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Breckenridge plunges 28%, Steamboat down 22%; what is causing the huge slowdown?

colorado ski slopesIt is not surprising that Colorado ski towns like Breckenridge and Steamboat are finally slowing down.  After years of double-digit price gains, are the mountains finally turning a corner?  Is the big slowdown due to the nightly rental regulations restricting the number of licenses or is something else driving the slow down?  Where does Colorado ski real estate go from here?

What was in the data regarding real estate sales in Breckenridge and Steamboat

The numbers were a bit surprising with drastic slowdowns in sales in the first four months of the year.

Summit Country (Breckenridge, Copper, Keystone, Frisco, Silverthorne)

  1. Sales: Down 28% YTD
  2. New listings: Down 20%
  3. Median Home price: increased 34%
  4. Days on the market: Decrease 30%
  5. Inventory: increase 35%, but still historically low at 1.9 months

Routt County (Steamboat, Oak Creek, Hayden, Stagecoach)

  1. Sales: Down 22% YTD
  2. New listings: Down 28%
  3. Median Home price: increased 8.6%
  4. Days on the market: Increase 38%
  5. Inventory: decrease 50%, historically low of 1.2 months

The numbers are astounding.  In both Breckenridge and Steamboat the amount of inventory has plummeted while at the same time the number of closed transactions has also plummeted.

Did the restriction of nightly rentals cause the sales slowdowns in Breckenridge?

The headline in the Summit Daily Newspaper was: Short-term rentals, inflation and rising interest rates all had an impact on Summit County’s real estate market in the first quarter of 2022.    This was backed up with quotes by several local realtors pinning a big portion of the large drop in sales on the new nightly rental regulations.

Unfortunately, the assumptions of a large drop in sales due to new regulations is not backed up by the data.  To understand the drivers of the reduced sales, I looked at Steamboat for comparison.  There is allot of discussion on nightly rentals, but Steamboat has done nothing to materially limit nightly rentals.  Yet Steamboat also had a huge drop in the number of closed transactions and was down 22%.  There is no way that Breckenridge’s drop in sales can be pinned on nightly rental regulations.  If the regulation of nightly rentals was the culprit we wouldn’t also see such a large drop in a market like Steamboat who has done nothing yet to limit nightly rentals.

What are the key drivers of a slowdown in sales?

There are 3 macro trends happening in real estate along with one more local trend, the lack of inventory is at historic lows.

  1. Shift back to services and travel: We knew this would happen where the nesting phase ends and people want to get out and explore. I’m seeing this throughout the mountain towns where people bought in the ski towns and now they are selling as they don’t want to long term live in Breckenridge or Steamboat.  Furthermore, international travel is coming back that will compete with the various Colorado ski towns.
  2. Wealth effect: How wealthy someone feels will have an enormous impact on their purchase ability. Take the average buyer searching for a 2m second home.  This prospect is heavily invested in the stock market, bonds, etc… As all of these assets are falling in tandem upwards of 20% this prospective buyer is less confident to sell assets or leverage them to buy a 2m second home.
  3. Interest rates: Although around 60% of all transactions are done with cash, the majority ultimately turn their cash with longer term financing.  For example to get the house they want, someone would draw off a line to take the property down and then go and refinance into some longer term debt.  The doubling of interest rates will impact Colorado ski towns like Breckenridge and Steamboat as the takeout money becomes more expensive.
  4. Low inventory: As inventory is at historic lows, there are just less properties to buy which in turn leads to less sales. It is a basic math problem, if there are only 50 homes for sale, only 50 homes could be sold.

Take the data with a grain of salt

Although the decline in sales was huge, it is imperative to take this with a grain of salt.  Most homes are sold in the mountains are sold during summer and fall.  Currently now is “mud season” in the mountains with considerably less visitation and demand so the numbers could be a bit skewed due to the lower volume of transactions

Where does Colorado ski real estate head during the summer and fall?

  1. Inventory rises: Inventory should continue to increase in the Summer and fall as people get back into more traditional habits.  Furthermore, many property owners have made substantial gains in appreciation and there will be quite a few that decide to take some money off the table by selling now.
  2. Prices peak: I don’t see prices going up much further in this cycle.  As inventory rises, prices will hit a peak.  I don’t see much downside this year in Colorado ski real estate.

Although it is shocking to see sales numbers down by almost 30% year over year it should not be surprising.  Mountain real estate has been on a tear with double digit increases the last five years.  The market is now “normalizing” as rising interest rates, shift to services, the declining “wealth effect”, and lack of inventory contribute to slower sales.  This recent shift in the mountain real estate market likely marks the peak of prices in this cycle.  Look for prices to stabilize as inventory continues to rise.  Fortunately, I don’t see a cliff on the other side of this peak.

Additional Reading/Resources

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Written by Glen Weinberg, Owner Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors MagazineThe Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

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