brave new
outside accountants with their decimal points in order.

One local lunchtime commentator noted it might be cheaper to simply pay
local households $100,000 apiece to free up local employee housing by
moving out than to bear $200,000-plus shortfalls on new units.

The market could cool down in Aspen. The seasonal rush for real estate
courses at Colorado Mountain College could fall off. Former real-estate
agents will content themselves with one deal a year, side jobs all over
town, or both. Online brokers, fueled by recent court rulings prying
open local multiple listing services all over the U.S., may multiply.
The fallout has yet to fall out.

Writer David Leonhardt has bought his place but still swears by the
efficiency of the “rent ratio,” useful to those retiring from Aspen and
venturing back to “The Real World.”

For the rest of us, first things first. The local decimal point must be found and fixed.

The writer is a founder of the Aspen Daily News and appears here
each Sunday. Counsel, console or berate him at ddanforth@aol.com [1]. Your
notes will be kept private unless you ask that we print them.