The Heery Herald :: October 2014
Told You So !
We really did. When the world was ending in October 2008, we wrote a lovely and encouraging piece for the Heery Herald titled “Buy Now, Really.” At that time, transaction activity was off about 75% from the prior year. As we restart the Heery Herald, we want to highlight how far we have come – Here is an excerpt:
“The time from now until next summer offers the best real estate buying opportunity in five to six generations …
1. The buying opportunity exceeds the selling loss. If you have a lot of equity in a $500,000 home and the value went down $50,000 over the last 12 months, why not sell and try to get $150,000 off an opportunistic acquisition?
2. Foreclosures might sound appealing but the real deal is with short sales and pre-foreclosures. After a house has been foreclosed upon, it is ripe with risks for a buyer and the lenders are constrained from going down quickly to a liquidation price. In those cases, the better deals with less property risk are made before a property is bank owned.
3. Finding a good balance between a low price, little leverage and a low cost of capital is the secret to inner peace and harmony. We love the little hyperbole. If you wait too long interest rates go up, then what’s the point? 20% down loans are available with extremely competitive rates to buyers with good credit.”
Let’s take these one at a time
Point Number 1
Nailed It: The great recession was surprisingly cruel to those under water with real estate. Everybody got hurt, but some more than others. Many people in a position to sell and take advantage of the market really made a killing. Today, stories abound of those that unloaded their old house only to steal their new house. We bet you can think of a couple.
Point Number 2
90% correct: In 2008 through about 2010, banks had not found effective ways to solve their problems. They did not want foreclosures; they had enough inventory already. With Georgia suffering 88 bank failures from 2008 through 2014, Georgia became the example of how bank failures can destroy real estate value. Georgia overcorrected and we have since bounced residential prices 25% to 35% from 2011/2012. We have plenty of happy foreclosure buyers, almost no happy sellers of foreclosures (yes, we have had several), and alas the happiest are short sale buyers. If you want to attend a happy event – go to a closing that solves a huge problem for a Seller and gives a buyer a great deal. We only have 1 short sale now, but this was more than half of our business in 2009.
Point Number 3
Let’s call this 85%: We were still right, but a little less so. We basically went through 5 years of the fed saying rates would be low for “the foreseeable future.” Fed policy, slow economic growth, incentives and many other factors have kept money costs low for buyers of residential property. This will not continue. Later in 2015 through 2017 will see economic growth, growth in real values, and increased interest rates. We will try not to say “Told You So.”
So, what is the point?
I think we get an “A”? Buy Now Really. We have had a slowing in the market. Earlier this year, prices were going up at an increasing rate. Now, we just have gentle increases in value based on solid fundamentals. Money costs, prices and prospect of decent future performance are pretty strong.