I was recently at a major grocery store in Steamboat and toilet paper and water were both sold out; this is a bit perplexing as if there is no water, how are you going to flush the toilet? Did you know that Colorado has a metric to predict the next recession that is unrivaled by any other state in the country? What is the “secret”? How can you use this to predict a downturn? What is the metric currently telling us? I can guarantee it is not telling us to stockpile water and toilet paper now 😊
What is the metric to watch for the next recession?
I’ve written extensively about two metrics to watch (yield curve inversion and consumer confidence) but there is a third “softer” metric that is equally important (if not more important). The absorption of high-end ski real estate in places like Aspen, Vail, Telluride, and Steamboat. These are ultra-luxury markets with prices going to over 50 million dollars. At the high end of each of these markets this is where the top 1% of 1% are buying.
Watching these high-end markets will give us a glimpse into the spending of the ultra-high net worth. We saw in the last recession that the ultra-wealthy pulled back 6 months or so before the average consumer. The folks buying in these price points run various companies that have access to data that we don’t and can react much quicker. For example, someone buying a 10 million home in Aspen could run a consumer products company. From their sales predictions they could see a softening in demand much quicker than the data is released to the public and might pull back from their purchase in Aspen due to worrying data. High end purchases will give us insight into the direction the economy will head.
What is the metric telling us now?
Don’t worry there will be no nationwide shortage of toilet paper and water! Currently there isn’t a strong indicator one way or another in ultra-high-end markets. I am seeing international buying slow with all the quarantines and travel restrictions, but it is too early to tell just yet the real impact and how long it will last.
Furthermore, this is a slow time for high end sales in ski towns so any sales data is a bit skewed due to the limited quantity. The prime season starts in June so we will see data in the next 90 days or so. I suspect that if the market does not stabilize quickly, we will see a sharp pullback in new purchases in these markets at the high end. Note, lower priced properties in each of these markets will continue to fly off the shelf as interest rates drop and supply is nonexistent. This is not the number to focus on; you will need to focus on sales above around 4 million depending on the market to get a sense of what is happening at the upper price points
Where do we go from here?
There is considerable uncertainty as to how bad coronavirus will impact consumer spending and ultimately businesses. The markets are running high on fear with huge flights to safe assets like treasuries. The million-dollar question that we are unable to answer is how long before the markets get direction on the true economic impacts.
If the markets and consumers stabilize in the next 30 to 60 days, the long-term impacts on the economy should wash out over the next year. The key indicator to watch is what happens in June to high end sales in Colorado ski town markets like Vail, Telluride, Aspen, and Steamboat. How ultra-high end consumers react will give us an accurate prediction of the remainder of the year and confirm if the virus is a blip or a long term economic blow.
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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 Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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