NEWS

Rough 2009 for Vail Valley economy and a bumpy road ahead

Date: May. 12th, 2010
Contact: Don Cohen

The Economic Council's 2009 fourth quarter report reflects a difficult year for the economy in Eagle County. As a year-end report, we see some of the hard data behind the severe contraction in the real estate and construction sectors.

With aggressive pricing, incentives and reasonable snow conditions, the resort economy appeared to have stabilized in 2009.

Perhaps the biggest story in the Q4 report is the significant decline in real estate transactions and property values. Home values dropped significantly from the prior year (2008).

In Sunbelt areas, there was a great deal of overbuilding and excess inventory that led to value decreases. But the Eagle County story has simply been a lack of demand for property — not overbuilding.

The intense demand for residential and commercial property in the county from 2002 to 2007 pushed per-square-foot prices higher than even the most seasoned of developers could have imagined. This pressure created a serious housing-affordability gap and sliced into margins of many commercial businesses that faced rents far in excess of their urban counterparts on the Front Range.

The decline of housing prices may bring back some rationality into the market for vacation homes. However, as our job base stabilizes, the median price for single-family homes will still keep property prices for single-family homes stubbornly out of reach for many local families, even for families with strong $100,000-plus dual incomes.

One leading indicator we look at is the number and value of building permits. The decline over 2007 to 2009 was dramatic, and this points to a long recovery that may take the rest of the decade to return to the values of 2005.

Local housing and population growth are driven by only one factor: jobs. The high growth in jobs envisioned in the mid-2000s was based on continuing development in all parts of the valley, which essentially has stopped. Two of the most visible implosions were the Ginn Co.'s Battle Mountain project and the Eagle River Station retail center. Both would have been significant job generators.

With the completion of three large lodging-housing projects in Vail (Solaris, Four Seasons, Ritz-Carlton), we do not see any developers moving forward with significant plans until 2013 to 2015, and these are only starting dates.

Any kind of housing or commercial product won't likely come to market any earlier than 2017.

With a drop in sales tax collections and an upcoming drop in property taxes, our towns and county will face difficult choices in determining which services to maintain.

Fortunately, all our local governments heeded that wake-up call and have taken prudent steps to reduce expenses. Nonetheless, as the county's economy slowly recovers, our governments will come under pressure to ramp up services (building inspectors, public works maintenance, etc.) to meet future demands with fewer staff and dollars to do so.

Despite improving headlines, the contraction of the credit market still resembles a clenched fist. Mortgages for primary and secondary homes have high downpayment requirements, and loan files are being rejected for the slightest of reasons that, a decade ago, would have been reasonable and acceptable.

Commercial lenders are seeing small sparks of interest from potential borrowers who see an opportunity to expand their business, but their credit worthiness is marginal, usually as a result from a drop in value of their business or personal real estate holdings often used as collateral.

It has been nearly 30 years since the Vail Valley and Eagle County felt the crushing effects of a deep recession. In that time, most residents and businesses became accustomed to a steady upward trend of population growth, new home construction and new retail options.

While it's difficult to predict what the “new normal” may be, some clarity may be emerging with slower population growth, more remodels than new home construction and much less risk taking by developers on speculative projects.

Time will tell.

Don Cohen is the executive director of the Economic Council of Eagle County. The council's fourth quarter 2009 report is available at www.economiccouncil.biz.