Scott Bayens: Correction or crash? They typically are healthy for real estate and financial markets
November 17, 2018
For those of us who lived through the Great Recession, the word "crash" might as well be one of the oft-used four-letter variety. There's been quite a bit of chatter and speculation about this subject of late, so allow me to lay out some facts and figures and do my best to examine where we are and where we might be headed as fiscal 2018 comes to a close and 2019 looms around the corner.
After nearly a two-year tear since Donald Trump was elected, the bulls have stumbled on Wall Street recently. The DOW plunged 500 points last Thursday and 800 the day before that, which marked the blue chip's largest rout since February, effectively wiping out most of 2018's gains. A true correction is defined as a drop of more than 10 percent of market value, and that may yet happen, but so far, even with the big single day drops, we've only lost 6.6 percent according to analysts. Other indexes, such as the NASDAQ and the S&P, have slipped as well but not quite yet into territory that puts seasoned traders and investors running for the exits.
As Rob McMillan, chief investment officer at Commonwealth Financial Network put it last week, "Markets got ahead of themselves and needed to readjust but the economic fundamentals remain solid." In fact, many advisers say it's a good time to buy, especially in the financial, consumer discretionary and health care sectors. Tech is attractive now, too, with roughly a 20 percent discount built in for those who buy now. Other leading indicators are mostly positive, as well. Unemployment is the lowest it's been in decades, inflation fears remain in check and consumer confidence and spending continue to rise. However, the data also suggests the pace of those critical trend lines beginning to slow as we approach the new year.
National real estate markets also are experiencing a correction and slowdown. According to a recent CNBC article, the "anything-goes list price strategy is no longer working." That observation relates to red-hot markets such as California and Manhattan where dozens of offers would come in on new listings. Now, listing brokers say they'll only get a couple or just one. But is that a real problem or just an indicator? Keep in mind, those homes are still selling in those supercharged high-end markets. It's possible more buyers who didn't want to compete in that environment return to the market now that the pushing match is over.
In Denver, home sales fell more than 5 percent last summer. For years, activity in Denver and Boulder County has been simply insane and, while great for sellers, it effectively priced out many potential buyers. Price reductions and market corrections can actually be a positive shift by fueling more shoppers and sales. It remains to be seen if those buyers might wait to see the market level out a bit more before re-engaging, but they are certainly in the wings. According to the U.S. Census, the rate of home ownership among millennials recently hit the highest level in five years.
Regionally, a recent headline in the Glenwood Springs Post Independent reads, "Realtors foresee decline despite strong GarCo market." It reported, "The number of Garfield County single-family home listings sold in September rose 5.9 percent compared to September 2017, while statewide single-family home sales dipped 15.2 percent in the same period." The picture in Pitkin and Eagle counties was more of a mixed bag with home sales up and condo activity down. In other mountain communities, the number of homes sold is down by double digit percentages with active listings taking longer to sell than they did a year ago.
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But here again, local experts aren't in an panic nor expecting the market to fall off a cliff. Local builders, architects and mortgage brokers remain busy. The canary in the coal mine is still chirping away. According to Brent Waldon, sales manager for Aspen Snowmass Sotheby's, his firm (and mine) logged nearly $1.25 billion in sales volume so far this year. In October, we closed $23 million more than we did the same month in 2017. And in terms of the slowdown in other areas of the valley, many of my colleagues point to our cyclical market, the midterm elections, the pending holiday season, as well as the recent fluctuations with the Dow, NASDAQ and S&P.
With that said, it's fair to say we're all keeping a close eye on interest rates, which are about one point higher than they were before the 2016 presidential election. Those in the know expect the metric to continue to creep up again in 2019 but remind us, even with the possible increase, those numbers remain at historical record lows.
Here in the Roaring Fork Valley, a lack of available inventory and subsequent market stagnation are indeed a challenge. But again, as prices adjust downward, activity is poised to tick up again as demand remains strong as younger professionals as well as retirees continue to come here.
After running at breakneck speed, corrections in the real estate and financial markets are not only necessary, but healthy. My take? Steady on, remain optimistic and keep eyes out for the opportunities as they come up.
Scott Bayens is a realtor with Aspen Snowmass Sotheby's International Realty with more than a decade of experience with buyers, sellers and investors. He can be reached at email@example.com.