well let's look at some numbers from way back then and see how they compare to today. Just click on the link under the number at the top of the page and then proceed to October 2002. You will see that October 2002 witnessed 54 sales in Garrett County (compared to only 36 for October 2008) while active inventory was only 288 (compared to 723 in October 2008). The difference is rather stark.
October 2002 saw a market quickly turning over active listings such that there were only about 5 months of active inventory at that time. The market was under-supplied and there was a nearly shortage of properties available to willing and able buyers. By contrast, in October 2008, properties are staying on the market longer as the market is dramatically oversaturated compared to six years prior. The market is over-supplied and there are a glut of properties available relative to the number of willing and able buyers. So if people try to tell you that all this inventory means it's a great time to buy (for any reason other than you have A LOT of choices and might be able to get a deal on a foreclosure or short sale) just remember that in October 2002 inventory was significantly less than now and as we have seen that really was a great time to buy an "investment" property.
Don't forget to check back to Dan's Deep Creek Blog for future updates.
Monday, November 17, 2008
By all accounts, October 2002 would have been a great time to "invest" in real estate in the Deep Creek area ..
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6 comments:
More inventory and less demand = Buyers Market
Less inventory and greater demand = Sellers Market
Your conclusion that more inventory/supply is bad for the buying consumer seems to go directly against Economic Theory 101.
What proof do you have that 2008 is a bad time to buy a piece of real estate in Garrett County? Do you have an economic model that can predict a person will lose money in the future if they buy now in 2008 and sell later...say in 2010 or 2011? What if they buy a property in 2008 and sell it in the year 2020? Are they going to lose money for sure?
The analysis in your post is based on the fact that the supply of real estate inventory is greater now compared to 2002...and that days on market are longer now compared to back then...which are both certainly true facts. But where your hypothesis loses credibility - and consequently the point you are trying to make is disproven - is the fact that greater inventory and supply negatively affect the seller - not the buyer. The title of your post should be "By all accounts, October 2008 is a harder time to sell your real estate in the Deep Creek area than in 2002..." You really don't have any factual market data to prove that 2008 is really a bad time to buy...unless you can somehow predict what is going to happen in the future. If you can somehow predict the future lets all go to Vegas and make money!!
My simple hypothesis is, and has been, that prices will have to come down considerably for supply and demand to meet. So if this proves to be true as it has been in many other parts of the country (and in previous bubbles), now is not necessarily a good time to be a buyer. Generally, I have avoided saying it was a good/bad time to buy and instead encouraged readers to use their negotiating power which by all accounts is currently in a bull market.
Your simple analysis, as with many I see from real estate folks, fails to consider the price to value relationship which in my opinion is how we got in the nationwide mess we are in today. Some people know the price of everything and the value of nothing. In 2002, MAR’s affordability index stood at 78.3 (higher is better as you know), while today this number is at 54.1 only a modest improvement over the record low levels of 2006. It's not unreasonable to think that over time affordability will return to more historic levels and thus better opportunities will arise for future buyers as compared to current buyers. Is that really hard to understand?
If someone wants to buy a piece of property they are free to do so for whatever reason they would like, however, I don't think they should be "talked into it" by someone claiming now is a great time to buy based on incomplete and misleading information or advertising. Compare my blog to other Deep Creek real estate blogs that claimed the market was "strong" and "well and improving daily" and that the credit crisis was over in May and then decide who has credibility and who doesn't.
The bottom line is that there is a reason for all this inventory that has built up .. or several reasons even .. affordability is too low and prices are too high. You can kill two birds with one stone by getting prices down to realistic levels so that then you have a market again to move that inventory.
If Walmart is overstocked on toys and sales are weak you better bet they will start slashing prices (sound anything like more inventory and less demand?). Instead if Walmart decided to be stubborn and say we'll wait for our price, after Christmas they'd be stuck with a bunch of overpriced toys no one wanted to buy (sound anything like the current housing market?). From my point of view, I'd like to wait for the inevitable toy sale while you'd like to jump in and buy your toys now just because the isles are clear and there are a lot of overpriced toys to choose from since no one else is buying. To each his own.
MAR’s affordability index is a collection of data from various geographic points in the entire state. It’s obviously a blended statistic from different markets. Is there any concrete evidence that the affordability index has any affect on the Deep Creek Lake real estate market? It’s a known fact that all real estate markets are different in some way– different types of inventory, different types of buyers, and different types of sellers. Grouping the Deep Creek Lake market in with other Maryland markets is the equivalent of grouping the Florida real estate market in with the Texas real estate market. To analyze and project the future of our local real estate market based on a very broad, blended statistic is misleading to say the least.
Let’s face it, the people purchasing these high dollar, luxury homes are affected less by prices than the typical working class family, say from Hagerstown, Maryland, purchasing a house in Washington County. Someone purchasing a luxury home at Deep Creek Lake is a completely different type of buyer with different purchasing power and different price elasticity points altogether.
If we must, we can certainly compare the masses who shop at Wal-Mart to the small percentage of people who can afford these luxury homes....but I’ll buy my toys now. I have no way of knowing this is the bottom of the market....and you have no way of knowing the bottom is yet to come. Either way, I still know it’s a better time to buy now than in 2002 and I’ll take my chances accordingly. If you wait to buy your toys later you may miss the sale altogether...the sale may be going on now and you don’t even know it! The great Warren Buffet has said to buy when people are fearful and sell when they are greedy. I think it’s safe to say people are pretty fearful right now. People buying now are simply trying to use one of his time tested strategies for gaining wealth. The local real estate agents who suggest “buy now” are simply throwing out an idea for people to consider. If these people choose to buy real estate then the agent will be compensated…if they choose not to buy any real estate then the agent will make nothing...either way the burden of choice is on the consumer and not the real estate agent. These real estate agents are just marketing themselves...they can’t force someone to buy anything. What these agents are doing is really no different than what goes each and every day in marketing departments across the country like Disney, Microsoft, and Apple.
The real travesty going on is the millions of jobs already lost or about to be lost because of company mismanagement at places like General Motors and AIG. Those Boards of Directors pretty much sold out their loyal workers by lavishly spending for no reason all these years and compensating their executive’s ridiculous sums of money as “bonuses”. Also, not to be lost in this mess is the near retirement couple whose nest egg just went down 35% in value. Their 401k just shrunk from $400,000 to $250,000 and now they can’t afford to retire. The marketing departments at investment houses such as T Rowe Price, Fidelity, and Vanguard have been preaching for years that mutual fund diversity equals safety. Do you think the millions of Americans who can no longer afford to retire believe that message now? Maybe we should focus on these companies and not a few local real estate agents who are simply trying to get some rich people to buy real estate on Deep Creek Lake?
Well if you "know" now is a better time to buy than 2002 I guess that settles it (regardless of the facts). Contrary to what you have said it appears as if you do know the future.
As for Warren Buffett, yes he has said repeatedly that successful investors are greedy when others are fearful and vise versa. But he has also said that housing was in a speculative bubble that would take time to work through and that price is what you pay, value is what you get. Nothing you have shown me demonstrates that Deep Creek real estate has the value to match current prices.
And finally, any advisor with any credibility at T. Rowe Price, Fidelity or Vanguard would have explained the concept of asset allocation to your near retirement couple. Then if the couple truly were ready to retire they would have had significant bond holdings which would have provided considerable stability relative to equity mutual funds. I guess it all boils down to getting good information and advise though, something I am trying to promote.
So here are the facts:
1) Current inventory in GC is 3 times what it was at this time in 2002 and no single event in going to suddenly clear this inventory from the market.
2) Sales pace is slower than at the same time in 2002.
3) Prices are significantly higher than in 2002.
4) State-wide real-estate affordability index is lower than in 2002 and incomes on all levels are stagnating or under threat from higher future taxation.
5) All across the country real estate markets that saw rapid appreciation during the "creative financing" boom are coming back to earth. See the parody I posted yesterday to realize that I am not the only one who recognizes this.
6) In the spring, local realtors told us the market was well and improving daily, in the summer they said the credit crisis had ended and now in the fall they are saying it is a good time to buy without even admitting that property values are in decline? Call me cynical but I am highly skeptical.
How do you like those overpriced toys now? Hope you aren't one of the short sale/foreclosure victims in Garrett County.
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