Sensing a Peak: How Long Will the Boom Time Last?
Home prices are climbing, the stock market is surging, capital is flowing and it certainly feels like the next Roaring ‘20s has arrived.
As we get back to the office, begin to book travel again, and go back out to shop, dine and socialize, we at DWC share in the strong enthusiasm for the post-COVID recovery. It certainly is shaping up to be a positive and prosperous time for real estate investors, owners, and other stakeholders in the markets in which DWC operates — a far cry from the distress and uncertainty that marked 2020.
“My experience tells me that we have pressed the reset button,” says DWC Chairman and CEO Douglas Wilson. “We have exuberance now working its way into the markets. That is likely going to continue for some time, but we do have clouds on the horizon due to cost increases, inflationary pressure, interest rates and the like.”
DWC’s 40 years of experience through economic cycles tells us for every boom, we will eventually see a bust. As we approach the next 90 days, we are carefully watching several indicators in our industry that could signal to us the extent of the staying power of this strong, enjoyable upswing:
Construction costs: The cost of lumber — up a staggering 300% year-over-year as of April — as well as other inputs such as steel, aluminum and likewise construction labor costs, are all continuing to trend up due to limited and disrupted supply factors. Forecasts indicate these costs will plateau later this year, but will not return to pre-pandemic levels.
Interest rates: Historically low rates will tick back up, leading in turn to higher borrowing costs, less capital availability, and more potential problems for new development and other projects.
Prices and inflation: Many markets show an unsustainable frothiness, from surging home prices and record stock market gains to energy and car rental prices. Prices in some areas are highly inflated based on consumer confidence and a general sense of optimism.
Unprecedented activity in these areas gives us some pause as we look to the next 90 days.
“We are all thrilled and we share everybody’s enthusiasm,” Wilson says. “But every now and then a reality check is a good thing.”
DWC has built a platform based on our ability to be agile and adapt to markets regardless of the economic cycle. Whether in our advisory services, in working with families and other owners, or in our development work, we take the long-term view with respect to asset valuation and general quality.
If you, your colleagues or associates are seeking advisory or development services, or if you have other specialized real estate needs, please contact us to learn more about the DWC team and how we may assist.