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SUPPLY VS DEMAND

SKI PROXIMATE NEIGHBORHOOD COMMENTARY

East to West Vail, Lionshead, Vail Village, Beaver Creek and Breckenridge are significantly undersupplied, based upon supply vs. demand ratios as illustrated in the following table. VPB’s definition of a balanced market is “for any given inventory pool there is a superior vs. inferior half, compared to the overall whole”. This premise assumes that only 50% of all for-sale properties are worth buying because who doesn’t want value if it is out there in the market and available. Statistically there should be twice as many Active listings as compared to past 12-month Solds translating into a 2.0 ratio, where supply is divided by recent quantifiable demand.

At the end of the 2015 winter season, ski proximate neighborhoods were in the 1.16-1.49 ratio range, meaning 12-month trailing sold buyer demand was capable of absorbing 64% to 175% of all available inventory which is well above the 50% balanced market definition. Seller asking prices were up 9% to 25%, which for an analyst poses the question of whether buyers will pay more money for limited supply or will sellers fold and accept less? Land Title reports an average negotiating discount of 5% for Eagle and Summit Counties, so with a premium range of 10%-25% less the negotiating discount, market prices are poised for net 5%-20% increases. With limited available inventory and the likelihood of increasing demand due to an improving economy, record stock market gains and unsustainably low interest rates, it is logical to conclude that these neighborhoods will achieve price appreciation over the next couple of years notwithstanding unforeseen events. An additional consideration is the linkage between primary residential, which improved nationally by 11.8% per the Case Shiller Index, and resort property which lags major markets by about 9-18 months. Based upon this linkage, a big run up for resort properties should be right around the corner but past performance is not necessarily a guarantee of future results.

supply-graph

While most experts agree that magnitude and timing are almost impossible to predict, an educated guess is better than no guess at all and all modesty aside, VPB has proven to be a pretty good guesser. Data analyses, historical rates of appreciation and 40 years of industry experience leads us to believe that world class resort property makes financial sense, but this prediction is as much art as it is science. If the time has come for a blend of lifestyle, financial performance and portfolio diversification, take a closer look at what has been an out of favor asset class while demand remains relatively subdued and the expansion of luxury good spending is on the horizon; because as the old cliché goes “you can’t take it with you”.

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Appreciation - Compounded Average Growth Rate
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