Editor’s note: The following is an excerpt from the Vail Homeowners Association monthly report. We publish weekly excerpts from the association, which keeps a close eye on economic and political trends in and outside of the town. The newsletter electronic version with links to supporting documents is available at www.vailhomeowners.com.
Are there still blue skies ahead for the Vail economy? Historically, Vail’s economy was dependent upon tourism and real estate sales. Since its inception, the town of Vail has successfully balanced revenues from sales and real estate taxes to cover the cost of government operations and capital expenditures. In the go-go days of Vail’s Billion Renaissance, the town was awash with revenue, but the onset of the Great Recession in 2007, coming at the end of the “Renaissance,” drastically reduced real estate tax receipts, leaving the town to sustain itself largely on its sales taxes.
More importantly, the Great Recession caused profound shifts in the U.S. economy, which are only beginning to be felt in Vail. It is not the loss of middle-class jobs or the disappearance of the middle class, but rather, lifestyle changes that portend a major shift in the Vail economy. To a certain extent, the community and town had harbored the expectation that the real estate and development market would bounce back and once again be a major revenue stream for town government. It hasn’t, at least not to the degree some had hoped for; the situation is not unique to Vail nor has Vail Resorts remained invulnerable. A report comparing Colorado mountain resort counties shows that Eagle County’s (Vail) year-over-year real estate sales volume was down 7.38 percent, while Pitkin County’s (Aspen) was off by 13.82 percent. Vail and the lower valley communities show as some of the most active in dollar volume and number of sales transactions.
Realtors Remain Optimistic
There are indications that the real estate market will improve in 2014. The town estimates a 16 percent increase over past year in revenues from real estate transfer taxes through the end of February. Real estate analysts report that beginning in late summer of 2013 inquiries began to increase, culminating at the beginning of 2014 in several sales of luxury residences in the Forest Road neighborhood and throughout Vail Village. The depletion of available inventory is causing prices in some neighborhoods to rise; while not yet a seller’s market, it is motivating some opportune sellers to put forward more realistic asking prices.
Realtors are optimistic that 2014 will be much better than this past year. Even though there are positive signs that the local market is stirring, some analysts are saying don’t expect anything that remotely resembles pre-recession boom conditions. The shrinking inventory of available luxury condominiums is sufficient to motivate developers to initiate the processes, subject to market conditions, to construct the Strata project in Lionshead. The project is to be built on the sites of the Vailglo and Enzian lodges. It would be the first major project in Vail to begin construction since 2007. Other developers are eyeing their prospects. The town has a queue of hundreds of pre-recession units approved for development, but developers are waiting for economic conditions to improve.
Is a housing bubble forming? The Vail/Eagle County real estate buyer profile is decidedly American with 53.4 percent local residents, 15.12 percent Denver metropolitan, 30.12 percent out-of-state, and 1.36 percent international. There is recent improvement in national housing prices, though it may not last, as some are already warning that a housing bubble is reoccurring. Prior to 2008, the American Dream envisioned home ownership. Now, the importance of home ownership has waned with more of the younger generations turning to rental housing.
These trends may well be reshaping the upcoming generation of resort real estate consumers into renters rather than purchasers. Adding headwinds to the Vail housing market is the fact that stricter requirements for bank loans (20 percent down with a tiered increase in down payment for larger loans) makes buying residential property in high end resorts a heavy lift for most Americans. If these trends persist, then the town of Vail will become even more dependent on sales tax revenue to fund its operations.
The escalation in carrying costs, condominium fees and taxes continues to erode profitability, formerly recoupable from short-term rentals or appreciation in market value. For foreign investors looking to shelter capital through residential real estate investments, the Internal Revenue Service reporting requirements have become more onerous, even when purchasing real estate using the tax advantages of limited liability corporations. If these prove to be the new realities that are realigning real estate investment, then the town can expect a long-term, slower pace of revenue growth from both sales of existing properties and new construction.
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The town has a queue of hundreds of pre-recession units approved for development, but developers are waiting for economic conditions to improve.