Greg's prescription for the Brainerd Real Estate Market

There was an article written recently comparing real estate agents to doctors. Both are professions that require careful analysis and knowledge to solve a client/patients problem.

But they are clearly two completely different professions in the way that the client/patient follows the diagnosis. Patients rarely disregard the diagnosis from the doctor, but often question the advice and counsel of their REALTOR, and often rely on the advice of friends/family, or by another REALTOR that will tell them what they want to hear. If you were diagnosed with cancer, would you take the advice of a friend or family member or go to another less capable doctor in hopes of having a more favorable report? Be careful with your answer on this. If you decided to take the advice of the first doctor, and "took your medicine" so to speak, chances are that you will soon be on the mend. If you decided that the pill was easier to swallow with Doctor #2, and that you would take your chances, you are in the same boat as many sellers in the current real estate market. And odds are, not feeling like it was the best decision as time goes by.


The decision as to what to do with the property is clearly up to the owner, but the real question of whether to keep it or sell it often is a tough decision.

With the market being what it is, and the number of listings now growing over the last couple of weeks, if you either have your property on the market or are thinking about it, when you decide to sell it, sell it. Don't "try it". There are hundreds and hundreds of sellers that are "trying" it at the moment, and they are unknowingly making the real estate market worse. Think about it. If you go into your favorite grocery store and there was only one gallon of milk left, how much could they get for it if there were hundreds of people wanting it. Conversely, if they had hundreds of gallons of milk and only one person in the store (that may not even need it), how much would they have to lower the price on a gallon to get that person to buy it?

The optimism that I held at the start of the season with a projected lower level of inventory has been somewhat squelched with the steadily rising inventory. Chasing the market down is rarely a good thing for the bottom line of a seller, but yet it is often exactly what happens. We should make every attempt to get it done in the next 3 months, as the data that we are tracking shows that 2010 is not going to look much better the more that I pour over the data.

That's when the second wave of ARM buyers realize what is forthcoming for them. Those are the buyers that took 5-1 ARMs and with the mass of property that sold from 2003 to 2006 we are likely to see yet another spike in inventory starting next year.

If I had to say where we are at right now, I would compare it to being in the eye of a hurricane. The first "front" went through, as the first wave of bank mediated properties did their damage. Those were the buyers that used 3-1 ARMs that created the spike in inventories over the last couple of years when their rates adjusted and that were the then buyers of the 03-06 seasons. And it is likely we have the backside of the hurricane that hits next. And often it is the backside of the storm that is worse than the initial storm. That, we predict, will probably start early in 2010.

If history repeats itself, it will take 18 to 24 months to clear that inventory out. Meaning that we will be postponing a balancing of the real estate market in the Brainerd Lakes Real Estate Market out until 2012 and into 2013. Bear in mind that we have not completely eliminated the first wave of available housing, and we will start with higher inventory levels initially in 2010 than we did in 2006, 07 and 08. Send me an Email if you would like to see what we are looking at.

There is legislation that is being debated currently that could avert much of this. If there becomes a mass restructuring of the nation's outstanding mortgages, it could certainly change the outcome of this. Another thing that is being debated is to extend the $8,000 tax credit that has been available since this spring for first time home buyers to include anyone that is buying.

In case you haven't caught it, interest rates are starting to rise based on inflationary fears. They are already up about a half percent from their historic lows over the last couple of months. The 10 year Treasury Bonds are up 50% over the last 5 weeks. Many savvy buyers are now using this opportunity to buy while interest rates are low. If interest rates go up to 6, 7 or 8 percent, the purchasing power of the buyer declines rapidly. If the buyers wage goes up proportionately, no big deal. But if not, careful consideration should be given to determine if this is the right time to get into the market.

The data that we follow when we started to analyze it at the beginning of the year appeared that there would be much less for sale in 2009, but the last month has changed much of that. It is still somewhat less than in 2008, but not as much as we all hoped.

Please know that the advice that I give our clients would be the same advice that I would give to my family. My interests always lie with my clients over my own. Sounds like drivel probably, but I can not be more sincere about that.

Until next time,

Greg

To buy, or not to buy, that is the question...

Although the current market in the Brainerd area is better for a buyer coming in than it has been for years, many buyers are still out there trying to time the bottom of the market. They are afraid to pay too much. In giving this topic considerable thought, the following thought arose.

Years ago Sherri and I were in Santa Fe, New Mexico and ventured down into their market district, kind of a town square in the old part of town. Beautiful shops with custom jewelry, original artwork from the area, unique clothing stores with product not found anywhere else...you get the picture. We also found the best gyro sandwich we have ever had that was prepared from a street cart similar to the hot dog carts out east, but I digress.

The thing that struck us odd was that most of the stores had huge signs in their windows toting the benefits of "Huge Sales", 700% Off Today Only, etc. etc. This was in May or early June as memory serves so it certainly should have been "tourist" season and not their off season.

What we ultimately deduced was that the "sale" prices probably were at about what the market should bear. Anything more than that could best be described as frivolous or highway robbery if you will. But the message that was being conveyed was that the prices were extraordinary, and that if you saw something that you liked you ought to act fast.

We are now seeing this in the values of real estate in the Brainerd market. Savings of 20-50% or more off of original listing prices are not uncommon. But if you pay $300K for a property that was listed at $500K that is probably only worth $300K, is it a better value than paying $300K for a listing that is worth $300K? It is an interesting question. The difference between Santa Fe and our local market is somewhat different however as in many cases the sellers in today's market actually paid much higher prices 2-3 years ago. The prices during that period were justifiable and there were appraisals that verified those values. But like in any market, prices don't always go up. If you don't believe that check your 401K balances. But just like the stock market, there becomes a point where prices become so good that you can not help but to buy. Warren Buffett said late last year one of the secrets to his success was, "Be fearful when others are greedy, and be greedy when others are fearful."

The key to it all is to first narrow the search to the type of property that one wants. That in itself is a substantial undertaking given the amount of inventory that is available. Once that is established, the next step is to then determine out of the list which properties are the best values compared to the rest. Experience shows that if these steps are followed the best available property will be readily identified. That's where I come in. We will spend the time to go through this process and figure out which ones are the best deals. And they are out there.

Once the decision has been made to get into the market, rest assured we will find a "deal".

Stay Warm!

Greg





Greg