Recession-Proof Real Estate
Glen Weinberg //February 12, 2019//
Recession-Proof Real Estate
Glen Weinberg //February 12, 2019//
I think the current real estate expansion in Colorado is getting poised for a correction and/or change. Real estate, like a hot air balloon, can’t go up forever—at some point, it needs a break to refuel. Colorado’s real estate boom is starting to get tired, and we’re already seeing a substantial slowdown in sales volume in Denver and the Front Range, indicating that change is lurking just around the corner.
What happens when the markets fall?
As a lender during the last recession, I learned some important lessons about what happens when the markets tank. We got to see how each loan performed under the stress of the financial meltdown. When I analyzed which transactions we lost on and which ones weathered the storm, there were three clear trends that predicted losses in both commercial and residential areas:
Based on the information, above what areas of the state fit this profile?
Along the Front Range:
Boulder: I’m referring to the actual city of Boulder. Although Boulder is expensive, the area has strong fundamentals that will stabilize the market in a downturn. It has a highly educated workforce and companies that crave being located in that area, such as Google. This combination, along with lack of supply, will keep Boulder more stable during the next recession.
Denver: Overall, Denver County should fare well. When looking in Denver, narrow down the particular neighborhood’s stability by using the four criteria above. Denver, like Boulder, has a dearth of new properties which will stabilize prices, too.
Resort Markets
Most ski areas in Colorado are “land constrained,” which leads to a lack of new supply. Building costs in the mountains are very high, which further limits new construction. There are two ski markets that jump to the top of my list when looking at areas that will best weather the next recession.
Steamboat: Steamboat, like other ski areas, is supply-constrained, and with the recent purchase by Alterra (Ikon pass), demand has increased substantially. Steamboat is still a relative value compared with other markets like Vail or Aspen, and considerably more land constrained than Summit County (Breckenridge, Frisco, Silverthorne and Dillon).
Aspen: Although Aspen is the priciest market on my list, it is still a very good area to purchase in on the low side of the market (under $2 million). Aspen has zero supply and continued demand due to its exclusivity.
If the recent changes in the stock market are any indication of what is to come in real estate, hang on to your saddle! Like any other industry, real estate goes in cycles. We’re currently at a high point in the market but the waters are becoming choppy. Using the four tips above and focusing on solid long-term real estate markets, you’ll enable your real estate portfolio to weather the next storm.