Who's on first?

If anyone remembers the old Abbott and Costello skit, that's exactly the sort of discussion I envision when I think of a group of real estate agents sitting around chatting about market conditions and trends.

Here are examples posted to various Deep Creek real estate blogs over the past several months that illustrate that point. In one posting, dated 2/14/08, the author writes, "Was Deep Creek Lake a good real estate market in 2007 or not? The answer really depends on who you ask - if you already own property here your value went up again in 2007 so their answer would be that it’s still a very good market…". Yet a few months later a colleague of his at the very same agency writes, "His essay reads that prices have fallen, interest rates are down and properties are now affordable. This is good news for both buyers and sellers."

Ok now I'm pretty well confused, but I think I can see what is going on here. I guess what really matters is whether they are looking for buyers or sellers. If you are selling, your value is up and it's been a great investment, so now let us sell it for you, but if you are a buyer, prices are down and it's a great time to buy. So I guess instead of who's on first, it's really more like who's buying and who's selling because I surely can't figure out whether the market is up or down based on what I'm reading.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Two price reductions take list price below previous sold price from late 2006 and early 2007, respectively ..

257 Marsh Hill Rd sold Sept 2006 for $319,000, new list price $299,900.

71 Skippers Point Rd sold Jan 2007 for $744,000, new list price $725,000.

These sellers might disagree with those who claim that prices have continued to climb even after the real estate bubble popped.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Garrett County March 2009 property sales data are now available ..

and you can see that only 13 property transactions occurred in Garrett County in March 2009, down more than 50% from March 2008, but up significantly from the 8 transactions in February 2009. That still leaves about 50 months of inventory based on last month's sales pace, so keep lowering those prices and the buyers will eventually come.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Another Kendall Camp Circle price reduction ..

down $50k to $725k, see more details on 200 Kendall Camp Circle Unit 20A. Interestingly, the current list price happens to be identical to the final selling price of a property in the same Kendall Camp community that was supposedly competitively priced when it was listed for nearly $175k more.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Local river named one of the ten most endangered in the country ..

Here's the synopsis:

7) Laurel Hill Creek

Location: Pennsylvania

Known for its fishing, swimming and kayaking, this popular vacation spot faces threats from a bottling plant and tourism-related development. Without adequate planning and safeguards, withdrawals will continue to exceed the creek's reasonable capacity, putting recreation, the local water supply, and fish and wildlife in jeopardy.

You can read the complete story at CNN.com and a more complete profile here.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

335 Hickory Ridge ..

Deep Creek price reduced again .. down by another $20k. Now down by a total of $361k since it was first listed in 2007. While local Deep Creek real estate agents speculated that prices would go back up last summer these sellers waited and waited. Now I suppose they are left to hope that the boom times return, in the meantime the price creeps lower and lower.

Updated 4/15/2009: The listing agent has noted that the list price of this property has been reduced by an additional $30k to $799,000, so it's now nearly $400,000 less than when originally listed. I'm not sure where the true value lies in that spectrum but if you are interested in a very large home near Deep Creek Lake this may be one to take a look at.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Must have been that post-holiday sale that I mentioned in my comments to a reader ..

back in October 2008 as US home prices fell by a record amount in January 2009.

Closer to home in the Deep Creek market sellers haven't slashed prices to the point that a significant number of buyers have stepped in and helped move the inventory as has happened in many other parts of the country. If you've followed this blog you know that I've always felt that the Deep Creek market lags markets in the the major metro areas in the region, so looking to the DC metro market often foretells what is ahead in the Deep Creek market. Along those lines, over the last few weeks I've been touring open houses in my area and seeing that prices are generally down 30% from two or three years ago and the market is fairly hot and showing very positive signs. Maybe similar price reductions will be necessary to bring the buyers back to the Deep Creek market as well, but we'll continue to monitor the numbers for any signs of life after what was a pretty bleak February. March data coming soon!

In the meantime, I'm sure some Deep Creek real estate agent who has been dead wrong about the market for years will try his luck with another claim that the market has bottomed and it's now time to buy. Not long ago someone asked if I felt sorry for some of these guys with huge debts and dwindling commission income, after thinking about it some more I feel more sorry for the people taking advice from them without doing their homework. Even a stopped clock is right twice a day. Buyer beware.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Clearly I'm not the only one who has picked up on this .. watch this from early summer 2008 ..

He reiterates a lot of what I've said here so I'm somewhat surprised I didn't come across this sooner, but the lesson to be learned is don't let people from an organization specializing in house tours tell you anything about investments or timing various markets unless maybe you want to know what happened in retrospect. Even then I suspect they'd try to distort the facts to match their preconceived conclusions.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Several comments on this blog have implied that I don't know what I'm talking about when it comes to Deep Creek real estate ..

presumably because I'm just surfing the internet and not on the real estate frontlines every day. To these critics I offer the following blog postings from local real estate bloggers who supposedly aren't just surfing the internet, yet appear far more clueless than this blogger. Next time I would suggest offering them your thoughts about how off base they are as well.

January 21, 2008: "Local developers realize that Deep Creek has always been in high demand and that prices will go back up this summer." Not exactly!

March 10, 2008: "I do not know if we are at the bottom of the real estate market yet, but we are close. Even if home prices continue to decline they will not go low enough to compensate for the increase in interest rates to come." Wrong on two accounts!

March 10, 2008: "Send me a thank you card in 5 years when you use the equity in your vacation home to help send your kids to college!" This one is laughable to the extent that it is stated as only a true real estate daytrader/speculator could manage!

May 19, 2008: "Cyril Moulle-Berteaux of Traxis Partners LP recently reported in a May 2008 issue of the Wall Street Journal that that the real estate market has bottomed out and “The Housing Crisis is Over.”" I guess this one proves that you can find anything you want to find on the internet and that some of it is very wrong!

Maybe they just need a new crystal ball. Or maybe their judgement is biased by the need to make sales. Here at this blog we don't need to make sales so we are free to tell you the real story instead of passing off the latest canned sales and marketing pitch as honest and objective analysis. You won't hear "buy now" here, but you will get real inventory numbers (which I noted last year were exploding while others were still in denial) and real analysis of what it all means. I've also used real numbers to show you that statements such as "even if home prices continue to decline they will not go low enough to compensate for the increase in interest rates to come" are just flat wrong. We've seen a number of $100,000 price cuts over the last year, so let's put this blogger's unsubstantiated claim to the test right here and compare a $100,000 price decline on a fairly moderately priced Deep Creek property vs. a 1% increase in interest rate using this simple mortgage calculator.

$800,000 30-yr mortgage at 6.0% = $4,796.40/month

$700,000 30-yr mortgage at 7.0% = $4,657.12/month

Like I said if you want the real story keep reading this blog, if after doing so you realize that you really wanted a sales pitch with no thoughtful analysis read another blog.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

A local real estate agent recently compared one Deep Creek house to one stock over a period of time closely resembling the housing bubble ..

and inferred that Deep Creek real estate was a better and more stable investment than stocks or in this case one particular stock. I was listening to my Ipod this morning and thought of another stock to compare to the property detailed by this agent to result in a gain of $415,000 on a $515,000 investment made on October 4, 1999. If the buyer of this property would have instead invested $515,000 with Steve Jobs and Apple (AAPL), by February 13, 2009 he would have amassed a total return on investment of over $2.6 million or more than six times the return achieved by investing in Deep Creek real estate. And this was after AAPL shares had taken a 50% tumble over the preceding year (at the end of the wild ride, AAPL investors are still feeling about six times better than Deep Creek real estate investors).

So while investors in the Deep Creek real estate market have done quite well as a result of the national housing bubble, they could have done even better just investing in AAPL and today they could even recoup their investment on any given business day instead of having to list their illiquid property for sale and wait and wait and wait while prices continue to decline. Yeah, the agent didn't mention that part did he? And he also didn't tell you that based on the most recent month's sales pace it would take more than 6 years just to sell the properties currently listed for sale either did he? While you are kicking yourself for not just investing in AAPL stock, cross your fingers and hope that prices don't decline further and get ready to wait while you try to get rid of the Deep Creek vacation home you don't want or can no longer afford. Or if you want to sell fast you could just lower your price now instead of waiting to lower it later as most have done.

Here's an idea, if you want a stable investment buy some bonds or put your money in a CD or even under your pillow, if you need a place to live buy a house you can afford. If you want to buy a rental property do your homework and learn about things like cap rates, etc. My experience has been that Deep Creek cap rates are not particularly appealing at this point and at least one local agent recently admitted that cap rates were much better 10 years ago (suggesting properties were much better investment values then than now). Maybe I'm just too much of a value investor for these real estate daytraders who early last year were telling you to ignore common sense and "buy now" so that you could pay for your child's college education in five years.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

A local real estate agent recently reported that sellers who couldn't sell last year are coming back to the market ..

and it seems this may be happening in other markets as well. Today, I came across this story from CNBC.com predicting a flood of home sellers coming to the market this spring. For real estate agents and the impulsive types who don't understand concepts such as dollar cost averaging or asset allocation they'll say this means it's a great time to buy real estate at Deep Creek Lake (as they have while prices declined and they have been in denial for the past several years). Others might question valuation of various asset classes before "investing" and choose to invest over time (using dollar cost averaging) as opposed to going all-in at today's prices. From what I have seen many giving "investment" advice fail to understand these concepts and therefore provide a disservice to their clients while lining their own pockets (sounds a lot like Bernie Madoff, doesn't it?).

If they want to compare Deep Creek real estate to the stock market, I propose having daily auctions of properties (this is how current stock prices are set if you didn't realize that) and then seeing how real estate prices fluctuate too. Afterall to have a liquid market you have to have transactions and based on the most recent month's data the Garrett County real estate market (where only 8 property transactions occurred) is far from a liquid market - suggesting that a dislocation exists between price and value. At this rate of sales it would take more than 6 1/2 years just to sell the properties currently listed for sale.

And as a final note, I am highly skeptical of any "data" on real estate "appreciation" during the great bubble which is likely still unwinding. As Robert Shiller has noted that only twice in history has real estate produced outstanding returns: once immediately following WWII and the recent unstainable credit driven bubble (1999-2006). He's also shown that going back to 1890, housing returns average more like 3% per year, so if you want to base future expected returns on the unstainable gains of a short-term bubble be my guest but do so with extreme caution and full awareness of the risk you incur in making such assumptions. As I have noted before, many trying to sell you on a get rich quick scheme try to tout the best case scenario while sweeping aside the risks. Buyer beware.

Don't forget to check back to Dan's Deep Creek Blog for future updates.