Another January morning. Clear pale blue skies, soft low light, index futures off triple digits. It’s been a trend this week, the skies pale blue and the markets in blood red. It’s alarming, sure. But what does it all mean for the Lake Geneva real estate market? Will this sell-off escalate to such a level that the vacation home market will grind to a halt? Or will this sell-off be short lived, another 10% correction that is quickly and efficiently erased over the coming weeks and months? The reason I type in the mornings is because I don’t know the answer to those questions, but I do know that the red start to 2016 will impact the Lake Geneva market.
When markets are oft green, it’s a good thing for our market. This isn’t a surprise to anyone. To understand the stock market and its impact on our housing market, you must understand that people don’t usually buy vacation homes when they feel broke or uneasy. They buy vacation homes when they feel confident, and fiscal confidence is no higher than during a period of inflated paper wealth. Buyers don’t buy just because they have enough liquid wealth to pull off the weekend-changing vacation home purchase. They buy when they feel better about their finances, not just when their liquid finances are better. It’s emotional, this game, and paper wealth inspires confidence in a way that a 5% pay raise cannot.
This is why there’s a basic chart on my homepage that shows you the price per foot for lakefront homes, and the early January S&P print for that year. When our housing market is up, it’s predictably up on the heels of an increased index. This is just the way it is, and the historical perspective proves the point. When buyers feel good about their position in life, they buy. When they feel uncertain, they stand pat. This isn’t always a smart idea, as the only economy that really matters is your personal economy. In 2011, when the housing market was feeling an intense amount of pain and uncertainly was everywhere, I sold a lot of lakefront homes. Why? Well, silly, because the buyers felt their own personal economy justified such a life-improving purchase. That’s why.
The benefit of an early red start to this year is a benefit that buyers will feel. Any seller paying attention should see these worrisome signs and adjust their bull thinking. If an autumn 2015 seller thought his $2.5MM house was worth $3MM, perhaps a few days of bloody red ink will make her think it’s really only worth $2.75MM. It’s still high, of course, but it’s not as high. January is the month where Lake Geneva adds much of its spring inventory, which makes prices this month exceptionally important. If all the numbers come out too high, that’ll set the tone for a slow spring season, excepting the irrational buyers that might work with other brokers who cheerlead them into submission. If the listing numbers come out a bit more subdued as a result of this rough start to the year, our spring housing market will be the beneficiary.
Mortgage applications for the last two weeks of December fell dramatically. Housing bears will look at this and say “see, I told you, the housing market is weak and couldn’t even withstand a teensy, tiny rate increase”. This is absurd. In 2014, I was blessed with $37MM in sales. What a tremendous year that was. In 2015, I was blessed with only $19MM in sales. Does this mean my business is crumbling because I sold only a little more than half of my previous year total? Of course not, it just means in 2014 I put lots of buyers in lakefront homes, and I entered 2015 with a bunch of happy homeowners who were no longer hunger house hunters. The last two weeks of December was slow for mortgage brokers because the first two weeks (ahead of the rate increase) were so busy. When a car dealer puts a sale on for the last week of June, do you think the first week of July is particularly busy?