Just the Facts, Ma'am.

10 weeks into 2009 and we have some interesting data to start the year. The sales market has changed dramatically and is continuing to do so. The first time home buyer credit is having an impact on the market, but only for the actual first time home buyer, and not for the move up market.

Here's a look at the data for 2009 through early March for the entire 13 county metro Indianapolis area:

• nearly 50% of all homes sold were under $100,000
• 93% of all homes sold were under $300,000
• 95% of all homes sold were under $500,000
• 99% of all homes sold were under $1,000,000
• less than .06% of all homes sold were over $1,000,000

A major issue in this data starts with the low end of the market, or the first time home buyer. Of those homes under $100,000, over 50% of those were foreclosures. That tells us that of the owners of those homes under $100K, only half potentially went on to actually buy another property. That's why the sales numbers above $300K are so weak. What's selling is simply foreclosure inventory. While that's good and needs to happen, it tells us we are very VERY early in the recovery process if at all. Until the foreclosure inventory is absorbed and the foreclosure rate slows, we not recognize any value increase in the higher price points above 300K. At the moment we are simply absorbing unsold inventory. That inventory is the active inventory, not the secondary inventory which I would define as the complete set of homes that are waiting for any type of sign the market is recovering before coming back for sale. In other words we have several years of overall inventory to absorb before values begin to grow. If you're any type of buyer, this is good news because it means you are going to have opportunity to make a great buy for some time to come. Selling, will remain a big challenge for at least the next 24 months in our market.

Today's Lesson From Tom Peters.com:
(yes, the guy who co wrote In Search of Excellence and many other phenomenal things).


"It" (the current economic mess) is 100% about psychology. Fixes must first and second and third and fourth be directly aimed at our inherent irrationality—times ten in periods of high stress, and at least as true of the "bestest and brightest" as of the rest of us.


Thank you Tom. Class dismissed. See you all next week.

I have seen the
bottom and it is here!

(I hope....maybe....quite possibly.....we'll see....tune in 1/1/09)

I'm taking a leap of faith today. A proverbial high wire exercise without a net. I'm assuming things and we all know what happens when you assume but this time it will be different. Once upon a time Felix Unger demonstrated to Oscar Madison that to assume meant you make an "ASS" of "U" and "ME". I'm hoping my outcome will be more positive.

Assuming that in fact this bill that passed Congress and was signed by the President will allow fewer homes to enter into foreclosure, I believe we are in the lowest trough of the current real estate downturn and here's why:

In 2005, 2006 and early 2007 there were roughly 14,000,000 loans made in the U.S. with a staggering 7,000,000+- being considered 'subprime.' I know, how could we have been so STUPID? It's no shock given those numbers as to why we have the ridiculous mortgage/banking crisis we've seen in the past year and a half. The most recent legislation dubbed the 'housing bill' may go far in curing the foreclosure dilemma because of this bill. Of the 7,000,000 subprime loans, many of which are cascading toward foreclosure, the majority are owned by Bank of America, Wachovia, Washington Mutual and several other large national institutions. The bill as passed will allow these lenders to go back and refinance their bad loans if they choose to a more palatable level of pain for the homeowners. Make no mistake these lenders may still take a hit on these loans BUT if they can save 80% or even 70% of the potential defaults, it will vastly reduce the number of bank owned properties coming into the market place. THAT is the place any housing recovery must begin....reducing the foreclosures.

From that point legit resale inventories will begin to vanish and good grief we may actually see a building market recovery after that. If it all sounds too swell to believe, it is. While we may be on the path to recovery, there is no guarentee as to how long this will take. The factors that may influence that timeline are incredibly wide ranging and volatile. Energy costs affecting inflation which could affect mortgage rates, the value of the dollar, other geo political events unseen today, etc., may all play a role. The most prolific point remains and that being the downturn of bank owned sales potentially declining in the market as a whole. If our bonehead lawmakers got one thing right if even by accident, it may be slowing and decreasing the foreclosure mess that has plagued our national real estate market to a very deep degree.

Questions? Comments? Donations? Greg@GregCooper.com or 317.848.GREG (4734)

A Look Ahead....
Rarely has it been so difficult to glance forward into the real estate crystal ball as it is today. There are enormous challenges ahead both statistically and psychologically if the market is to improve. Famed motivational guru Tony Robbins was on the Today Show last week and predicted that every generation has it's defining moment of challenge and that this was ours. So be it. If you are involved with real estate in any way, here are a collection of thoughts on where we may be heading....

Supply of homes
This issue isn't going away anytime soon. Nationally and locally about 1 in 3 homes sold is a bank owned property with that percentage going up from about 23% in 2007. Think about it. 1 IN 3. Bank owned homes are overly competitive with normal resales, they wreak havoc on existing values by dragging down comp sale info and are still rising in their numbers. This may change in 2009 but not this year. In addition there are still plenty of resales that are non bank owned that must be absorbed by the market for the supply - demand line to improve.

Interest Rates
Conventional rates have gone from 5.8% in February of '08 to 6.75% as I write this on 7/26/08. Forget what the Fed will do because the market has already done it. Rates are up, will probably inch higher and will be a long term negative on the market. The only way to defeat this would be to buy yesterday. The other side of this is that rates are now dependant on an applicant's credit score. Perfect score and you may end up at 6.75%. Have a ding or two and you may end up at 7.5% for the same loan. Again, another readjustment in the market that will provide a challenge.

National Economy - What it all means
We may not be in an overall recession but it certainly feels that way. Many would argue we are certainly in a housing recession/depression as it sits today. This is not going to be a short term dip. This retreat in the housing market has all of the potential of being a 2-3 year problem to resolve and in some micro economic markets and price points, it may run much deeper than that. Still, what it means is that now more than ever consumers MUST make good investment decisions regarding real estate. Those that do will recognize significant appreciation and value growth over the next few years. This is not like the good old days when all you had to do was buy anything when the market was at the bottom of the cycle. You still must make good decisions regarding a purchase and if you do you'll reap the rewards. If you choose poorly you may simply be acquiring a static investment that you'll end up being the caretaker of over the next few years rather than one who reaps it's benefits.

Questions?
Comments?
Donations?
Greg@GregCooper.com
317.848.GREG (4734)