Blog – Vail Property Brokerage

- Jul 13
- Greg Strahan
Latest news from VPB
US ECONOMY & HOMES – VAIL, CO REAL ESTATE
- Greg Strahan 40 Years' Experience. One Billion Dollars Completed Transactions. 250 Happy Families.
US Economy
The biggest stock market comeback in modern history is defying all valuation methodologies in favor of the view that the pandemic will be over by this time next year so who cares about what is going on around the country. 3.3 million small businesses, 22% of all the firms in the US, have shut their doors since February as compared to 730,000 during the Great Recession. Irrational Exuberance is now being mentioned in hushed tones as the only explanation for a pre-Covid stock indices making the capital markets look more like Las Vegas gambling than a real investor playing field. There are no real connections to P&L, consumer confidence or unemployment which is probably closer to $30M with 20% of America’s workforce out of a job despite lower statistics to the contrary. Expectations that the FED will do whatever it takes to keep the recovery going with $3T of printed money already approved. Chairman Jerome Powell is prepared to go as high as $6T if necessary, which is a staggering sum of money when compared to total US debt of $22T and rising. The DJIA fell 1862 points last week in response to the virus’ spread with more than half the country setting record high infection numbers. Until vaccines or therapeutics are developed Covid 19 is not going away so get ready for two steps forward one step back until such time as one of these two solutions become available.

US Residential
The cost of housing has grown twice as fast as wage earner income with fewer homes on the market than in any year since 1982. Demand for lower priced properties drove appreciation at twice the rate of high end neighborhoods. Once the backbone of US wealth, housing has become a political, economic, and environmental catastrophe. Renting has become even worse with costs increasing by 16% compared to wages at 5%. After 2011 4M units under $800 a month have all but disappeared due to demolition, co-ops and condo conversions. Half of all renters spend 30% of their salaries on rent; but for the poor that number is closer to 50%. Minimum wage earners would have to work 127 hours a week to pay for a two bedroom rental. In 1990 it took 18 months of medium salary to buy a house in 72 of the top 100 cities; today that number is just 25 which is a staggering 65% reduction. The US is more than 10 million homes undersupplied as a result of the Great Recession with no solutions in sight. So, giddy up and buy residential properties because increasing valuations are almost guaranteed based upon the national numbers but will depend on specific SMSA locations and economic activity.

Vail Valley Market Overview
Rumors abound that Eagle County’s housing market is red hot. Currently there are 348 pending sales with May setting an all-time monthly record. Covid 19 is changing all prior seasonal patterns with buyer activity very strong for what is typically the slowest month of the year. Eagle County has averaged about 2400 transactions per year since 2017 producing $2.2 billion in annual volume. That yearly average of 200 homes per month would seem to support May’s red hot status but it’s not that simple. At an average price of about a million dollars, 348 sales translates into $350M which is only 15% of countywide volume. July is the height of our inventory accumulation cycle with 682 homes currently on the market and if every home were to sell that’s $600M plus the under contract $320M for less than one billion dollars or roughly half of pre-Covid volume. Is the local real estate market on fire? Well sort of with most of the action happening at seven digit numbers. Local demand is in the tank given 48% employment as reported by the Rocky Mountain Alliance which means the market is almost 100% driven by out of area buyers. The pandemic has created unexpected demand at an unexpected time for city dwellers who want social distancing and family getaway properties. Zoom has proven that not all workers have to be in the office which is going to be a game changer for how and where we work, changing the ‘must be on-site’ paradigm forever. We are not seeing a massive exodus from urban areas to outlying communities but rather the realization that a second home can make real sense given on-line working and increased flexibility as to where people can or have to live. Urban flight from NYC after 911 is being talked about but we just don’t see a change in primary residences, but rather an escape valve option for lifestyle enhancement in less congested lower hassle safe places.

Best regards from our part of the world to yours where in the Rockies the colors glow against a background of towering peaks, crystal clear lakes, and views of an endless the horizon. Fall is right around the corner and if you can figure out a safe way to come and visit; we promise you will not be disappointed.

Greg Strahan and Connie Kincaid- Strahan
Lifestyle enhancement coordinators and real estate guides to the Vail Valley.
75 Years’ Combined Experience. One Billion of Completed Transactions. 250+ Happy Families
What’s In Store for Vail This Summer
- Greg Strahan 40 Years' Experience. One Billion Dollars Completed Transactions. 250 Happy Families.
Greetings from high up the Rockies where summer is in full bloom and the weather magnificent. We have been getting a lot of questions as to how Vail might look over the next few months given current economic conditions and pandemic social distancing. Colorado has lifted a number of Eagle County restrictions for a Phase II rollout. Restaurants and retail are now allowed to open provided social distancing is maintained. Our big crowd events have been canceled but the season will look far more normal than we expected just a couple of weeks ago. On Thursday Vail Resorts announced it will begin mountain operations as of late June or early July which is clearly great news. We assume that means gondolas running and other on mountain activities although that is not yet clear. As to real estate I had expected the property market to be dead but to my surprise properties are selling with little or no discounting. Until the inventory accumulation cycle peaks the week of July 4th some of this commentary is an educated guess because like health professionals, I need more data.

1. Stock market indices are confounding. There are no reasons for the recent bull market run other than an anticipation that the economy will start recovering later this year with 2021 even stronger. Q3 data will be sobering with more bad news to follow through year end. The Rocky Mountain Resort Alliance reports a staggering 48% level of unemployment for CO ski towns. Corporate America top and bottom line performance along with forward guidance reports will be horrendous despite the Wall Street dream with unemployment at 25% (40M) which may eventually prove worse than the Great Depression. Small businesses are going under at an alarming rate because consumers are not spending money. TIME to turn all of this around is the enemy because the longer it takes to reopen the economy, an exponentially longer period of time will be required for employment to return, some jobs will never come back.
2. Americans have clearly raised their hands against the lockdown as being worse than the disease. Money for food and rent is trumping (no pun intended) the human death toll along with the disruptions of social distancing. The public is not going to accept another lockdown knowing that the cost will be more sickness and loss of life which will be the price to save our country from ruin while politicians sweep this reality under the rug.
3. High end luxury good spending is driven by confidence in employment income and investible asset performance. Real estate suffers when these elements falter in tandem. Income will be less for many and in particular for employees in the hardest hit one-third sector of the economy. Top 10% family wealth has remained relatively intact due to resilient capital markets with many suspicious that the fantasy party just can’t last. I am not expecting much in the way of distress for Vail Valley real estate given current activity and meager levels of inventory. The rich don’t typically sell during recessions resulting in fewer and maybe a lot fewer homes coming on the market. Buyers who are looking to diversify their portfolio, live in crowded cities with a “get out of town” mind set, and baby boomers who know time is running short will buy for lifestyle and family gathering reasons supported by mortgage interest rates that are headed towards historic sub 3% lows.
4. Investors are waking up to the fact that with enough printed money ($3T and counting) liquidity can trump asset valuation metrics. As the smartest economist I know said “DON’T FIGHT THE FED” with liquidity driving stock market indices to what might be unsustainable levels. Jerome Powell clearly stated he will do whatever it takes to prevent an economic meltdown on top of the already in place Covid 19 recession, even if that means saddling future generations with mountains of debt and inflation which over time helps lessen that burden.
5. If I were to place a bet it would be on an improving 2020 second half with even stronger growth next year. That doesn’t mean a return to pre Covid exuberance which is probably 4 years out, but a solid reassurance to the public that the worse is over. Consumer spending drives 70% of GNP. Confidence has to improve if we are going to get out this ‘health scare recession’ which is a must if we are going to get back on the economic road to recovery.

What does all of this mean for Vail? The rich are getting richer and while they might have less, they still have money. Fear, volatility and uncertainty are today’s distress issues which will lessen over the next 12 months. Buyers who want portfolio diversification and who doesn’t, have a renewed interest in lifestyle enhancement, and understand that they can make more money but not more time, will buy. Real estate has a resurgence coming driven by an estimated ten million home shortfall across the country as construction fell well below replacement levels during the GFC. Millennials & Generation X number almost 140 million Americans which is twice as large as my Baby Boomer generation, so don’t look for a solution to the housing crisis which just isn’t going to happen. No growth policies and NIMBY density restrictions will continue to drive prices higher causing future generations to suffer. The challenge continues to be a scarcity of inventory with affluent areas positioned for the biggest gains due to Top 10% earning price elasticity. If the right property can be found, at the right price, in the right location, with rental income offsets Vail Valley real estate will continue to be an above average performer for reasons further explained on our web site. While there are many unknows, nuances and narratives that go along with this bold declaration, the data is undeniable given limited supply and expanding household formations. As to buying real estate during a time of crisis, it is very difficult for most people to go against the grain when the herd is stampeding in an opposite direction. It takes conviction, purpose, confidence and focus to make major decisions in times of turmoil which also brings opportunities.

I am known as a pessimistic naysayer making me suspicious of most “good news” spins. Right now, I am more confident about our country than ever. Americans are innovative, determined, and will rise to the current challenges so don’t bet against them. Our country will come out of this stronger, more efficient, supply chain aware, with an increased global market competitiveness driven by technological innovations. If you can ride out the Covid 19 storm, taking decisive action now will be rewarded so long as common sense and vigilance are maintained.

While many of the summer events that make our resort so very special have been canceled, we will not be completely shut down and hope you will consider spending time in the Rockies during the latter half of this summer. A new focus on exploring our magnificent Rocky Mountain playground will culminate in an entirely new appreciation of our natural environment so get outside because it’s a beautiful world out there waiting for discovery on this magnificent but oh so small planet called Earth.

After living the Vail Valley dream for more than 25 years I can whole heartedly say that there just isn’t another place I would rather be than among towering peaks, a huge backyard of wanderlust terrain, and cobalt blue skies interspersed with some of the most magnificent Alpenglow sunsets in the universe.

Best wishes and stay safe during this very difficult time and as always, replies and questions are always welcome.

Greg Strahan & Connie Kincaid-Strahan

Lifestyle enhancement coordinators and real estate guides to the Vail Valley.
40 Years’ Experience. One Billion Dollars In Completed Transactions. 250 Happy Families.
US & Vail Reopening
- Greg Strahan 40 Years' Experience. One Billion Dollars Completed Transactions. 250 Happy Families.
There seems to be an inflection point in the media that a resolution to the pandemic is within sight and the country should get back to work. This change in tone has nothing to do with the fact that COVID-19 is still rising in many medium size cities and rural America but as in all things, perception trumps reality with a movement towards reopening the economy gaining momentum. The stock markets have reacted aggressively and is nothing less than speculation given metrics which do not support the recent upswing in valuations.

The Vail Homeowner Association (VHA) released a plan for the reopening of tourism. VHA is not a governmental body but is influential. The following observations are based upon last week’s Vail Daily press release and my own interpretation of what is happening in the Vail Valley.

Re-opening for Vail is going to be difficult given that our local economy is totally dependent on tourism. The town faces not only all the problems of the rest of the country but will also need visitors to feel safe about traveling.

Airlines are operating at less than 10% of capacity with a recent national poll stating that 85% of those surveyed do not yet feel comfortable about flying. It’s beginning to look like our summer season could be a bust. There are significant barriers to travel which was the first to suffer and will be the last to bounce back. By the end of 2021 Vail could return to 90% of what was normal, with ground transportation as the first phase. Business travel will follow which should help thaw the public’s resistance to getting on an airplane and/or staying in hotels. The local economy may begin to recover towards the end of this summer with ski season accelerating the reopening process. Vail Resorts released an adverse impact earnings statement through the end of first quarter 2021 which means next ski season will be less robust but hopefully not a complete write-off.

Businesses with little or no public interface will be the first to restart because risks can be controlled by temperature screening and social distancing. Public transportation will have to be reinstated and procedures implemented—such as screening, face masks and limits on numbers so employees can get to work. Eagle County has already adopted some of those evolving procedural changes.

Restaurants, bars and public gatherings will be the last to re-open until the virus spread is contained. This places a heavy burden on our local merchants, but if Vail is going to be a safe place for citizens and guests, there will need to be restrictions. Sweet Basil is making plans to reopen with the expectation that there could be more than a 50% loss in business while paving the way for other merchants to follow.

As to this coming summer I have no idea what to expect. Fear and uncertainty may be so imprinted on the public that going to an airport, getting on a plane, renting a car, and staying in a hotel with bars, restaurants, retail and many other summer activities potentially suspended; many will choose staying closer to home. If all we have to offer is outdoor activities, there are less costly and easier places to visit. Front Range Colorado and other folk within driving distance will come, but major markets that require airplane travel will be less inclined to visit. It remains to be seen whether BRAVO, the Dance Festival, our Sunday Farmers’ Market and other special events will be canceled. Right now, no one is talking but there has to be a significant risk that these events might not happen making for a very uncertain future.

The flipside to the COVID-19 recession is the stock market. Wealthy families are most exposed to losses which have been mitigated by the recent run-up as irrational as that might seem. For some, escaping city congestion and contaminants may be compelling but right now not even the Realtors are being allowed access to for-sale property which is a non-essential activity and strictly prohibited. Whatever happens, this summer will be the first step. Looking ahead I can’t help being concerned about the coming winter season. A Vail Valley ski vacation is expensive so if workplace income or investible assets have been depleted it’s an easy item to take off the list. The fear of travel will continue to be our biggest threat.

An optimistic prediction for reopening the US economy would be a 90% pre COVID-19 recovery by the end of 2021. If that happens, the country and destination travel would be doing well. Vacation home real estate could remain in hibernation for another 15 months, but for those willing to go against the grain there will be opportunities. The economic implications for America in the short run are severe, but together we will ride out this storm while coming out stronger, more efficient, with increased self-reliance, expanding innovation and global competitiveness; but at the cost of a brutal societal and employment reset.

The Vail Valley’s highly affluent customer base is financially deep and should not be underestimated. The wealthy may come out of this with less, but they will still have money. An awareness of health safety and time with family and friends will be reinvigorated, with those very special places in the world poised for a renaissance. Quality of life, the ability to work on-line, and the health benefits of getting outside will be the attractions so look for a change in social mobility. While people may be able to make more money, none of us can make more time. The clock is always ticking so try and make the most of this very precious resource.

Springtime in the Rockies is a crazy time of year. It snowed a foot last week, will likely rain this week, with sunny summertime temperatures coming. The aspen trees are budding and the birds chirping. While most of us came here for the snow, it’s the glorious summers that make us stay. Best regards from our family to yours and please think about a visit. We know getting here will not be easy but if you make the trip we promise the family will not be disappointed.
A PAUSE IN CONFIDENCE FOR TRAVEL AND LEISURE AND RESORT REAL ESTATE
- Greg Strahan 40 Years' Experience. One Billion Dollars Completed Transactions. 250 Happy Families.
People have been asking about the future of travel leisure and Vail in particular, so I thought it appropriate to comment having grown up in Los Angeles and living in the Vail Valley for the past 25 years. Despite our reputation as a playground and capital preservation harbor for the ultrawealthy, this miniscule demographic (.6%) is not representative of the Top 10% families who control 70% of all wealth in the US and for the most part drive demand for seven digit luxury good spending. The question that I think people are really asking is “what will money do after the pandemic is under control?”. Historically our customer base has been well paid professionals but not uber multi-million dollar families. The enthusiast profile can be characterized as lawyers, doctors, corporate VP’s and small business owners all of which are paid well but are not necessarily $10m investible asset rich. Over the past 25 years “the wealthy have been getting wealthier” driving luxury good spending to levels that few Americans can afford which is the Vail Valley’s blessing and bane. As to vacation home ownership today you can’t just be a lawyer; you probably have to be a partner. Doctors will have to own a piece of their practice or the clinic. Being a corporate VP may not be enough unless they are the EVP which means the boss of bosses. While in the past small business owners could have had 5 employees, today they will have to run a much larger company to buy world class ski proximate real estate.

My back of the napkin calc points to a 90% loss of our traditional customer base which if true should be reflected in a flattening of buyer demand if not outright reductions in pricing which have been going in the opposite direction. Concentrated wealth is growing so maybe that trend is countering what should have been a softening market? Is it our exponentially expanding international customer base? Maybe it’s the very low cost of financing or growth of investible assets? Did the longest running bull market run in history artificially inflate consumer confidence in their wealth and employment income? Has the intergenerational transfer of family assets begun? These are difficult questions to answer and are societal issues to contemplate as the rebuilding of America unfolds.

Any predictions based upon historical trends are now COVID-19 irrelevant. It’s impossible to measure how much capital structure and/or employer destruction has or will occur. Is fear so pervasive that people will want to live in less congested highly affluent areas such as Vail, Aspen, The Hamptons or Napa Valley knowing they can effectively work on-line? Will a 30 trillion dollar budget deficit drive inflation to double digit numbers? What will the credit markets look like as we continue to print money to counter the worldwide pandemic?

While I don’t see a systemic breakdown coming no one knows how badly consumer confidence will be affected. Over the next couple of years demand for travel, leisure and resort home ownership will suffer as people wait for portfolio and employment income levels to recover which only makes sense in a time of fear and panic where anything can happen. What I do know is that DURATION is the critical issue. If the world comes out of COVID-19 by year end, normalcy could return relatively quickly. If businesses remain shuttered into next year the damage could takes years to restore. Bloomberg News talking heads are pontificating a V-shaped cyclical downturn pattern, which is a violent decline followed by a swift recovery, but in my opinion seems to be wishful thinking. It takes months to build a house but only a couple of hours for it to burn down. Could this a metaphor for the global economy?

Long range forecasting requires accurate and detailed information, so be wary of trusting what will be a barrage of predictions that should be taken with measured skepticism. The pundits are only guessing so it makes sense to prepare for the worst while hoping for the best. No matter how all of this ends it is going to be a turbulent and volatile ride, so fasten your seatbelt because I expect it is going to get worse before it gets better with timing and magnitude impossible to predict.
BAILOUT BILL PASSES BUT AT WHAT COSTS?
- Greg Strahan 40 Years' Experience. One Billion Dollars Completed Transactions. 250 Happy Families.
Donald Trump just signed a $2.2 trillion bailout package in an attempt to mitigate the coming recession as COVID-19 shuts down the US economy on a scale that has not been seen since the Great Depression. Treasury will essentially print money that will be added to our current $22 Trillion national debt, which is predicted to grow by $10T over the next decade plus whatever bailouts and/or fiscal spending is required to defend our nation’s economy. The US debt to GNP ratio is already approaching critical levels but this spending bill is the country’s only option unless you think 400 million guns in the hands of people living on the street with little to eat is a viable alternative. Of course, the taxpayers will be ultimately responsible for this growing liability but there just isn’t any other politically expedient solution on the table with other western world countries expected to follow suit as reported by Bloomberg News this morning.

A back of the napkin calc indicates a need of at least another $2T or possibly twice that amount depending on how long the virus runs and how much pain 52% of paycheck to paycheck Americans can endure. The current average US household income is $60,000 so with a one-time cash payment of $2400 that buys two weeks of living expenses which is far short of what will be needed to weather this cataclysmic storm. If a follow up package of equal size is required, households and businesses would then have a month of governmental support which is probably a ‘hope for the best’ scenario.

If the virus peaks in 4-6 weeks, and that is a big if, then $4T is the number but with another $2T likely. At these levels US dollar devaluations could reach epic proportions which is what I expected after the Treasury printed $4T to combat the global banking crisis but without any real lasting consequences. Over the next ten years $38 Trillion of debt ($32T + $6T) should produce two unsavory outcomes; inflation and increasing interest rates. While property markets can respond to inflation with increasing prices it’s not that simple because along with that hedge comes higher interest rates and lower valuations which I clearly remember happening during the 1980’s and is an outcome to be avoided.

During the Great Recession stock indices fell by more than 50%, and while I am not predicting losses of that magnitude Vail Valley real estate dropped 17% during Q3 2010 which was only a third of the overall capital market reset. While real estate has since fully recovered and is now setting all-time records, nothing is immune to volatility even in ‘best of the best’ safe harbors for capital. Q1 2008 was the start of a two and half year long period of illiquid before wealthy ‘on the bubble’ owners started selling. Depending on duration and the effects on employment, supply chain destruction, business credit defaults and the government’s balance sheet, the damage will only increase over time.

As an economist and real estate analyst for more than 40 years I am convinced that the longest bull market run in modern history was been driven by monetary policy which should have been inflationary but with an aftermath that yielded no real lasting effects. Perhaps another $6T can be created out of thin air but given a projected US debt load of $38T in 2030, this trajectory will start raising eyebrows around the world as we approach the 100% of GDP “critical threshold” which hypothetically results in downgraded credit and higher borrowing costs with less money available for social and infrastructure programs. It’s going to be a much different world with all of that debt floating around even if that world can find buyers for these to be issued credit risk bonds. Cap rate compression, leverage and low cost financing produced the longest running bull market in history. What do you think is going to happen as we do an about face and start going in the opposite direction?

In times of crisis bold measures are needed leaving me with no other choice but to endorse the current plan, but not without reservations that this level of monetary policy will be a game changer with scant evidence supporting much in the way of upside over the forseeable future. How America and other affected economies will come out of this is completely unknown, but one thing is certain, it’s not going to be pretty. The S&P rallied today closing at 2541 as Wall Street applauded the government’s intervention plan. The facts however lead me to believe that this week’s rebound is likely to be a bull market rally trap which means on Monday you might want to go to cash.