A Good Buy? or a Good Bye?
Cassandra Does Tokyo is in the same conundrum we find ourselve, from her latest Buyers Angst with our musings to follow...
I have just returned from a continental shopping trip. Not your ordinary walk on the high-street,
but a cross between a serendipitous search and actual more imminent need for some family-oriented bricks and mortar.
Many agents (along with their customers), however, are behind the proverbial curve, or at the very least are putting on the bravest of faces.
They simply do not get it. Or rather IT. They are in denial, clinging to the belief it’s a financial sector phenomena or, at worst,
a recession like the others without making the connection between what such a recession might do do to prices given
the 150% increase in the values of certain properties in these grographical markets during the preceeding 5 years,
on top of an approximate doubling during the 6 years before that,
which assumes optimistically that the blood-letting in 88-93 was sufficient to purge the massive Reagan-induced credit growth.
Fast-forward to late 2008 where asset prices have collapsed – be they equities (developed or emerging);
commodities (except gold which is a mere 20% below highs) which are 50% off peaks; credit-risk (can spreads widen any further?);
commercial real-estate while shit-boxes in Florida, Vegas, CA and Arizona reportedly 40 or 50% of peak too. Yet the top-end remains in denial.
Instead what I heard from agents in the upper-end of a particular ”Prime” market was distinctly apologetic drivel such as:
It’s a micro-market... It’s different this time… Prices will not fall – they will just plateau and stabilize...But it’s a very desired place…
Supply is so limited... Enquiries have actually increased… Our website traffic has been increasing…
People must have a place to live… The Russians are coming… When the new road [building, airport, blah blah] opens, a flood of buyers will enter…
No, now, or soon, ALL manner of people are or shortly will-be out of work. Now, real businesses will go bankrupt.
Now, everyone becomes cautious. Now, one’s worth has been halved and security diminished, and uncertainty increased.
Now is NOT the time the seller has his or her way with prices. Now, the seller is lucky to find a bid, let alone a buyer.
Now, the seller will lucky to have someone even view their property that they wish to sell. Now is the time the smart seller hits the bid when he finds it.
Now, the smart seller is the one who can imagine and conjure images of how low prices can go,
and how elevated the even-scarce bids are in comparison to but a few years ago.
The Nattering One muses... Once again, the cerebral Cassandra proves smart is sexy.
We have witnessed an additional 20% price decline over the last 90 days; in a market that was already 70% off peak... SW Florida.
Had we purchased within the last 60 days; our 20% down payment would have vaporized and we would be underwater, before spending a penny on improvements.
Liquidity is not the issue as there are many catching these falling knives and bleeding to death such as... One year and 50% off peak seemed a bargain,
The group of San Francisco firemen who pooled their retirement money and bought a bushel of homes in this beachy area to flip for a tidy profit, or so they thought...
the firemen are rumored to be changing their retirement parties to 401K benefits; as the liquidation of their booty at another 50% off...
will no doubt produce more victims of exsanguination downstream.
Remember, bulls and bears may profit or lose; but pigs get slaughtered.
The house of finance may be done unwinding; but its going to take a decade or more for the economic malaise to come out in the wash.
Real estate prices will not stop declining until the following two conditions are met: 1. inventory and 2. the income to price ratio both return to historic norms.
Based on the amount of economic pain still in the hopper, this event could be several years if not a decade away.
Our advice for our friend Cassandra, hammer the bid hard with a low blow.
Scale back; minimize your exposure; lower price; less down; less downside risk.
And as always, the same rules will always apply for good product, location, location, location and price per sf or m2.
Postscript: After 3140 posts since March 7th 2005, we are taking a long needed vacation from blogging, it could last a week, it could last???.
We will keep you posted. No pun intended.
I have just returned from a continental shopping trip. Not your ordinary walk on the high-street,
but a cross between a serendipitous search and actual more imminent need for some family-oriented bricks and mortar.
Many agents (along with their customers), however, are behind the proverbial curve, or at the very least are putting on the bravest of faces.
They simply do not get it. Or rather IT. They are in denial, clinging to the belief it’s a financial sector phenomena or, at worst,
a recession like the others without making the connection between what such a recession might do do to prices given
the 150% increase in the values of certain properties in these grographical markets during the preceeding 5 years,
on top of an approximate doubling during the 6 years before that,
which assumes optimistically that the blood-letting in 88-93 was sufficient to purge the massive Reagan-induced credit growth.
Fast-forward to late 2008 where asset prices have collapsed – be they equities (developed or emerging);
commodities (except gold which is a mere 20% below highs) which are 50% off peaks; credit-risk (can spreads widen any further?);
commercial real-estate while shit-boxes in Florida, Vegas, CA and Arizona reportedly 40 or 50% of peak too. Yet the top-end remains in denial.
Instead what I heard from agents in the upper-end of a particular ”Prime” market was distinctly apologetic drivel such as:
It’s a micro-market... It’s different this time… Prices will not fall – they will just plateau and stabilize...But it’s a very desired place…
Supply is so limited... Enquiries have actually increased… Our website traffic has been increasing…
People must have a place to live… The Russians are coming… When the new road [building, airport, blah blah] opens, a flood of buyers will enter…
No, now, or soon, ALL manner of people are or shortly will-be out of work. Now, real businesses will go bankrupt.
Now, everyone becomes cautious. Now, one’s worth has been halved and security diminished, and uncertainty increased.
Now is NOT the time the seller has his or her way with prices. Now, the seller is lucky to find a bid, let alone a buyer.
Now, the seller will lucky to have someone even view their property that they wish to sell. Now is the time the smart seller hits the bid when he finds it.
Now, the smart seller is the one who can imagine and conjure images of how low prices can go,
and how elevated the even-scarce bids are in comparison to but a few years ago.
The Nattering One muses... Once again, the cerebral Cassandra proves smart is sexy.
We have witnessed an additional 20% price decline over the last 90 days; in a market that was already 70% off peak... SW Florida.
Had we purchased within the last 60 days; our 20% down payment would have vaporized and we would be underwater, before spending a penny on improvements.
Liquidity is not the issue as there are many catching these falling knives and bleeding to death such as... One year and 50% off peak seemed a bargain,
The group of San Francisco firemen who pooled their retirement money and bought a bushel of homes in this beachy area to flip for a tidy profit, or so they thought...
the firemen are rumored to be changing their retirement parties to 401K benefits; as the liquidation of their booty at another 50% off...
will no doubt produce more victims of exsanguination downstream.
Remember, bulls and bears may profit or lose; but pigs get slaughtered.
The house of finance may be done unwinding; but its going to take a decade or more for the economic malaise to come out in the wash.
Real estate prices will not stop declining until the following two conditions are met: 1. inventory and 2. the income to price ratio both return to historic norms.
Based on the amount of economic pain still in the hopper, this event could be several years if not a decade away.
Our advice for our friend Cassandra, hammer the bid hard with a low blow.
Scale back; minimize your exposure; lower price; less down; less downside risk.
And as always, the same rules will always apply for good product, location, location, location and price per sf or m2.
Postscript: After 3140 posts since March 7th 2005, we are taking a long needed vacation from blogging, it could last a week, it could last???.
We will keep you posted. No pun intended.
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