A good friend and mentor of mine exclaimed long ago, “I’d rather be lucky than smart any day,” and having had some of both, I adamantly agree! It’s also interesting how often one is construed to be the other when maybe it’s not. Much of the smart I possess derives from my good fortune in having been born in a country and a time when basic education was free, abundant and easily attained. I’m also fortunate to be physically and mentally able to make good use of the available resources that have gotten me to where I am. I consider myself very lucky! That’s not to diminish the fact that as a result of lifelong learning, both book and experiential, I became relatively intelligent. Enough in fact to realize that luck is a factor in much that occurs in my life, both good and bad. We’ll get back to that. I think it is a fair assumption that anyone reading this has a thirst for smarts, aka knowledge, specifically in matters of real estate. After all, knowledge is power, as they say, and whether you own real estate at this moment or not, you already know that it’s a potential path to financial and emotional security. For most people, real estate will be the largest investment they will ever make. Being savvy about the acquisition, the holding, and the eventual disposition of that real estate investment is vitally important. “The curve” has everything to do with the three elements of the real estate investment to which I just referred. Notwithstanding, what you do with your real estate while you hold it—i.e., maintaining it, improving it, making money off of it, or just enjoying it—the curve is a chart of what the investment is worth at any point in time. Real estate is cyclical.
While it is proven to be a highly dependable long-term hold, there have been, over time, periods of significant loss of value in the short-term. By 2012, Denver area real estate had dropped 25 percent in the Great Recession from its peak in 2008. This is where the lucky and the smart weigh in. Those who had just sold and didn’t simultaneously buy were very lucky, or geniuses, and I’m betting on the former. Those who held on because they managed their money well, even though their home values had fallen, were very smart! Three years later, values were back to 2008 levels and climbing fast! As smart as I might think I am, in the multiple cycles we’ve been through, I can’t say I’ve ever predicted the rise or the fall of real estate values more than two or three years ahead with any great accuracy. When the financial termites were at work on Wall Street in 2007 and 2008, most of the brightest economists in the country did not see what was coming. What came was catastrophic! And who could predict a 9-11 attack of the magnitude that occurred, or a virus out of China that would bring the whole world to its knees. Bad luck happens. Smart people, of course, prepare for bad luck. They buy insurance. They save money. They wear seatbelts in their cars and helmets on their bikes. And they own real estate long-term. Also, smart people buy low and sell high, right? We all see the wisdom in that. But who of us is really smart enough to know when the high is about to hit… or the low?! The predictions are out there, nonstop. And for every prediction I’ve seen, there has been another contradictory prediction. For my entire career, I have listened and read and watched top economists, business leaders and financial journalists prognosticating on what will happen next. Sometimes they were right, and often they weren’t.
There is one fact about real estate values that I know to be true with 100 percent certainty: If you wait to sell your home or investment property at the top of the curve, by the time you know you’re there, it will be too late and you’ll be chasing a downward market. And if you’re waiting for the bottom of the curve to purchase a home or income property, by the time you know it’s there, again, it’s also too late. To clarify these points, think about rising home values taking place right now. For those who are selling homes this spring, the results they’re getting are extraordinary. In the entire Denver metroplex, the average sale price is almost 3 percent over asking price. That has never occurred in the 38 years I’ve been selling real estate, and to my knowledge, not even before that. Sellers, and in fact everyone who owns real estate right now, are extremely lucky! First time homebuyers… not so lucky. For those, mostly young people, this is tragic. This is where many prognosticators start talking about bubbles and crashes, neither of which are supported by any hard data at this time, by the way. But at some point, prices will level off. And when there’s more than enough inventory to meet the demand, prices will relax. Could that happen in the next year? No, it can’t. But if inflation takes off, and the Fed decides to “tighten” by increasing interest rates, many prospective buyers who are already just barely able to buy the home they need will drop out, and demand will subside. And if construction materials’ supply chains return to full capacity, and other restrictive factors on new construction subside, builders might start catching up with their demand. But for 2021, and likely 2022, and very possibly much further, it’s most likely that we’ll see similar market activity as we’re seeing now, though probably dialing down a notch come fall this year. It’s a wild ride, and The “Home” Team wishes you be in your happy home when the ride stops.
