It is crazy to talk about prices moving higher in Colorado’s high country while rates are staying double their lows. Why is ski real estate poised to head higher despite everything else going on in the economy? What is the key driver to watch for ski real estate? Which resorts will fall in price and which ski towns outperform others?
Will high 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 loosening policy sometimes next year, but it doesn’t appear that mortgage rates are going to plummet. How will the high 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 50% and 80%. 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 ski real estate will fall based on Denver?
We are in the early spring selling season so there is very limited ski town sales data, but Denver seems to be holding up in face of higher interest rates. Based on the recent Summit County data and others I have looked at so far, I’m not seeing any sign of drops in real estate prices. We will need to wait to see what happens in Denver to see how markets like Breckenridge and Winter Park will perform
Steamboat and others continue to outperform
We have seen historically that resorts like Steamboat and Vail have a much lower correlation to Denver than other resorts closer to the front range. As Steamboat and Vail show they have very little correlation to Denver then what is the driver of appreciation in these ski towns?
What is the better metric to predict ski real estate prices in Vail/Steamboat?
If mortgage rates and the performance of Denver do not slow down ski real estate in towns like Steamboat and Vail, what will?
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. The stock market recently hit record highs which means there should be a corresponding increase in cash purchases in Aspen, Steamboat, Vail, etc.. as the market hits new highs.
Is there a gold standard in real estate? One Colorado town fits the definition
In times of economic uncertainty, high net worth individuals focus on safety. From Government securities like 10 year treasuries, to municipal bonds, and gold. There is another trend emerging that Colorado real estate is being placed in the “safe haven” category. What town most closely resembles the “gold standard” in safety?
Why think of Colorado ski real estate similar to gold?
Safe–haven assets typically perform well during downturns and financial crises when riskier assets underperform. Gold is considered a safe haven because it has acted as a store of value, maintaining its purchasing power.
Gold has three primary characteristics that drive its value
- Rare: you can’t go out and randomly find large quantities of Gold; it is a rare mineral with limited supply
- Desirable: There will always be demand for Gold that can’t be replicated easily. In good times, bad times, and everywhere in between there continues to be a market for gold.
- Long term value: Gold over the long term holds its value
Is there a Colorado town that fits a similar definition of Gold?
I think there is one, Aspen, CO. Aspen real estate has taken off since the coronavirus hit as a “safe haven” for high net worth individuals and looks very similar to Gold in many respects
- Rare: There is almost zero ability to build new inventory in Aspen. Almost all the desirable lots have been long gone and unfortunately you can’t “make” new inventory as the town is bound by national forest which limits any future development. Furthermore, build costs are astronomical which further limits supply.
- Desirable: Aspen is an extremely desirable area to live, visit, recreate, etc.. which will continue to drive demand.
- Long Term Value: Aspen real estate over the long term will hold its value, there will not be a huge influx in supply and demand will stay robust.
Summary
Colorado ski real estate should benefit from the recent increase in the stock market and also from the huge economic uncertainty which will drive buyers to “safe assets”. My initial predictions included a slowdown in the stock market due to higher interest rates, but as the stock market defies expectations Colorado ski real estate will be a big beneficiary as high net worth buyers’ cash out of the market and need a safe place to park their gains. Colorado ski real estate fits the bill which means beyond all expectations there could be another leg up for Colorado ski real estate through the fall. Beyond the fall will depend on where the market heads and if we achieve a soft landing or something worse occurs.
