....I do think we as a population are being totally manipulated by Obama and his merry band of idiots.
I also think we as a population better be figuring it out PDQ...before it's too late.....
[/quote]
Good Morning,
For some reason last night my mind kept drifting back to your situation as a real estate agent. It finally hit me how you used the word manipulated and just how accurate that really is; particularly as it applies to your industry.
At one time in my life I wrote a textbook chapter for sales people called "Business Economics for the Professional Salesman." Many of my clients sold true commdodities, stone, plastic for molding, lumber. In the chapter I really taught them the fundamental economic law of supply and demand and how it always comes into play in the marketplace, despite attempts by the government and others to manipulate it.
A quick analogy. OPEC really is a group of oil producing countries that tries to limit supply of oil to keep the price up so they can maximize their profits. If our idiots in Washington allowed us to drill in the north slope of Alaska and offshore in the Gulf of Mexico, that would increase the world supply of oil and OPEC would be rendered impotent because they no longer could control supply and our pump prices would drop considerable. Now the OPEC people are not stupid. They know when the price of gas gets too high our public starts raising hell to start drilling......they will immediately increase the supply.....price comes down a tad....and the political pressure on Washington stops and they do nothing about domestic drilling.
When you think about it, what really caused the housing boom to begin with? It was really caused by the do-gooder libs, with great assist from ACORN and the Clinton administration, demanding that banks lend money for homes to people who cannot afford them. They set quotas for minority lending, ACORN demonstrated in the bank lobbies to drive the banks other customers away if they did not comply. There was a bank in rural CO that protested, there were no minorities in the town they served so they could not meet their quotas. They were politely told by the government that was their problem, go open a branch up in the inner city and start lending to minorities. BOTTOM LINE....the government with their regulations and easy money from Fannie Mae and Freddie Mac, created a HUGE artficial demand for housing. When demand goes up, and supply is low, the prices rise until the supply can equalize out with the current demand.
In 2004 we built a house in Lakeland, FL in a new subdivision. The house next door was completed and our neighbors were standing in our driveway talking to us the day before their walk through and closing was to take place. A car was driving up and down the street (a short cul-de-sac) and stopped by us and the window came down. The driver started a conversation with my neighbor and promptly offered them $100,000 more for their house than they paid for it if they would not close and let them buy it instead. Prices rose rapidly, which in turn invited speculators into the market, which in turn created more demand, which made prices raise even more.
When the banks complained to ACORN that they could not continue to lend this money to folks who can't pay it back, ACORN went to Clintona and talked him into having Fannie Mae and Freddie Mac buy those loans from the bank so the process could continue. In the last couple years of the Bush administration an investigation was launched into Fannie Mae and Freddie Mac and the investigator reported to Congress that there were several irregularities and they needed to be regulated just like any other bank in America. The regulator was basically shot down by Barney Frank, Chris Dodd, Hillary, Pelosi and others and nothing was done. Less than two years later the house of cards collapsed.
From a political standpoint, the entire mess was caused by the damn libs and somehow, with the assistance of the mainstream media, it gets blamed on Bush and BO, Barney Frank and his merry band of idiots ride in on their white horse to fix things.......
Back to your perspective. You talked about the comps in pricing. It has to be difficult as heck for you because indeed homes will be appraised and sell for much less than it would cost to rebuild them. Make no mistake, several folks who have insured their home at replacement cost are going to figure that out too and there will be lots of unusual fires taking place by folks who want out of their house and cannot sell them. In effect, because of the idiots in Washington they have totally flipped the supply/demand curve to the point that we have a HUGE ARTIFICAL SUPPLY of homes and we, as a society will not return to what a realtor would call a normal market until two things happen.
First, the new construction will have to stop, which for the most part it has, so the current inventory of homes, etc wil have to be brought back down to a normal level. Second, the banks have stopped lending to everyone, whether they have good or bad credit. My original thread pointed that out. I have, or had, several 5-6% CD's and the bank, with their freshly printed TARP money would rather retire their debt by calling in those CD's, instead of lending that money to folks who want to buy a home etc. While I do not like it, if they can only lend money at 5% on a mortgage, that involves risk, why wouldn't they pay down their debts at 5-6% because that is guaranteed..
As damn ugly as this sounds, (having held real estate licenses in two states many years ago) my suggestion would be to educate every seller you have on just exactly what is going on in the market like you did in your response to my post. Real estate is a commoditity just like gold, wheat, stone, etc. Two years ago gold may have sold for $2,000/oz. but if today the market is $1,000/oz. that is the price and if you want to sell yours that is the best you are going to get.
I mentioned earlier that I am a member of a group called "The Sovereign Society" and we get a newsletter from them every day. I just went back and found something I saw earlier in the week about this subject which likely applies to you and your situation. I think the author is right on target. I will post it at the end of this response.
Hang in there! I think that this likely is going to be a long and painful trough for those selling real estate but the supply/demand curve will eventually even out...it always does. Those who understand the market and work their tails off will still survive. Those who are newcomers to the industry, who thought they were super sales people during the boom are now going to learn what selling real estate is all about. As you have probably observed, I told young folks at the time that this is not a normal market, do not go buy the new BMW, Cadillac, whatever and finance it because the market will turn on you, it will not be this way forever. Good news is the law of supply and demand works for real estate agents also. Those wanting easy money will drop out so the rest can survive, normally the good ones do.
regards,
5412
Following is an excerpt from the article I mentioned:
...........And That’s Confusing Real Estate Speculation
With Real Estate Investment
It didn’t even occur to me until just a few weeks ago.
I was watching a presentation from Frank Trotter of EverBank, and it gave me a renewed bearishness for housing. As one of America’s few responsible bankers, Frank has an intimate knowledge of the U.S. housing market…and since his bank isn’t holding a boatload of “toxic assets,†he tells it like it is.
He insisted that houses are not investments; they’re utilities. Buying a house for US$150,000 in 1975….then selling it for ~US$850,000 in 2005…sounds great, but after inflation, you only made about 1.5% a year.
That’s a nice little gain, but not on an investment. The house required upkeep…the lawn had to be mowed…you can look at the 1.5% as a return on your time.
And yet, as Frank answered questions following his presentation, the audience asked questions about when…and where…they should be buying houses. “Is it a good time to buy in Austin?†they asked…
And I realized that we’ve all been fooled. Hoodwinked you might say.
You see, the bubble saw prices rising like a rocket ship; and anyone with a piece of the action stood to make a ton of money. Even I watched the shows on TLC – saw a few nervous, amateurish homeowners flip a house and clear US$100,000 – and I was fascinated. “If they could do it…†we all thought.
But that was during the bubble. And as prices fall across the board, so do the profits to be had from speculation. And just because houses might start to seem cheap doesn’t mean the market’s in for the same kind of rising prices we saw in recent years. In other words; speculation is dying a pretty quick death in U.S. housing markets.
And indeed, most bubble-based “investment†really turned out to be speculation. These deals exposed “investors†to a heap of leverage…and as the old saying goes… “Leverage makes poor men rich, and rich men poor.â€
But at the same time, falling prices are making true Real Estate investment more and more attractive, as houses and apartments reach crucial rent ratios and rates hit all-time lows.
So what is true Real Estate investing?
It’s All About Cash Flow!
And in some ways it’s easier…and far safer…than any form of Real Estate speculation.
Our Executive Editor – XXXXXXX XXXX – has been investing in Real Estate for years. He’s taught courses and seminars on the subject…made a bundle off of cash-flowing properties…organized deals for other investors…and he knows firsthand the profit potential of true real estate investment.
And unlike most people, XXXXXX still sees mortgages as a great way to build your wealth with relative safety. In a recent conversation with some of the younger members of our staff, XXXXXX laid out a scenario where Real Estate investment could make them a fortune by the time they reach their 50’s…
“Go out and buy some houses selling for ultra cheap prices,†he says. “Buy at 4 to 5 times annual rent. You'll be able to pay management, all expenses and debt service, allow for 10% vacancy and put a few dollars in your pocket every month. But make sure you get a fixed rate. Because the mortgage will then "kill off" the balance through amortization.â€
“So buy a house today for $50k that was worth $125k at the peakâ€
“Have it professionally managed. 30 years from now, the mortgage will be zero. If you throw the extra cash flow at the principal, you'll probably pay it off in 20 years or a little less. You'll own the $50k house, free and clear.â€
“And if it goes up just 1% or 2% a year on average (and it could go up a LOT more than that thanks to inflation) your $80k or $100k is yours free and clear. And you put in just $15k to buy it. (That's $10k down payment and $5k closing costs and reserves.)â€
“So you turn $15k into $50k, plus get net income in a scenario where there is ZERO appreciation for decades. Highly unlikely…given the major correction is probably more than halfway over (some homes, after all are selling for less than replacement cost, even if you got the land for Free!)â€
“Add to that all the money pumping out of DC,†he concludes, “…and the prospect for inflation, including housing inflation, in the next five years or sooner is strong.â€
We’ll be going into more detail on Real Estate investing in future A-Letters. But one thing is certainly clear; with the stock market still up for grabs and many other investments still suffering, true Real Estate investment could be one of the best profit opportunities at these levels…one that pays a steady cash-flow and gives you a real, tangible investment for your money. It’s at least worth considering.
Yours in Personal Sovereignty,
