This guest tidbit is from a new agent in my office.
Bill O’Neil, one
of the greatest growth stock investors of our time, once said, "When your cab
driver gives you a hot tip on what stock to buy, it’s time to sell."
2005 was an
amazing year for my real estate business. It was also a year full of friends
and relatives who were supposedly making a fortune buying and selling real
estate. And why not? Everyone was buying
real estate like there was no tomorrow. We had DEMAND that seemed to go on
forever.
So I figured, yeah, why not join the party? So our family
did. We bought a house North of Reno.
Honestly, I
believe it is the single most "unwise" (I’m being nice to myself) investment
decision in the history of our ancestors. We weren’t late for the party, it was over. We bought it in the middle
of 2005 and got the house by the end of the year. Looking at one of the graphs
I saw in Investors Business Daily, the real estate market reached its absolute
top in June-July of 2005.
A wise man once
said, "People fear when they should hope, and hope when they should fear." I
was hoping when it was time to fear.
After that, I vowed never to make the same mistake. As
Robert Kiyosaki once said, "Numbers tell a story" so now I look to the numbers to for explanation. I think we can make an
educated guess of what the future holds when we study what has happened (history
will always be the best teacher) and what is currently happening.
These are five components I believe every buyer/investor should consider studying:
to build a specific structure at a particular site.- Housing starts - The number of residential building
construction projects that have begun during any particular month. - New home sales - Investopedia says, "A new home sale is
considered to be any deposit or contract signing either in the year the house
was built or the year after it was built." - Existing home sales - "The existing home sales report does
not look at newly built houses or the sale of new houses. This indicator is
thought to be a good measure of demand in the real estate sector." - Investopedia - Median price of homes locally and nationally (go back a year
or more)
sales and existing home sales statistics at briefing.com. You can also ask your
trusted Realtor for local median prices.
Local housing starts certainly tell a story:
Housing starts
2005
Feb – 2229 k
Mar – 1836 k
Apr –2005 k
May – 2004 k
Jun –2045 k
Jul –2035 k
Aug –2038 k
Sep –2134 k
Oct –2017 k
Nov –2121 k
Dec - 1933 k
Feb – 2126 k
Mar – 1996 k
Apr – 1863 k
May –1953 k
Jun –1841 k
Jul –1772 k
Aug –1674 k
Sep –1740 k
Oct –1488 k
Nov –1572 k
Dec - 1643 k
Bill O’Neil said, "When you see the CEO of a company on the front page of a
major business magazine, it’s time to sell."
Ian Mariano
imariano@chaseinternational.com
6 comments
But Ian,
In the middle of 2005, the REIC, of which you are now a dues-paying member, told us incessantly:
1. There has never been a better time to buy.
2. You can’t lose money on a house in Reno.
3. House values in Reno never go down.
4. There has never been a better time to buy.
5. Everybody wants to live here, because Reno is special.
6. Rich Bay Area people will sustain the Reno market for decades to come.
7. There has never been a better time to buy.
8. They aern’t making any more land here you know.
9. Reno’s market is “different”; it is immune to what appens in other places (because we are special here).
10. Buy now or get priced out forever.
11. There has never been a better time to buy.
12. Buy now or get priced out forever.
And so, you made the single most unwise investment decision in the history of your ancestors.
But don’t worry, Ian. Just last week, the REIC had a new message. Here it is (according to Diane):
1. The big drop is over.
2. Interest rates will soon be rising.
3. The job market in Reno is strong.
4. Reno is special. Everybody wants to live here.
5. Buy now before prices start rising again.
So, Ian, The REIC surely wouldn’t let you down again. Maybe you ought to go out and buy another house in the NW. Or two.
Sorry to hear that, Ian. A lot of people got caught in the mania of the moment.
If I may ask, what was the purchase price and how much is it worth now?
“We bought it in the middle of 2005 and got the house by the end of the year…We weren’t late for the party, it was over.”
This certainly supports what I have believed all along. Industry insiders were some of the largest consumers of their own Kool Aid. While enjoying easy access to all of the most pertinent sales information, they still didn’t use it to their own benefit. There are countless flips out there which are owned by Realtors. The scope of the speculation is prodigious.
More than two years ago, when I would talk about how out of proportion home prices were to income, and their impending decline, I was met with harsh criticism, and called a doom and gloomer. The idea that prices could or would fall was laughable in most peoples eyes. Well, here we are, in the midst of price declines, and when I talk about how greatly I believe they will fall (back to where median wages afford median houses) , I am met with the same sort of skepticism. The same people who said they would never fall, are now saying they will not fall “that much”. Bet on it.
Both of the homes were bought for $320,000. Now, it is worth $300,000.
Some people might think of me as a pessimist. I am not. Far from it. This year has been my most joyful year in Real Estate certainly not my most profitable. One of my most trusted mentor in this business once told me, in a very calm voice, “Ian, this market will separate the men from the boys.”
That’s why I have a smile on my face every morning when I go to work. I love the challenge of this market. I am a realist. I want the objective truth. I search for it and it’s certainly worth fighting for. I might not like what it tells me, but I know I simply have no choice. In my first post you might remember me saying, “People fear when they should hope, and hope when they should fear.” To add to that, I believe with all my heart that this market is to be feared with the way its going. But before you dismiss me, hear me out.
When I use the word fear what I mean is the good kind of fear. Smart fear. The best way I can explain it to you friends is what happened to my office administrator. She bought a house early this year for $225,000. That same house two years prior would be on the market for $312,000-overpriced. She didn’t buy while the herd was buying. In return she saved thousands of dollars. We cannot live from a position of fear. That’s the bad kind of fear. Smart fear is asking yourself the right questions, “What mortgage payment can I realistically afford? Would I make money if I think I can flip this house a year from now?”
A very, very good friend of mine, who shares the same passion as I on in-depth real estate research told me, “Ian, everyone has to have a home. It’s a wonderful feeling of security, priceless memories are born out of it. Everyone has to have one.” That’s why I’m hosting a first time home buyer’s class this May. I refuse to be afraid. I refuse to instill the bad kind of fear to my people. I let them know of the brutal truth but not lose hope that in the end we will prevail. (*Good to great principle) You can bet a hundred dollars that in that meeting you won’t hear me say, “Guys, guys, get a house now while the market is down, next year it’ll go up again. Buy now.” No, I am not the market. As Jon Cheplak said, “The market is the message, you are the messenger.”
Ian,
If you bought at the peak in mid 2005 for $320,000, and the house has only lost $20,000 in value, consider yourself darn lucky. That is only a 7% drop. If this was new construction that you bought mid ‘05, I suspect that it is down more than 7%. Two times 7% is more likely, according to the figures Diane has been posting over the last many months.
You seem like a very sincere person. I wish you the best in these very difficult times to be selling real estate.
Yes, You’re right. I’m still lucky that we only lost that amount of money, we could’ve lost more. We would have been down 14% (Two times 7%,just like what Lindie said) by now. But by 2006,using the principle of “Cut Your losses short” we did sell at a loss. I never regretted making that decision. One of the big lessons I also learned from that experience is be quick to admit that you made a mistake. Don’t let your pride and ego get the best of you. Again, this principle did not originate from me. I learned this lesson from Bill O’Neil founder of Investor’s Business Daily-Great resource.