Tolstoy and Real Estate

By
Education & Training with The Melanie Group

Happy families are all alike; every unhappy family is unhappy in its own way.

Leo Tolstoy, Anna Karenina, Chapter 1, first line
Russian mystic & novelist (1828 - 1910)

To paraphrase, all happy real estate markets are alike; each unhappy real estate market is unhappy in

its own way.  That may be a stretch, but I've been to the two biggest conventions for REALTORS® that

there are in the US during the past two months-NAR in Orlando, FLA, and Triple Play in Atlantic City New

Jersey. I was privileged to be a speaker at both conventions; I taught ABR as a pre-convention event at

NAR and two of my own courses at Triple Play. At both conventions, attendance was down...way down. And

the ‘talk in the halls' was worried. On a shuttle bus in Atlantic City, I heard one ‘seasoned' REALTOR® say

to another: "I've been through bad markets before. I lived through the late ‘70's, early 80's, when

interest rates were so high. This is different."  This is different, indeed. To begin with, never have so

many duped so many out of so much money. From Madoff (the media's latest bad actor) back to the

many perpetrators of the sub-prime debacle, lots of otherwise rational, fairly intelligent people have been

cheated.

            And now, in an unprecedented way, the government is throwing money at the problem. Big

money-and they are throwing it everywhere. Today's Wall Street Journal (12/22/2008) reports that

commercial real estate developers are now asking to be part of the bailout. It's like a wonderland out

there, and not the ‘winter wonderland' they are warbling about on the radio. Call me a simple person, but

here's what I don't get: Doesn't anyone see that all this bailout is just going on our tab? We the

taxpayers are paying to bail out, let me see: insurance, bankers, automobile manufacturers, and now,

maybe a part of the real estate industry.  And in the first round, there was no accountability. Zero, zilch,

nada. I really don't get that. Whenever I've wanted to borrow money, I had to answer pointed questions,

 like: "What are you going to do with it?" "How do you plan on repaying it?" "Can you afford this loan?" 

Instead, we are just, I don't know, heating up the presses over at Treasury and making money to fling

around. Well, what's the point of throwing money if we aren't fixing the underlying problems?  Yes, I

know, Congress is ‘reforming' the mortgage industry. And the banking industry. And Wall Street. But real

reform, in my opinion, won't happen unless or until there is a return to accountability. If every lender

made every loan as if they would never be able to sell it; if every appraiser did every appraisal as if

they'd have to buy the property back for the number they appraised it for; if every fund manager made

investments as if he'd have to cover any shortfalls out of his own pocket, we'd have accountability. And if

 Congress would have to get the voters' approval to go into deficit spending-each and every time-- we'd

have accountability. Folks, we don't have accountability-we have nothing close to it. One of the things I

think we will have shortly is inflation. You can't throw this much money around an economy without getting

inflation. What does inflation do to real estate? Do you remember the seventies? It goes nuts!

And this market is different. It's different because people are scared. They are afraid they'll lose their

jobs, their houses, their cars, their pensions. They are scared because they have seen this happen to

other people-or it has already happened to them. And when the read the Internet news, or watch cable, or

pick up a newspaper, there is more doom and gloom there than they can handle.  People are scared who

shouldn't be scared. Here's an example: I had an interaction with my computer tech guy last week. He

fixes computers. He's really busy. People are fixing instead of upgrading (Moi, for example!). His

significant other is a nurse anesthetist. She's got job security, because if you need surgery, I'm pretty

sure you (and the surgeon) are going to make certain you are out for it, not wide awake and fretting. 

People don't stop getting sick because of the economy.  For people like him, this market is awesome.

There's great inventory (in most places) and low interest rates, not to mention, in some market,

outstanding buys. Here's what else I did this fall, before the two conventions: I did state conventions, and

other courses. And everywhere I went, from New Hampshire to Colorado, I asked the agents the same

question: "Do you have outstanding buys in your market?" And everywhere I asked the question, I got

the same, resounding, answer: "Yes!" I truly believe that in five years, our clients will be saying to us:

"Why didn't you make me buy more real estate?" Now, for naysayers, here's what you are thinking: "Well,

the market hasn't bottomed out yet in my area." Or "The national media says real estate won't recover

until 2010" or "It's still too early". To which I say: "He who hesitates is lost" and I add the famous Warren

Buffet quote: "The time to be fearful is when others are greedy; the time to be greedy is when others are

fearful." Don't miss out on this opportunity-it won't last forever.

Here's my final consideration, and it is directed at you and me-the real estate professionals in the room.

Sub prime money has gotten tight, and non-existent in some places. Do you remember selling houses to

people during 2000-2005, and you were amazed that they were able to get a loan? Guess what? They lost

that house, and they are tenants again. Tenants are those wonderful people who buy a property for the

investor. Remember, real estate is the only investment someone else will buy for you. If you are in our

industry, and you possibly can do so, I urge you to buy real estate yourself. Do your homework, check it

out, but invest. My view is that real estate will lead us out of this recession, and in a big way. We are

looking at a long view, but we will, I think, have inflation coupled with fundamental appreciation that will

begin as the markets level out. We will also then have pent-up demand, which is a wonderful thing. I truly

believe the people who invest in real estate in the next two years will be very glad they did in the next ten

years.

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