It’s snowtime! 5 factors driving mountain prices

Although fall officially started not long ago, it is snowtime in the mountains!  The Northern Mountains including Steamboat got about a foot of snow last night.  Although the snow is falling, prices are still hot throughout the Colorado High Country.  As we all know, the mountain towns of Colorado have gotten expensive.  What is driving the huge gains in most Colorado Mountain towns?  Will this trend continue? For example Steamboat’s median price has increased almost 20% in the last year, this same trend is playing out throughout the Colorado high country.

There are 5 primary factors driving up prices throughout the vast majority of mountain/ski towns throughout Colorado

1. Simple supply and demand: due to the locations of many mountain towns there is not available land to develop. Most of the mountain towns are centered around ski resorts which the vast majority are situated on National Forests. For example, think of Steamboat, Aspen, Breckenridge, Vail, Telluride, etc… Each of these mountain towns are surrounded by undevelopable federal land.  Furthermore in most mountain towns there are funds setup (via taxes) for land preservation which further reduces the available supply of land
2. Building Costs: it is expensive to build in the mountains from water costs to land planning to labor costs.  There is a huge shortage of skilled workers, ironically one of the primary drivers of this shortage is expensive housing which creates a vicious cycle of even less skilled labor driving up prices further.  Everything about building in the mountains is very expensive
3. Taxes: Taxes in mountain towns are very high to pay for the amenities that visitors expect.  For example, the Aspen police department uses Toyota 4 runners for their deputies.   These are expensive vehicles that someone must pay for.  As taxes increase, payments for average buyers increase as well and many will no longer qualify for a mortgage (taxes are included in the payment when calculating debt to income ratios)
4. Vacation Rentals: In Vail alone there are more than 1400 unlicensed vacation rentals.  As more people rent out their properties, typically renters are pushed out.  For example, a homeowner could rent their house for 200/night, assume they average 15 nights a month (3k/month) they could make substantially more money than renting to a single tenant for let’s say 2k/month.  As nightly rentals become more lucrative, long term leasing becomes less profitable
5. Front Range Population increase: Denver, as we all know, and the entire front range is increasing rapidly.  As more residents come to the front range, many of these newcomers will venture to the mountains to recreate and buy second homes, rent properties, etc…  This huge net migration to Denver will increase demand throughout the mountains

I don’t see any solutions to any of the 5 factors above emerging anytime soon.  This will lead to continued upward trends throughout the mountain towns and surrounding communities.

Resources

1. http://www.steamboattoday.com/news/2017/may/03/vail-reports-more-1400-unlicensed-vacation-rentals/

2. http://www.denverpost.com/2017/04/30/short-term-vacation-rentals-colorado-mountain-towns/
3. http://www.denverpost.com/2017/03/28/denvers-growth-spurt-slows-down/

Written by Glen Weinberg, COO/ VP 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 the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

Fairview is the recognized leader in Colorado Hard Money and Colorado private lending focusing on residential investment properties and commercial properties  both in Denver and throughout the state. We are the Colorado experts having closed thousands of loans throughout the state.

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