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?

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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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