If you’ve been reading the news, it seems to be everywhere, complaints against vail resorts are plastered all over the media. With Vail the largest owner of resorts in Colorado and the United States will this derail the real estate party in ski towns or is there something bigger lurking that will radically change the real estate trajectory. Will we see a 2007 repeat in Colorado ski real estate?
Complaints about Vail resorts impact on ski real estate
I recently read a Denver post article about Vail resorts and the diminished guest experience. It gave a scathing review of Vail resorts. On top of that I have written prior that Vails stock is taking a beating as a result of their lackluster execution of the ski season this year.
- Epic pass sales are up 76% vs. the 2019/2020 ski season, meaning the slopes would likely be more crowded to start with regardless of any labor issues.
- With resort living becoming increasingly more expensing, MTN’s wages are allegedly not keeping up in their local markets
- A pandemic-triggered escalation of real estate prices has reduced the number of homes available to local workers for rental
- H2-B and J-1 international work visas, which ski resorts have historically used to fill employment gaps, are in especially short supply leading to continued labor issues.
It doesn’t take a rocket scientist to figure out what was going to happen this season. Vail dropped the price of their passes by 20% to sell more and it worked. They sold 76% more passes but unfortunately they did not add any new capacity. This has led to a “diminished guest experience”. How could any rational person not see that this would happen?
Unfortunately part of the issues are a result of Vails own making, but the overwhelming majority is well outside of their control. For example in Breckenridge house prices have increased almost 40% in one year. This has priced would be renter out as houses get sold. Furthermore, the demand to visit/live in the mountain towns has skyrocketed creating even more demand for workers with less housing. Unfortunately I don’ see a great solution to the issues facing Vail.
On a positive note, Vail’s performance or lack thereof will have no impact on real estate prices in the various resort communities. This will definitely not be the impetus for any real estate pull back.
Will rising interest rates impact purchases in Colorado ski towns?
There is no doubt interest rates are rising on treasuries and in turn mortgage rates. The federal reserve has telegraphed a more aggressive rate stance which will put further upward pressure on mortgage rates. How will the increasing rates impact Colorado ski real estate? Long and short, interest rates should have a limited impact due to the number of cash purchases. In most major ski resorts in Colorado the number of cash purchases are between around 40% and 70%. This is a huge percentage of purchases that are not interest rate sensitive as they have no mortgage. Here is a past article on this topic: Best Colorado ski town investments. With such a large percentage of properties being bought with cash, a move upward in rates is unlikely to be the catalyst for a slowdown in ski real estate.
What is the real risk to ski real estate?
If mortgage rates and the performance of the largest ski hill operator are not going to slow down ski real estate, what will? With appreciation averaging north of 25% per annum throughout the ski towns with some as high as 40%, the pace of increases is unsustainable.
Resort real estate is highly correlated to stock market performance. With the huge quantity of cash transactions, much of these funds were from gains on equities. Furthermore, the demographics of various ski towns throughout Colorado are heavily invested in the stock market due to their net worth. As the stock market is now beginning to correct, ski real estate will invariably slow.
Will there be a correction in ski real estate like the stock market?
With a high correlation between the stock market and ski real estate, will there also be a correction in ski real estate. As of writing this the Nasdaq is off almost 15% for the year with the S&P down around 10%. With a correction underway, what happens to real estate?
Fortunately, although there is a correlation between the stock market and ski real estate it is not a one for one correlation. For example a 20% drop in the market, might lead to a flattening or possibly a loss of 2-5% in ski real estate. Remember even if real estate values flatten this is after 30% gains last year in many markets so it is important to keep it in perspective.
Summary
Long and short, I don’t see a fire-sale coming with values plunging in ski real estate as the market corrects, but the market will flatten and there is a risk of a small give back in appreciation depending on how severe the correction is. Fortunately there is zero excess inventory in the various resort towns and build prices are extremely high coupled with so many cash purchases, the downside risk in ski real estate is radically different than 2007.
