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Bankers’ Hours column: Don’t count on housing bubble bursting

The housing bubble is about to burst, according to many experts. Higher interest rates, maybe significantly higher, and waning demand will trip residential real estate markets, and send them tumbling. Flip the coin, and when it comes up tails, it’ll read, “Not so. Supply is very short with no appreciable decrease in demand.”

This column is about banking, not real estate, and we do our best to stay on topic, as my readers will tell you (both of them). Of course, banking fuels the movement of real estate assets, whether the market is hot or cold.

Yes, maybe lower-tier market segments may be due for an adjustment; maybe a large one. I’m a card-carrying geezer, and this ain’t my first rodeo — or 10th, for than matter. And based on experience, some of it bitter (the best kind for education), I could make a good case for a market downturn in the lower price echelons.



But at the place in space where only the 1% can function without supplemental oxygen, I’m not so sure. This is the economic tier where multi-million dollar earnest money deposits are not uncommon, and sales prices often run in the middle eight figures. Sure, many of these deals are all cash transactions, but definitely not all; the 1% have earned their admission to the club by being adept at using other people’s money, which is where banking comes in.

Let’s take a look at the supply/demand equation:



Supply has always been thin, and now it’s quickly disappearing as pressure is exerted from two sides: building restrictions and diminished, often nonexistent, buildable land.

In many of the most desirable locations — say, Maui or Aspen, for instance — there’s only so much beach front, or private land. The premier western resorts are generally limited to creek bottoms and valley floors, surrounded by by many square miles of federal land.

And then, even when land might be available for a building site, growth limitation and stringent construction standards in effect from the Hamptons to Hawaii have sharply curtailed new construction. This trend started in the late 1960s and hasn’t abated one bit. Aspen was a pioneer in this movement; in 1972 Dwight Shellman and Joe Edwards, two young attorneys, were elected to the Pitkin County Board of Commissioners. They, along with fellow Commissioner Michael Kinsley, pushed for growth control measures that were deemed draconian at the time but have since been the template for resort communities both old and new.

It’s certain that the housing supply won’t increase for the Millionaires Squared Club, and the club members aren’t going to stop buying, or trying to. Here’s why:

With the start of the pandemic two years ago and remote work and learning, many people worldwide realized that there may be options other than commuting and working in offices. Some well-off folks could turn that realization into reality, and the 1% could do so easily. Then other developments began impinging on the psyche of the robustly affluent population. Blatant, often violent, crime has blossomed in major cities, from mass shoplifting raids in San Francisco, to brutal and senseless carjackings in New Orleans. It’s the lower economic tiers that are most impacted by these crimes, but it’s pretty easy to believe that you’re next, especially if you’ve got a lot of money.

Anecdotes about high-end resort housing abound: A potential buyer will offer $100,000 above the listing price and get outbid by maybe three contracts at two, three and four hundred thou above the offering number. And one comment I heard the other day: “Six million is the housing entry level price in Aspen.”

And, finally, there’s the realization that nuclear war is actually a possibility. It has been since August 1945, but we learned to live with it, and most of us put it out of our minds. Now, we’ve been reminded that nations are often run by idiots, and it just takes one with an itchy finger and a red button to turn much of our civilization to toast. Nothing new about this, either, but if you’ve got the cash, it’s easy to start looking at, say, Vail, which is a lot less likely to be visited by a Tu-22M bomber than Manhattan.

Will the super-rich run out of money? Almost certainly not. The 1% do well all of the time, and even better when recessions hit, or wars, or plagues, thus demonstrating the veracity of the old saw, “The bad breaks are good breaks for some.”

And, since this is a column on banking, there will be a plethora of opportunities for lending to some very, very good customers.

Pat Dalrymple is a western Colorado native and has spent more than 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His email is pdalrymple59@gmail.com.


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