Unique, fixed supply, high end resort real estate is in many ways similar to dividend paying large cap growth stocks. The immediate benefit is an enhanced lifestyle experience and in combination with capital preservation with the prospect of future valuation increases, serves as an asset allocation alternative to bonds, gold, cash and other uncertain and volatile financial instruments. The convergence of discounted pricing, record low interest rates and seller impatience will not last long. For those of you thinking about quality of life, the creation of a family legacy asset and/or retirement, now is the time to take a closer look at the dream of a resort property home that also makes financial sense.
Prices for ski-proximate neighbors in Vail, Beaver Creek and Breckenridge remain relatively unchanged from a year ago despite consumer expectations to the contrary. These micro markets have in all likelihood reached the bottom of their correction cycle with little or no further downside expected based upon the data. Despite the 20-30% drop in valuations from 2006/2007 peak levels, many of our clients are concerned that the worst might not yet be over with more discounting still to come. Buyers continue to be reluctant in their willingness to commit capital to almost anything, having been unnerved by the most volatile period of economic instability since the Great Depression. High liquidity positions in combination with reduced debt levels is the new Western World paradigm including a level of fear that stampedes investors at the first signs of uncertainty, thus accentuating day to day market volatility.
Real estate is still an out-of-favor asset class. A common misperception by the public is that the national news and what is occurring in their local neighborhoods is uniformly happening across the country. Real estate is a highly fragmented and locally affected industry. The Economist magazine reports US housing moving in two distinct and separate directions. Homes priced more than $1 million have risen 0.7% since February 2011, while properties priced less have fallen by an average of 1.5%. "Luxury is the best performing segment of the housing market right now", says real estate economist Stan Humphries, and must be evaluated from a localized perspective not aggregated statistics.
Vail, Beaver Creek and Breckenridge sales data is actually quite encouraging. During the 2005/6/7 run-up, ski proximate neighborhoods appreciated at a blistering 14.8% compounded average growth rate (CAGR) driving prices 50% higher over this three year period. First quarter 2008 marked the beginning of a three year cyclical downturn where prices dropped 25%, bottoming out in what appears to be 3rd quarter of 2010. On the surface these blue chip touted neighborhoods appear to have lost their bulletproof luster, but let's take a closer look at the facts. Capital appreciation since 2004 is still 25% positive (50% increase less the 25% decrease) producing a net annual gain of 3.5% over the past seven year period. Stock market volatility on the other hand has been far more dramatic and by comparison the S&P 500 index is just now reaching its all time record high. An interpretation of the data would seem to reaffirm the blue chip moniker, proving these markets as safe harbors for capital while at the same time fulfilling the promise of long term positive growth.
Mathematically vacation homes, and for that matter most other financial investments, don't make any sense unless they are growth assets. So the important questions are "Will these resort property markets continue to gain value at their long term historical averages and if so, when might these increases begin?"
A study of the statistics yielded some interesting insights.
#1: Vail, Beaver Creek and the Breckenridge submarkets have not suffered capital losses when compared to 2004 valuations.
#2: While it is true that the markets fell by about 17% from 1st quarter 2008 through the first half of 2010, the net gain over the past seven years is still 25% positive, which is only 200 basis points less than the 20 year 5.5% CAGR average.
#3: Inventory absorption levels currently stand at about 1.43 years (see page 1), which is a slight decrease from 8 months ago and are now at or below historical levels suggesting no oversupply or inventory accumulation.
These three indicators lead us to believe that market prices have stabilized and are poised to increase 10% by year end 2013. What is needed are more sellers willing to meet the re-indexed price and in combination with 60-year low interest rates, the future cost of ownership might never be lower. The court of public opinion may disagree with this conclusion, but consider the long term macro-economic drivers.
Fact 1: Seventy-eight million baby boomers ages 46-64 continue to be interested in travel, leisure, recreation and vacation or retirement home real estate.
Fact 2: High-end vacation home buyers are typically in their 50's, meaning less than one-half of the baby boomer demographic has crossed the median 55 year old purchasing threshold.
Fact 3: Ten percent of US households control 64% of the nation's wealth as reported by The New York Times. These affluent decision makers clearly have more money than time intensifying their interest in best-of-the-best lifestyle experiences despite higher price tags. Vail Resorts is an industry leader in the creation and management of unique highly diversified destination resorts. In conjunction with other like minded developers more than three billion dollars has been invested in micro markets the size of postage stamps resulting in consistent Top 10 Ski Magazine rankings for the Vail, Beaver Creek and Breckenridge resorts.
This three-legged platform of demographics, affluence and investment is driving increased customer demand for local products, goods and services; and when coupled with fixed supply, sets the stage for future appreciation. While it is true that most experts agree on the impossibility of timing any market, a best guess is better than no guess at all. Based upon experience, analyses and an assessment of the current geo-political landscape, these highly desirable neighborhoods have stabilized, moving laterally along the correction cycle trough through the 2012 Presidential and Congressional elections. Allowing for political progress with regard to domestic direction and the Eurozone banking crisis, we expect prices to strengthen between 2013 and 2015 with solid advances through 2020 based upon the macro economic drivers. I know we're going out on a limb here but that's the way we see it, which is without a doubt counter intuitive to prevailing public opinion.
If any of this commentary resonates with your family?s long term goals and objectives, please give us a call to learn more about our unique Buyer Broker specialty and here?s to another great winter season!
"Because it's not just a home … it's an investment"