How Will a Potential 2019 Real Estate Recession Affect Specialty A/V?

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How Will a Potential 2019 Real Estate Recession Affect Specialty A/V?


Those of us who've owned homes over the past decade have little to complain about in terms of our overall investments. Since the "Great Recession of 2009," the biggest economic correction since 1929 in the United States, home prices have rebounded and grown to record levels not just on the coasts but even in some of the most hard-hit regions from 10 years ago.

LA-HouseForsale.jpgPredictably, things are starting to show signs of cooling off in certain key real estate markets around the country. The Los Angeles Times reports a seven-percent cool-off in Southern California real estate year to date from 2017 to 2018. Clear across the country, the New York Times reports that seemingly "recession proof" Manhattan real estate in 2018 has shifted from a strong seller's market to very much of a buyer's market. Comparatively, perhaps the hardest hit city in America in the last correction, Las Vegas, is reporting a boom in real estate as of the summer of 2018, according to Forbes.

There are a lot of elements factoring into a national cool-down in the real estate market. Interest rates over much of the past decade have stayed at near all-time lows but are now creeping up. While the Fed doesn't directly affect mortgage rates, it does have a tangential effect and the Fed is hiking rates, albeit with plenty of foreshadowing in the media. Nevertheless, a new home buyer has to spend more money with the bank in interest to buy a house today than six months ago.

Another factor is the "Trump tax cuts," which are a huge tax break for big corporations, but it means that home buyers in the slightly higher than average markets no longer receive mortgage interest deductions above $750,000. That is yet another incentive not to buy up in some markets and/or downward pressure on home prices in others.

Perhaps the hike in the ATM (alternative minimum tax) limit helps some AV lovers in the upper middle class to higher level tax brackets, but other write-offs being removed--such as "entertainment" or "alimony"--is causing some people to rethink their overall financial strategies. Many people have yet to see how the new tax laws will affect them, but that is coming soon to a CPA near you this spring.

It is only normal for us to see a correction in the U.S. real estate market, as no market segment goes up 10 to 20 percent per year every year in perpetuity. Eventually, prices flatten or go through a correction. If a correction is coming in 2019, how will that affect the specialty AV business? The Great Recession of 2009 was not good for the AV business on many levels. The boom times Custom Installation Era from the 2000s turned to bust. National AV chains like Circuit City, Tweeter, and Ultimate Electronics went bye-bye. Hundreds of Mom & Pop brick-and-mortar stores also closed their doors, as the overhead was too high to stay viable, especially in bigger markets. Arguably, the hardest hit segment of the market was the small custom installers who came over to specialty custom AV installation from places like the low voltage AC or alarm installation. Tons of those guys got flushed out of the market in the last correction.

Click over to Page Two for thoughts on the differences between 2008's market and today's...

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Corrections and/or recessions are a normal part of the economy. What should retailers do to prepare? Most importantly, they should be focused on providing an excellent experience to the customer. Online retailers, warehouse stores, and big-box retailers can't compete with a top-level audiophile or home theater demonstration. Focus on value, too. There are so many good brands, brands that many retailers couldn't always open in the past, that are hungry to do business today more so than ever. They pack high performance, high profit margins, good supporting marketing, and more. That's what you want to be selling. Integrating today's Internet of Things (IoT) products like a Ring Doorbell, an ecobee thermostat, security cameras, smart irrigation controls, and more make for a more whole-home approach to selling AV that is appealing to a new generation of buyers at prices today that are so low compared to five years ago that it's seemingly impossible. There are other tricky products that consumers love, too, like invisible speakers, in-wall subwoofers, huge inky-black OLED UHD TVs, super-slick smart remote controls, and so much more--none of which have to totally break the bank like a $100,000 100-inch plasma from 2007, or some likely-out-of-business-brand 1080p projector costing upwards $25,000. Things are thankfully different today. Much different.

Manhattan-TV.jpgConsumers have a lot to be excited about going into 2019, too, mainly in the performance-versus-value ratio, no matter what the real estate market might or might not do. Today's top performing AV gear simply costs less than it did five years ago. For example: $2,000 speakers today challenge speakers costing double that only a few years ago. Finishes are better. Everything is better.

Room correction in AV receivers and today's best AV preamps has taken leaps forward, taking what used to be yucky sounding rooms and making them sound pretty damn good. Subwoofers have come a long way too in the modern era. Better designs. Better amps. Better DSP. Smaller... All of which helps you get more and better bass into your life, easier and more cost effectively.

Today's 4K UHD TVs are just insane in terms of value and performance as compared with just a few years ago. I spent $10,000 on a Samsung 4K set (without HDR) about five years ago, and I still love it to this day, but the same set with HDR sells for about $2,600 today. That's simply amazing.

If you can spend up to that time-tested, magic number of around $4,000 for a top-level UHD TV, you can get either crazy-bright quantum dot sets from Samsung or you can go for the super-inky blacks from Sony's Master Series or LG's OLED offerings. These sets, for the first time ever, can actually provide "absolute black" levels that video calibrators have been seeking forever and/or brightness levels that you might even need to tone down a bit. Oh, and today's TVs are starting to come with pre-calibrated settings like "Cinema Mode" or "Technicolor Mode" that allow you with two or three simple presses of a buttons to snap your cheap, awesome, new UHD TV into a fully SMPTE calibrated setting without the fuss of hiring a calibrator to get that Nth level of performance. Hell, the lesser prices LED sets measure within a 10 percent margin of the top-of-the-line sets and come at a third of the retail price for those looking to value engineer even deeper.

Although it was always a bummer, my Grandma Adele used to say, "all good things must come to an end," and this last real estate boom is seemingly doing just that. Perhaps home prices will stabilize in 2019 or perhaps the leader of the free world will find a way to slap 35 percent tariffs on finished UHD TVs, AV electronics, smart phones, and IoT devices? None of us can really control those factors. The good news is that unlike the last time real estate crashed and took the specialty AV space with it, there are strong reasons to think that may not happen this time. High performance audio, video, and automation keep taking huge strides forward without the commensurate price jumps that you might expect. Simply put, no matter what the housing market does, it just costs less to make your home fully dialed into the coolest AV technology. And that is a very good thing.

How is real estate in your market now? How do you plan to upgrade your system or house in 2019? Share with us in the comment section below.


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