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Prom Night in September?

I’m wrong often. In fact, if you asked my kids, they would say I am never right. Of course, this is coming from teenagers without fully developed frontal lobes who say and do some of the dumbest things on a semi-regular basis :-0 .
But back to me being wrong: I of course did not see this out-of-control run on real estate prices; I also have talked about mortgage interest rates moving back up – and they haven’t. Well, they have come up from their lowest points (and a ticked up again this past week), but they aren’t back up to 4% or more – at least not yet.
My job isn’t necessarily to be right. What I do with these posts is to think out loud about what I am seeing and the possible effects on housing. I am certainly not the smartest person trying to figure out what’s happening, but I am also not going to be someone cheerleading about real estate simply because that’s my profession. My goal is to do the best job I can to elicit the key facts so people can make the best decisions for themselves.
Despite an “unprecedented” real estate market that has never seen monthly sitting active inventory below monthly sales, the market here in Colorado is following its normal seasonal pattern (and seems to be true nationally as well) . Inventory, sales and prices are decreasing throughout the summer. As of 8/31/21 the median price of a home in the Front Range was $581,000, down three percent from July. Yes, prices fell from July to August. That might happen for much of the fall – or not. What’s unlikely to happen is to see prices go up over the next several months – that simply doesn’t happen often in this time of the year.
While Florida does seem to be receiving lots of attention – and new residents – the Western mountain states have are at the top of the list in terms of real estate appreciation.
What I wanted to point out is that most of Colorado have done unbelievably well in price appreciation. Now, that might not be good news to you: the increase in value is a function of how many people now live in the state, with the increased social issues, traffic, etc. For those of you that find all these people and issues troubling: one could say that you have been compensated for your troubles – if you owned real estate.
The other key aspect to note regarding our overall real estate market: rental prices are going up, especially for apartments. For multi-family, rental prices are up close to 20% this year for certain suburbs. Combining single-family and apartments, the estimate is that rental prices are up 10% for this year.
Finally, here are a few other anecdotal items on my mind that I am keeping an eye out for:
  • People trading stocks while intoxicated. “According to a new survey from consumer finance website MagnifyMoney, 32% of U.S. investors say they have made trades while drunk. Gen Z members fell into the trap the most of any generation, with 59% confessing to drunk trading, while 9% of baby boomers admitted to trading under the influence.” What else is there to say? Contrast this ultimate irresponsibility with the following story. Many years ago a cousin on the other side of my family was asked to invest in the company he helped me get hired at. Why did he not invest? His reply to me was, “I only invest in things that I absolutely know and understand.” This was from a guy who was worth mid-eight figures (and not that much older than me).
  • People who are day trading cryptocurrencies. Again, anecdotally, I have run into quite a few people who are making much, some of them say all, of their income trading crypto.
  • Finally, it’s ‘Prom Night.’ No, not that prom night. I have mentioned to quite a few people that this last year feels like a combination of 1999 and 2006 all over again, in terms of the giddiness and flushness with cash that leads to lots of spending. People seem to be spending money like it’s going out of style. Listening to Robert Kiyosaki on a podcast recently, he did a much better job of summarizing this phenomenon. Essentially he was saying (in jest) that ‘it’s time to sell’. “At the top of a market, people are the happiest.” He continued with what he called the ‘Prom Night’ indicator, “When markets are really high, everybody’s happy and they are spending money,” and that is most often at the top of a market. He said what comes after is the crash, and there is nothing bad or wrong about a crash, because “a crash cleans house.”
Now I have no idea what’s ahead. I tend to gravitate towards Kiyosaki’s comments. Many people are pronouncing that real estate can’t crash – there’s too much demand and way too little supply. They say, “I don’t see how this could end any time soon.” Or, “There’s no way real estate can crash.” Okay, fine.
“Lots of things can go on for a long time that don’t make sense. Eventually, they come to an end.”
The drum I will continue to beat: Real estate is a fabulously unique asset. There are also very real reasons to transact in real estate at any time. Having said that, the theme I have not strayed from: I would rather be ready (and my clients too) for things to go either way, than absolutely certain they could only go one way.
“It’s not what we don’t know that gets us into trouble. It’s what we know for sure that just ain’t so.”
All the best,

Steven Ross

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