So, What's Next?

As we all wait for the big "bailout" decision on whether the markets are going to come tumbling down - or if life is going to be filled with nothing but sunny days ahead (I suppose that won't help global warming) - people keep asking me, "What is this going to mean for the real estate business?" My answer is generally something like: "I don't know." But secretly I find myself thinking more like: "I don't really care!"

It's not that I don't care about the economy being strong and people being able to afford houses and other necessities; I'm in that same bunch of people, and my income is certainly dependent on home buyers being able to get loans. But it seems that every time the government tries to fix something, they make something else worse.

Now, as I've said before, I'm not an economist. I really don't know how all this works. But I've been in the real estate business for a long time, and from what I remember the economy seemed a little more stable when interest rates were a few points higher. It might not have been quite as easy for home buyers or for businesses to borrow money, but they also may have been a little more cautious when they did do it.

As the Fed has gotten more involved in easing the availability of credit to give the impression of strong economic growth, we have seen a run-up in real estate values like never before. I have been of the opinion for quite a few years that there was no way to sustain this "false real estate market" that was built on "feel good" interest rates. So, I believe that we got what we paid for...or, perhaps, what we didn't pay for!

Sellers also bought into this feel good atmosphere by thinking that these good times were never going to end. Those who used to be happy with 5% appreciation on their homes each year later decided that even 20% yearly appreciation wasn't enough, because money was cheap and everyone wanted more real estate. Home prices got out of hand, and the ocean of buyers turned into a wading pool.

This is the part of a Free Market Economy that is still totally free. Buyers are free to buy; sellers are free to sell; and real estate prices are free to fluctuate based on supply and demand - without government interference. And that is what they have done...coming down to levels we have not seen in several years.

So let's let the chips fall where they may, and maybe we can all get back to normal again. Whatever that may be!

I'm guessing there will be some kind of bailout plan that gets approved fairly soon, and some of those big exec's will only get 10 or 20 million dollars instead of 50 million for their severance packages. And with savings like that, it should only take about 20 or 30 thousand of those kind of salary reductions to make up the 700 billion dollars we need. Or, they could just get 70 million of us little guys to throw in $10,000 each.

I guess they should have called me in on that big meeting at the White House yesterday.

Dan

WOW...What About the Dow!

In real estate, the stock market can have a huge effect on peoples' motivations. I remember being out with a buyer after one of those big drops in the late 1990s. The lake home we were looking at was around $400,000, and he told me he had "just lost one of those in the last few weeks."

Of course he meant he had lost that much money, but it was obvious that a cabin of that price would not have gone to zero value like the stock did. So he was looking for better places to park his money, and he figured lake property was probably the best place at the time.

Over the past few days, we have had several calls come into our agents from potential buyers saying the same types of things: "I'm getting slammed in the stock market, so I want something tangible that I can hold onto for a long term investment." And as far as real estate goes, waterfront property and acreage is probably about as good as it gets for an investment.

I know there have been plenty of people who have been hurt financially throughout these past couple of years (many Realtors included), not only with the downturn in real estate values, but also with the high cost of goods that has eaten into their discretionary income. Many of these folks are not able to even think about buying anything like real estate right now. However, there are still a lot of people holding onto a pile of cash, and those might be the ones who will get this market moving again. With prices so low, they are probably thinking that these types of properties might be one of the safest places to be, even if the economy gets worse.

Whether the Dow goes up 400 points a day, or down 500 points, there is a lot of uneasiness in the economy right now. So unless you're a day trader, maybe real estate and especially a lake cabin - isn't a bad idea for the long term. And it's a lot prettier to look at than a stock certificate!

This Year's Market

Last night I had a request for information on how the lakeshore market turned out this year. Of course, it isn't over yet, but generally we would start seeing a reduction in sales about now.

The odd thing this year is that we've had an increase in sales all of a sudden. I remember a market like this in 2001, where not much sold throughout the summer, only to have a real influx of sales in the fall. I don't really remember what waterfront real estate prices were like overall that year (they certainly were cheaper than what they are now), but what probably happened is similar to what has gone on this year.

In a normal market, the buyers start to emerge in early spring and get excited about the thought of having a new lake place. Time is of the essence, because summer is short and most people aren't very good about delayed gratification. So they buy fairly quickly, understanding that more properties might be coming on the market - but the loss of not having it to use is greater than the gain of maybe finding the perfect one sometime.

It's no secret that the last couple of years has been tough on the real estate industry overall. The uneasy feeling in the economy, combined with the difficulty in getting loans, the high price of gas, and the run-up of real estate prices a few years ago, made a lot of people step back and think a bit before jumping into any more things they don't absolutely need.

I'm going to try harder to answer this question in another month or so, but what I kind of see happening now is that we have bottomed out (for some time now), and we are just waiting for a little bounce. That bounce may come from investors who understand that prices for lake homes and cabins are very low in relation to other goods, or it may come from the ever-expanding base of Baby Boomers who decide it's time to make a move.

Either way, most agents around the country tell me that their sales have picked up over the last month - and we are seeing that too.

A New Blog Format

After quite a few months of being the headliner on this blog, I thought it was only fair to bring Sandy in on it. She may not be as interested in writing the articles (although you can probably tell I haven't been that interested over the summer either), but she certainly knows the business and might decide to throw a few important thoughts your way.

Anyway, it is now "our" blog, so please let us know if you have any items you want us to cover. I personally think it is easier to keep the entries a bit shorter so that we can keep current information coming at you more often. At least we'll do our best!

Thanks for visiting,

Dan