Great snow, weak U.S. economy are bittersweet for the valley
With a national economy on the brink of a recession, the Vail Valley, even in the midst of the best ski season in years, isn’t immune to the problems. Talking to local business owners reveals something of a mixed bag: It’s not panic time yet, and some places are doing OK.
The middle class feels a weaker economy the most ” multi-millionaires aren’t having to sell their homes or private jets just yet ” but the ripple effect can hurt just about anyone. Several Vail Village retail businesses’ sales are down this winter season, but large retail stores like the Sports Authority in Avon have higher sales than this time last year.
A weak U.S. dollar is both good and bad news. While Americans might be cutting back on unnecessary purchases, international tourists ” especially Europeans ” are taking advantage of a great exchange rate. It can help local businesses that have lost some of their American customers, but it isn’t saving businesses entirely from feeling the economic sting during the country’s struggling economic times.
The U.S. isn’t officially in a recession yet, but there’s a lot of uncertainty within the housing market and banks, says Stephan Weiler, an economics professor at Colorado State University.
He says people will likely scale back their spending if they have to, and that can affect a variety of things.
The real estate market has been one of the nation’s top economic indicators, with foreclosures and the subprime mortgage crisis proving that times are tough nationally. But, the Vail Valley market isn’t as prone to such trouble. Ron Byrne, of Ron Byrne and Associates Real Estate, says he’s seen very strong sales throughout the past three months. Byrne works primarily with luxury real estate, where the demand is still high and inventory is relatively low.
“We’ve had an unbelievable winter,” Byrne says of the company’s sales numbers. “We think that might be tied to the strong snow we’ve had.”
Unbelievable winters contribute to home buyers’ heightened interest in real estate here, even though inventory remains pretty low.
In basic economics, it’s all about supply and demand, says Don Cohen, executive director of the Economic Council of Eagle County. The county is filled with federally owned land, most of which can’t be developed.
“It’s the underlying driver that pushes our housing costs up harder and faster than any other contributing factor,” Cohen says.
The developable land in the county is about 4 percent of the total area. The result is a real estate and homebuilding market that doesn’t follow the national downward trend.
And when homes are constantly appreciating, it affects the middle class and the workforce. A perfect example is the property tax increases that shocked many homeowners last year. The county’s mill levy has remained constant, while home values keep going up, causing property taxes to continuously increase. Some county residents have reported tax increases as high as 40 percent.
“If you live in Bachelor Gulch and have this big house, you probably don’t care, but if you’re the middle class, you can have some real problems,” says Buddy Sims, of the Eagle County Property Taxpayers for Common Sense, a group that formed to fight the increasing tax bills.
Problems that surface right away are the increases in the portion of mortgage payments that go toward property taxes, called escrow payments. The higher monthly bill eats into disposable incomes and could affect the local economy more if people end up spending less. The lower-income families just won’t be able to do extra things, Sims says.
“I’m afraid it’s just going to completely chase the middle class out of the Vail Valley,” he says.
Karen Shaeffer, the county’s treasurer, says she’s already seeing the hits people are taking. In January of this year, Shaeffer should have collected about $2 million more in property tax payments than she did in January of last year. She only collected $1 million more ” meaning people aren’t paying on time.
“It’s too early to tell if that’s going to continue; if February is down, that’s a good way to tell,” she says.
One thing Shaeffer is sure of is the increase in taxes is going to hurt the working class. Property taxes rose by $38 million in 2007 ” the most Shaeffer has seen in any one year during her 22 years in the treasurer’s office. She suspects there will be more delinquencies and that people will really feel the added pressure on their budgets.
“We have a very rich property tax base, and those people I think are going to be able to (handle the increase). They complain the loudest, but they have the money to pay,” Shaeffer says.
Those who have the money are the ones still buying properties in the valley. Byrne says it’s the lower price tiers that aren’t selling as much, since the people buying those homes are usually the ones needing loans. “Lower” price tiers in the valley are in the $1 million range.
And since the second-home market is largely higher-end real estate, the market “tends to suffer through these recessions a little better than most people,” Colorado State University’s Weiler says.
“In a small market there will always be a few buyers. … Ski tourists and second-home owners are the ones driving the economy,” Weiler says. “They’re part of the reason homes keep appreciating.”
Some signs of the recession might be that second-home owners stay in their second homes more often, because trips to other destinations where lodging is needed might become less affordable, he says.
Vail Resorts has seen an increase in international tourists, up 23 percent from last year. The company attributes the trend to the weak U.S. dollar, says Chris Jarnot, chief operating officer of Vail Mountain. The heavy snowfall this year hasn’t hurt either, he says.
“It’s good for us; a great combination. It seems to be paying off,” Jarnot says.
Jarnot says Vail Resorts employees are noticing more foreign languages and foreign accents, particularly German and British.
The weak dollar makes everything in America appear to be on sale, especially for Europeans. It costs about $1.50 for every Euro right now.
“(The dollar) is historically weak. The Euro used to be about 87 cents. The value has basically doubled, or the dollar has been cut in half,” Weiler says. “It’s effectively made the U.S. a whole lot cheaper.”
International tourists who have the money will come anyway, he says, but it’s those who might not have been able to travel here before who benefit now, meaning there are new guests to impress who will hopefully return in the future.
Cohen, of the county’s economic council, says there are “clearly a lot of South Americans” visiting earlier in the season than normal, so the increased international traffic isn’t just from Europeans.
Vail Resorts welcomes the increased international business. The travelers who come from farther away tend to stay in town longer, so they spend more money than the day-trippers or Americans who come for long weekends.
Beth Slifer, of Slifer Designs in Edwards, says she’s noticed more international clients than in the past. She also attributes it to the value of the Euro, which “makes property here look less expensive to them.”
Byrne said he asked one man from London what his motivation was for buying the $6 million piece of property he recently purchased here. The man told him it was because he believed he wouldn’t be able to get a buy that good in the future.
European investors see good buys here as well. Byrne says his office is doing strong business with them.
“They’re using the Euro so they’re getting benefit in that area, and we think that’s going to continue,” he says.
What’s good for European tourists isn’t so good for American tourists, though. The Vail Mountain Marriott is seeing more international travelers in its hotel than in previous years, says Pete Hayda, spokesman for the hotel, but he says Americans seem to be a little more cautious right now.
“My personal opinion … I think (many Americans) probably still have the money, but people are thinking ‘should we just hold off?’ I think there’s a lot of that going on right now,” he says.
A weak dollar also means imports are more expensive, and that includes gasoline that’s already topping $3 a gallon ” not great news for Americans.
Shaun Corette, a lawyer for Snowsports Industries America, a trade organization, says there aren’t any American manufacturers of most kinds of ski clothes. That means shoppers in ski resort towns like Vail could see higher prices since the clothes are mostly imported.
But increasing prices isn’t something Ron Weinstein ” owner of three Roxy clothing stores in Beaver Creek, Vail Village and Denver ” is prepared to do. He says his two local stores have to remain competitive with his Denver store, and that means prices have to stay the same at all three stores.
Luca Bruno, a clothing store in Vail Village, had its slowest Christmas season in six years, says Jen Bruno, the store’s co-owner. She said that time period has been the most dramatic in terms of feeling the effects of an economic crisis. Impulse purchases are practically disappearing, she says.
“Even some of our best customers are definitely really thinking about their purchases,” she says. “We have a good local following, but we’ve seen less locals shopping.”
Because the locals aren’t buying as much, she says she’s especially thankful for the international shoppers this season.
“Our visitors from Mexico and South America have helped us incredibly, because it’s obvious that Americans are more careful about their spending,” Bruno says.
Bruno says most retailers in the valley would say Christmastime can account for as much as 35 percent of business for the year, so losing some of that business hurts.
Business owners make adjustments, though, to feel less of a pinch. When Bruno and her business partner went to Fashion Week in New York City to buy clothes for the season, “We were much more careful with what we bought.”
Roxy’s owner Weinstein says he’s adjusting his buying as well. He projected his stores would do less business this season, so he figured he could minimize that impact with a little strategy.
“In (the retail) world, if you plan to do less business and you buy less goods, and you do what you expected to do, it’s not all bad,” Weinstein says.
His business is down slightly from last year’s numbers, but he says he’s ahead of where he projected he’d be. Other things become an issue though, he says, such as a higher payroll and higher health insurance costs.
“It’s not doomsday on the business front, we’re doing the numbers we planned on doing, but that’s not to say we’re not concerned,” he says.
An area where business owners take a hit, though, is in their ability to hire workers, the economic council’s Cohen says. That’s related to high housing costs in the valley, which push out hourly workers and make it hard to attract new ones, he says.
There are a lot of challenges filling jobs that won’t go away, regardless of the economy. Weinstein says he’s had to close his stores early or pay overtime because of the worker shortage. It sometimes gets to the point where he needs bodies in the store so badly that he just can’t be as selective during the hiring process.
Matt Morgan, owner of the popular Sweet Basil restaurant in Vail Village, decided to close during lunch hours on Mondays and Tuesdays this season. He simply couldn’t hire enough people, and so decided to close down for those lunch shifts rather than risk providing bad service to guests.
Business isn’t bad for Morgan this season, but it’s only slightly up from last season, he says. The average amount people are spending in the restaurant is about where he’d expect it to be, up slightly from last year as well. Aside from the problems hiring workers, Morgan says business is pretty strong.
“I don’t know that we’re feeling the sort of recessionary problems that the rest of the country is feeling, at least not to the degree that everyone else is feeling,” he says.
Morgan and other employers might not feel it in terms of sales or business, but the workforce issue isn’t going away, Cohen says. Mainly because of the high housing costs that make Eagle County a place for the affluent, leaving little room for others.
The snow cat crews at Beaver Creek Mountain is one example of the employee crunch. The crews usually run with about 10 to 12 guys. This year there have been as little as five guys working as a crew, says John Neufeld, a crew supervisor at the mountain.
Employers throughout the county seem to feel the same way, and their pessimism isn’t changing.
In a recent workforce survey of employers in the county, 58 percent of large employers are worried that attracting and retaining employees will be harder in 2008 than it was in 2007.
“That’s a large and troubling lack of confidence,” Cohen says.
Lauren Glendenning can be reached for comment at Lglendenning@vailtrail.com.