Now that we’ve had a sell-off on Wall Street as well as globally and Bitcoin has performed as if on a roller-coaster, some people are asking “What about real estate?” I’ll give you my answer to that question by taking a look at past corrections in the Sedona market and seeing what current conditions are likely to influence our market.
Digging through my dusty Sedona archives, which go back 30 years to 1987, I found three occasions on which the local real estate market slipped by more than ten percent in volume year over year – 1991, 1995 and 2006. The first saw a 42% drop, the second a 12% fall and the third a 42% drop; funnily enough, it was only in 2006 that property prices fell and they continued to fall for four years before stabilizing in 2010. Moreover, in 2017 we had still not regained the highs of 2005 in either volume or average prices, in fact we were still more than 20% below either of them. That doesn’t sound like an overheated market to me.
Conditions have changed dramatically also. In 2005 the lending business was out of control with companies offering to lend at 105% of appraised value and qualifying for a loan basically involved being able to fog a mirror. The Dodd Frank Act took care of such lax standards and nowadays loan qualifying and processing is a rigorous affair because lenders can be on the hook financially for the bad loans that they approve – that always focuses the mind!
Nor have values/pricing gotten out of hand. As I mentioned earlier, land in general and homes in the more expensive price ranges are still below previous highs and only modest price increases in the 1% to 3% range are projected for 2018. That means that affordability is less of an issue than before previous corrections, when prices had spiraled by ten or twenty percent. Underpinning that affordability issue, wages are rising roughly in line with inflation at about 3%, despite a tight labor market, so your average, working American will not be able to qualify for a much larger loan.
So, if the market is stable, will we have another correction? Yes, we will, but my guess is that we still have a few more years to go of a healthy, but not frothy, Sedona market. One thing that could ruin my prediction would be an event of national importance such as accelerating inflation or war or a local natural disaster – remember what happened to values years ago in Lake Havasu City when they closed the lake due to life-threatening contamination? Cross your fingers and toes, pray for more rain and all will be well!
This month’s Real Estate Review was written by Andrew Brearley……