The Aftermath of 9/11....Still

By
Real Estate Agent with The Devonshire Company

Before I start, I would like to take a moment to reflect and remember those affected by the tragedy of 9/11.



The impact of September 11th has reached far beyond the families who lost loved ones that day. It has affected every part of our economy. At the very least, it has affected both commercial and residential real estate in ways that we continue to see today.

Before 9/11 the U.S. enjoyed a sense of security and a booming economy. Thoughts of terrorism were limited to the fact that it only happened overseas so we had nothing to worry about. Well, as we all know, everything changed for us on that fateful day.

Let's take the commercial side of the real estate industry. Greater security issues have led to higher occupancy costs, more costly and complex construction procedures, higher insurance prices and the continual tightening of financing guidelines and restrictions.

I read an article by Jack Lyne with Site Selection describing how even the evacuation of high rises has changed in the post-9/11 era.

Before the attacks, only the floors that were affected or were directly underneath or above those affected were required to evacuate. Now, entire buildings are required to evacuate presenting a major problem with high rise structures and their limits. Since builders now have to take away usable office space to widen stairwells, the cost-effectiveness of the structures comes into question.

Construction of these structures now includes features such as explosion-proof facades and greater fire protection which help to increase safety. It also increases costs.

Insurance is harder to come by for these buildings which has the trickle-down effect of making it harder to obtain financing.

On the residential side of the market, the effects are more difficult to pinpoint. I did find an article by Brad Gustafson that seemed to do a great job of explaining the highs and lows we've seen in the market, since 9/11.

It uses the city of Las Vegas as an example. This seems to be a great choice since Las Vegas saw a surge in prices a few years ago and is now feeling the pinch since the bubble burst. Most real estate markets, including the Denver real estate market, took a hit in a similar way, just not as dramatically as Las Vegas.

The article alludes to the fact that, immediately following the attacks on 9/11, the applications for building permits drastically dropped amid concerns that the economy would tumble. After about 3 months, builders realized that the economy would hold out so the permit applications returned to normal.

Because of the lapse in building permits following 9/11, Las Vegas saw a large shortage of new homes around 2003 (once builders apply for a permit, it takes about 2 years to get approved, grade the land, bring in materials, etc., hence the shortage in supply in 2003).
This brings into effect the basic principles of economics-supply and demand. As supply goes down, demand rises and so do the prices. The opposite is true when supply goes up.
This is precisely what happened in the U.S. real estate market post 9/11.

Once home owners realized that prices were skyrocketing in Las Vegas, they wanted a piece of the action and put their homes on the market to make up for the lack in new home inventory. After enough people did this and the new home inventory was back to normal, we saw prices drop substantially because there was a large supply of homes for sale.

Then came the lending industry meltdown.

Now we're seeing individual sellers (who refuse to drop the asking price in accordance with the market) competing with bank-owned properties (which are the only properties selling because banks are competitive in the market). As would be expected in this situation, the bank-owned properties are the only ones selling.

The Denver real estate market has seen the same trends, just not to the same effect. We didn't have the spike in prices in '03 and ‘04 like other cities around the country (we've all heard the horror stories of LA, Naples, Phoenix, Vegas, etc.) so we haven't had the same fall out. And, since the Denver real estate market didn't hit the same bubble, we're one of the cities expected to recover faster than most.

And that goes back to my original point. The effects of 9/11 are long-standing and are felt by all Americans, not just those directly involved.

At least at this point there seems to be a light at the end of the tunnel for our recovery

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