Colorado ski real estate doubles, will there be a drop on the other side? 5 factors that will shape the future
The amount spent on real estate in six of Colorado’s resort-anchored counties doubled from 2019 to…
Wow, it has been quite the run in Colorado Mountain real estate. Prices have been off the charts with many mountain communities roughly doubling over the last 2 years. For example in Summit county, home to Breckenridge, the median home price increased from 750k to 1.7m from April 2020 to 2021. Will the torrid pace in mountain real estate continue? What if anything will derail the party?
Why are the Colorado resort communities appreciating so quickly?
Before talking about what will happen in the mountain communities, it is important to understand what is driving the craziness in mountain real estate. There are three primary factors:
Will the double digit growth in Colorado ski real estate continue?
In the short term, I think the party will continue albeit at a slower pace. Demand will wane as cities reopen and people spend more on services as opposed to goods. Look for travel to accelerate which will shift spending. The mountains will remain desirable, but the panic buying should subside.
On the flip side there is basically zero inventory in every mountain town and I don’t see that changing anytime soon due to the limited supply of buildable land and extreme building costs.
What will derail the astounding appreciation in the Colorado Resort Markets?
By any stretch of the imagination every mountain town has become frothy with values surpassing even the highest expectations. Anyone who is involved in mountain real estate is wondering when and how the recent party ends. Here are some scenarios:
What happens when the party ends?
I would guess that a combination of the three items above will eventually slow the mountain markets. Items two and three would lead to gradual slowdown. The million dollar question is could there be a shock due to a major stock market correction.
When I look back on the 08 real estate crisis, the number one driver of the correction was overleveraging by borrowers. Fortunately, in the mountains most purchases are made in cash with zero leverage which will limit the downside real estate risk. When properties are owned in cash or very low leverage, there typically is not a rush to the door if there is a change in the market. Furthermore there is basically zero excess inventory which will further help limit the fall.
There is no way for prices to continue at their torrid pace for much longer. Although a major correction in mountain real estate is not in the cards, a slowdown is imminent. The most likely drivers will be a jump in interest rates, a tapering of demand, and the rise of alternatives as prices reach a tipping point. What do you think will be the driver to slow down Colorado mountain real estate? Do you see a major correction or a slowdown in demand as I am predicting?
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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 Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The 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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