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Housing Starts in Colorado Resort Destinations

Vacation homes are generally purchased by higher income households.  In the past year, 44 percent of all vacation home buyers earned six-figure incomes.  The purchases also had higher down payments, higher credit scores, and more collateral backing compared to other mortgages.  Despite better underwriting and essentially low subprime lending for vacation homes, vacation and resort destinations have suffered disproportionally more than the overall housing market.  Simply put, the collateral damage of the credit crunch from the subprime mess whacked the market that did not encounter subprime lending.

Home sales fell sharply in places like Steamboat Springs, Glenwood Springs, and Vail, Colorado, by 70 to 80 percent from peak 2006 levels.  The good news is that a recovery is taking place in these resort destinations in 2012.  The dollar volume of home sales activity has been running 10 to 30 percent higher this year versus last.  But even with the increases so far, the dollar volume of business still remains at less than half the peak level activity of 5 to 6 years ago.

New home construction in particular has been hard hit in the Colorado Mountain areas.  The chart below shows the year-to-date figures on housing permits.  Because most of the permits eventually translate into housing starts, the chart is a good indication of new home construction activity in several resort communities in Colorado.  Note that local peaks are always in December because it covers the full 12 month year-to-date.   Also note the painful degree of collapse in the past 3 years versus what it had been.

Looking ahead, though, the existing home sales recovery that is already taking place will likely strengthen even more in 2013.  The stock market wealth is one important driver of vacation home purchases and the Dow Jones Industrial Average or the NASDAQ index has essentially doubled from the cyclical low point in 2009.  Though getting a mortgage for a vacation home is much tougher to get (due to the collateral damage fallout from the subprime lending mess) there will be an increasing number of vacation home sales from better conditions of all-cash deals from cashing in on the good stock market recovery.  Falling existing home inventory will then mean a greater need for housing permits to be issued.

Lawrence Yun, Chief Economist

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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