With the new Delta variant circulating throughout the country and Colorado, what will be the impact on residential and commercial real estate? Will back to the office plans be shuttered impacting real estate prices in cities? Will there be a continued flight to the suburbs? The markets along with consumers have already spoken; what are they saying?
As of this writing, The United States is averaging more than 124,000 new virus cases each day, more than double the levels of two weeks ago and the highest rate since early February, according to a New York Times database. Hospitals in hot spots around the country are approaching capacity.
The reactions to the Delta Variant will dictate the Colorado Real estate impact
While the Delta Variant continues to increase, screenings at airports are hitting record highs, Disneyworld is at capacity, any ski town in the country is overflowing with visitors and restaurants and hotels are seeing record revenues. How consumers and businesses react will be critical to gauge the impact on real estate.
I don’t foresee a return to the lockdowns of last year with the vaccinations we have now. Even if they don’t prevent 100% of the infections, they prevent a high percentage of serious illness. With the travel patterns I am observing (as many of you are), I find it highly unlikely we will see a return to the depths of Covid where schools and businesses were shut down. The general public does not have an appetite for this again.
What is the Treasury market and stock market telling us about the future of Colorado Real Estate?
Long Term Treasuries are a good indicator of where the “market” thinks we are heading. For example if there is fear in the market, there is a flight to quality assets like treasuries which in turn would drive down yields (remember they move in inverse). Currently this is not occurring in the Treasury market
- Bond prices are decreasing (no flight to safety): Last week we saw a large shift as the prices of Treasuries fell considerably. This occurred even as hospitalizations from Delta began to hit records.
- Growth will accelerate: With bond prices declining, this is an indication that the market believes that growth will continue to accelerate in the coming quarters regardless of the Delta variant
- Interest rates are increasing: With bond prices decreasing, interest rates are also increasing.
Along with Treasuries, the stock market continues to hit and/or hold near record highs. If the market thought we were in danger of large lockdowns there would be a huge sell off in many companies; this is not occurring as many companies continue to increase their revenue targets and in turn the stock prices are increasing.
What is Delta Variant Impact on Colorado commercial real estate:
On the commercial side, I see a 30–90-day delay in return to office plans as companies adjust to the variants. Many are requiring vaccines and will merely delay their reopening plans. I don’t see the Delta variant radically changing back to office plans for most companies.
For Hospitality, I have not seen much impact so far. Airlines are still packed, ski towns are overflowing with people, and Disneyworld is busting at the seams. Consumer habits have not been materially altered by the new variant.
What is the Delta Variant Impact on Colorado residential real estate
It is interesting, there will be a much larger impact on residential real estate than commercial real estate but not directly due to the variant. The stock markets and treasury markets have had zero impact from the variant with growth projected for future quarters. This in turn has led to lower bond prices and higher interest rates (see above for a further explanation). As interest rates rise, residential real estate will slow down considerably.
The other major impact from the Delta variant is that the shift to return to office has been moved back another quarter or so which will lead to a delay in the re population of many cities. It will still happen, just delayed a little.
Although the media headlines continue on the Delta variant, the market reaction is much more muted. Both long term treasuries and the stock market are anticipating continued growth through the remainder of the year. Furthermore peoples actions with travel and buying patterns are foreshadowing little impact from the Delta Variant. From the market reaction and consumer spending, the Delta Variant looks to be a bump in the road that is unlikely to derail residential or commercial real estate at this time.
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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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