THE MARKET
SKI PROPERTIES MAKE A COMEBACK
After an unexpected and terrible seven year cyclical downturn, statistical analysis confirms that world class resort real estate is once again thriving after the longest lasting recession since the Great Depression. Currently poised for significant growth based upon population demographics, concentrated affluency among the nation’s Top 10% households, and fixed supply vs. increasing demand metrics Breckenridge is a consistent Top 20 ranked resort bursting at the seams as Front Range Colorado continues to grow and prosper. Resort property historically lags major market residential by about 1-3 years but due to a unique combination of unforeseen events that unfolded between 2011 & 2014, this former 19th century silver mining town is just now recovering with prices up by about 10% from the cyclical trough, and another 10% increase anticipated for 2016; bringing past discounting to an end.
Summers are the height of a mountain town’s inventory accumulation cycle with best location and best condition homes selling to a more confident and improved net worth buyer base. Stock exchange indices have set all-time record highs but appear to have peaked as the growth in profits slows and Price Earning (PE) ratios approach above average levels. As the global capital markets continue to experience high levels of volatility, high net worth households will have to face redeployment of capital decisions forcing a search for
alternative financial and lifestyle investments or accept miserly sub 2% returns. 2014’s S&P stock market exuberance is over and unless top and/or bottom line numbers improve, investors will be forced to look elsewhere making real estate one of a very few number of viable alternatives resulting in what is likely to be a sustainable long term comeback as asset reallocation and portfolio diversification strategies are explored and implemented.
Locally the Central Rockies ski proximate neighborhoods are suffering from a serious imbalance in terms of the number of properties currently on the market as compared to prior 12 month sold demand. Current ownership appears to be letting their vacation home equity ride rather than sell what has historically been a proven performance asset. As buyer demand climbs and inventory dwindles there is no doubt that prices will rise, supporting the premise that you can have fun and make money in world class resort property ownership if you know how to go about it. The summer of 2016 may be our region’s strongest season since the Great Recession driven by the four legged stool of baby boomer demographics, an affluent customer base, expanding international visitation, and the expenditure of four billion dollars in ski towns the size of postage stamps which are less than 45 minutes apart.
Barron’s ranked Vail Resorts Colorado as the 5th best places for vacation home ownership with this part of the country well positioned for future success. Real estate’s “out of favor stigma” has changed as the housing recovery continues with nationwide prices up 11.8%, as reported by the Case Shiller Index. This rising tide of change is just starting to reach the shores of our local mountain areas and if you value lifestyle in conjunction with an appreciating asset profile there just might be a place in one’s portfolio for a holiday home that makes financial sense. Even though the responsibilities of ownership can be burdensome and the financial obligations considerable, most owners would agree the benefits make this idea worthy of further investigation.
From a macroeconomic perspective, consumers are still struggling with the idea of discretionary high end luxury good spending, much less an expensive limited use resort property in these uncertain and globally unpredictable times. Why consider such a idea when frugality and de-leveraging is all the rage? Financially savvy consumers intuitively understand timing and short lived windows of opportunity. None of us are getting any younger, personal connections are slipping away, and who among us does not have a friend or family member with health issues or ongoing medical problems! Why not think about a strategy that provides a guaranteed lifestyle dividend in conjunction with a proven track record of reliable long term appreciation? This unique combination is rare and hard to come by, so take a closer look at what the Breckenridge world class resort community has to offer while prices remain reasonable and the stampede towards freer spending has not yet begun.
In summary, all indicators point to the return of the long-term 5% rate of appreciation, supporting the premise that you could have some fun making money in this idiosyncratic and not well understood asset class. The immediate urgency is upward trajectory pricing in combination with interest rates that can’t possibly last. We invite you to explore the many benefits of world class ski resort real estate so please visit the other sections of our web site for more information, and may this be the year when lifestyle and financial performance dreams come true.
THE MARKET
CAN A GOOD DEAL STILL BE FOUND?
ABSOLUTELY – IF YOU KNOW HOW TO GO ABOUT IT!
It requires patience, perseverance and an in depth understanding of relevant valuation metrics but if you actively engage in the process there will be opportunities. In an attempt to portray the challenge that buyers deal with on a daily basis this fictionalized but nevertheless realistic scenario is quite typical. Buyer is interested in a family home 4 bedrooms or larger, located within a 5-10 minute drive of the chairlifts, preferably on a bus route. The purchase price is not to exceed $1.5 million with short term rental income offsets and an upside appreciation profile. The stated search criteria produces 40 results from which a short list of best fit properties are selected. Candidates cannot suffer from pricing defects, environmental defects or shell and core/floor plan defects. The top quartile (25%) from the results pool yields 10 possibilities that make the final cut. Past experience suggests that only 2 of the presented homes are likely to be of serious interest which is a miserly fraction of total inventory. The challenge here has to do with statistical probability. The mathematics that one of the two short listed properties is owned by one of five price realistic sellers is only 10% (2/10 X 5/10 = 10/100) making the chances of a successful acquisition both frustrating and alarmingly challenging. So much for buyers who think they are going to get the deal of a lifetime, from sellers who are patiently willing to sell, on the one day that buyer happens to be in town looking at real estate.
At this point you’re probably wondering – How does a buyer go about finding a killer deal with all of the right ingredients? The answer: clients who know the most, have identified exactly what they want, and are prepared to act when the right property presents itself GET THE BEST DEALS! Based upon data research the Central Rockies’ resort property markets are at the end of a 7 year structural correction cycle which started first quarter 2008. Leading Indicators show inventory levels at below long term absorption averages. The capital markets are improving as a result of the biggest stock market run-up in modern economic history. Demand for high end luxury goods is up. Consumer confidence and GNP performance is strengthening and a favorable FED monetary policy is in place for now. Well-priced vacation homes have been selling but buyers are still reluctant to commit. As the fear subsides there will be an increasing appetite for yield and diversification ultimately bringing an end to the current capital preservation mentality. All of these indicators support a “take action now” strategy with the key being to get out in front of the herd while there are still deals to be had, the worst is over, but the stampede towards freer spending has not yet begun.
As a real estate financial analyst and urban economist I have spent nearly four decades trying to understand the correlation between location, physical improvements, population demographics, consumer confidence, global events, and opportunity cost of capital. The convergence of discounted pricing, record low interest rates and seller distress is over. If you have been thinking about quality of life and retirement, the creation of a family legacy asset, portfolio diversification and an inflationary hedge, now is the time to be proactive by taking a closer look at the dream of a resort property home that also makes financial sense. Our heartfelt mission is to share with you the science of how to go about the process from an asset valuation perspective as opposed to the “lifestyle approach” championed by most resort REALTORS®. So if any of this commentary resonates with your long-term goals and objectives, we invite you to read on and learn more about our unique buyer broker approach and proprietary valuation metrics.
