As I am writing this blog, actually rewriting my blog this AM, after the upset. I wanted to highlight 3 big impacts to Colorado’s economy and the impact on Real Estate. There are three main impact areas for CO: 1) what does the market uncertainty do? 2) how will real estate prices (residential and commercial) in resort and metro markets react 3) what does this mean for coal/natural resource dependent communities. The Trump presidency will be far reaching for all Colorado residents
- Market Uncertainty: International markets are in a bit of turmoil due to the uncertainty of a Trump presidency. As mentioned in my prior article (Aspen tanks what does this mean for other markets), this uncertainty is real and will not doubt impact Colorado. For example, a huge portion of Colorado’s economy is tourism, much of that international tourism. International tourists typically spend more time on a vacation in Colorado and on average spend more money. For example someone from the front range could do a trip to Vail, drive in their Subaru loaded with their skis and everything they need from food to drinks, etc… On the other hand, an international traveler will likely need to rent everything (not cost effective to lug everything across the world), stay longer, eat out more, and ultimately spend considerably more. This international traveler is highly coveted by resorts and with strong international market uncertainties will no doubt decline.
- Real estate prices: On the Residential side: there are a few outcomes/issues to consider. I am going to look at three impacts including the impacts to high end markets, middle class markets, and also the changing impact of marijuana:
- High End Markets: The high end markets throughout the state have tapered off substantially with Aspen, Telluride, Vail, etc.. all down in volume. The largest driver of this decline is market uncertainty both domestically and internationally. The buyers of second and third homes are pulling back on large discretionary purchases substantially. A Trump win threw most markets into turmoil further increasing the uncertainty for many affluent buyers. I predict a tough rest of the year for resort markets
- Middle class Markets: This is going to be interesting to see how it plays out. Currently in Denver there is a huge imbalance of demand vs supply basically driving the market. Will this imbalance continue? There is no indication the net migration will slow and building costs will continue to increase. On the flip side if market sentiment changes substantially buyers might pull back from making large purchases like housing.
- Marijuana impact: I saw an interesting article on Denver Channel 7 that marijuana legalization in other states could impact Colorado residential prices. Last night 3 new states legalized recreational marijuana and a handful more legalized medical (Washington Post article) How much of Colorado’s rapid appreciation in real estate prices is due to marijuana? With more states legalizing, will this impact real estate prices? This is an interesting theory that I’m not sure on the impact. Personally I think the impact on the residential side will be non existent. On the commercial side, however, the impact could be severe (I’ll do a separate article on this topic)
- Coal: Although many are cheering in heavy coal communities throughout Colorado, the euphoria will be short lived. Regardless of what either candidate said, the basic economics of cheap oil and natural gas led to the large decline in coal production. Coal was “dead” due to cost competitiveness. I doubt even with a Trump presidency this trend will be reduced since large plants are constructed based on 20+ year horizons and the future regulatory impact is uncertainThis will be especially impactful to small communities on the Western Slope, think Craig, Delta, Montrose, etc… These communities are dependent on good paying jobs supporting the industry that will be gone. Here is a recent article about coal jobs being lost in Craig. Regardless of which side of the fence you sit on, the state as a whole will be impacted by the loss of jobs in the areas. For example, how will the hospitals or schools stay afloat with a net migration of people out of the area and a lower tax base? These communities will need substantial support from both the state and local government to stay above water.
The three areas above will be interesting to see how they unfold in the first 100 days. With considerable market uncertainty it is going to be a while before we get clear direction on a number of these areas.
Resources:
- Will marijuana legalization in other states impact residential real estate prices in Colorado: The Denver Channel : http://www.thedenverchannel.com/news/local-news/five-states-consider-legalizing-recreational-marijuana-and-how-it-could-impact-colorado-home-prices
- Colorado will have two fewer coal plants: Denver Post: http://www.denverpost.com/2016/09/01/colorado-will-have-two-fewer-coal-power-plants/
- Aspen tanks; what does this mean for you: Fairview lending: https://www.fairviewlending.com/blog/aspen-co-real-estate-nose-dive-what-does-this-mean-for-you/
- More states legalize Pot: Washington Post: https://www.washingtonpost.com/news/wonk/wp/2016/11/08/medical-marijuana-sails-to-victory-in-florida/
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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