Real Estate History — The Media’s Version — Preview of Coming Attractions
Posted @ 10:52 am - Filed under Real Estate Investing, Purposeful Planning, Retirement, Market Correction, subprime, Economy
Let’s start of with a one question test.
How much has the median resale home price fallen in the last 12 months? Take your time. We’ll come back to this a little later.
Though I’ve told this story dozens of times, it’s right on point here.
As a kid in junior high, one of my Mom’s friends took me to, what was then a huge deal, a dual track meet between the U.S.A. and the USSR. It was held in the Los Angelus Coliseum, which was populated by over 100,000 very excited Americans.
We won.
Pravda, the centerpiece for Soviet propaganda in the USSR, reported the results the next day.
The Pravda headlines?
Track meet in L.A. — USSR Comes In 2nd — U.S. Next To Last
Be honest and tell me the difference between that ‘reporting’ and what we see in papers across the country. There’s one huge difference you’ll notice right away. Our papers are written in English. 
You get the idea, right? Now, let’s talk real estate and what’s been happening the last couple years or so.
Let’s also look into a little history.
1970-1980
My very first real estate agent’s license was dated October 15, 1969. Very shortly thereafter, a national magazine, Business Week,
printed a quote — “The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000.”
Today? A loaded 2007 Honda CRV is that much.
I don’t remember the quote, but do remember all the talk about rising prices, and affordability. Folks in the business were nervous. I was too, but only because they were. I believed the implication the magazine intended to convey.
Between then, and around 1977, the year I became a broker, started my company, and switched from homes to investments, some scary things toook place. There was a run on bank deposits in ‘73 which resulted in almost a year of, gulp, lenders not lending. It wasn’t that they didn’t want to lend, they just couldn’t until everyone took a chill pill, and calmed down.
You’d think this would’ve caused a collapse in the real estate market. Funny thing though, history shows prices continued to rise. Go figure.
In 1977 another national magazine wrote,
“The median price of a home today is approaching $50,000. Housing experts predict price rises in the future won’t be that great.” (emphasis mine)
Blah blah blah.
We remember how the prices stopped their march upward, right? The media has, in one form or another, been telling us the sky is falling since Moses came down from the mountain with a couple stone tablets.
I’ll pause here to note January ‘77 was the pivot point in my career, as three lines intersected. In that month I became a broker — opened up Brown and Brown (I was the son back then
Fortunately, I was far too young at the time, 25, to realize how much I was over my head. I knew absolutely everything back then.
By the end of the 80’s we saw inflation exceed 20%, while home loan interest rates went to 18%. I distinctly remember FHA hitting 16.5% — just before I stopped paying attention. This grand meal was of course, followed by dessert — the S & L crisis, and subsequent bailout.
This generated job losses, more foreclosures, and the market from hell ensued.
And prices continued to rise.
It was during the early ’80’s when I began figuring stuff out. I studied, and learned, and compared, and before long — I was officially immune to media claptrap. It was a watershed experience for me. Of course, using 20/20 hindsight, I should’ve figured stuff out much earlier, as I’d been treated to the same damn movie twice in a relatively short time span.
Fast forward to 1985 when Money Magazine said, “The golden-age of risk free run-ups in home prices is gone.”
Man, I was so happy to read that. I don’t remember the first place I saw that thought, probably not in that magazine, but it made me a very happy camper. Why? Cuz I knew most of the real estate world would believe it.
Dad and I marketed our butts off. We did more business in the next 4-5 years than in the previous decade. And it wasn’t even close. That was the first time I ever used the phrase, ‘being under the radar’ with a client. That was 22 years ago — I had hair for Heaven’s sake. BawldGuy was still eight years away.
By the time the real estate world realized the talking heads were dead wrong — again — rising prices had already made the news. Dad said it’d be over shortly after the ‘88 elections. When ‘89 proved to be yet another record year, he was happy, but very surprised. By that time, he’d already headed out to the golf course permanently, as in seven days a week, teeing off at 12:15 with the other real estate dinosaurs.
When the Berlin Wall came down in ‘89 it was heralded as the ultimate catalyst for change in the world. Everything was gonna change. It was the dawn of a new age — again, according to the media.
By 1996 the S & L crisis had done the Devil’s work. It was the perfect storm if ever there was one. Let’s not get ahead of the story though.
Politicians who thought we were now gonna be living in Utopia because the Wall was down, and the USSR was crumbling, gutted defense spending. This turned out to be, shall we say, ill-advised. Between 1990 and 1996 home prices in California dropped almost 13%. Of course, the media made it sound as if folks were selling properties for 50¢ on the dollar. True enough, the now infamous RTC, (you can look it up) were selling properties in bundles at prices truly scandalous, but they were the government, the only entity more able to get things wrong than the media.
A San Francisco newspaper, the Examiner, said, “A home is where the bad investment is.”
You know what’s comin’, right? Yer a smart one you are.
Seriously now, was anybody besides Gomer surprised?
In the next three years the state’s home prices went up nearly 20%, erasing the losses of the early ’90’s. That decade ended with prices up almost 10% net.
Real estate is horrible now. It’s gotta be, cuz the media screams it 24/7/365 at the top of their lungs, from the highest mountain tops. God bless their black little hearts. I’ve been using them to stay under the radar now for the last couple years. Since they never figure stuff out ’till, as Joe Kennedy discovered, even the shoeshine boy does, we’ll probably stay stealthy through this year. (Fingers and toes crossed) Of course, like the media, the shoeshine boy didn’t know squat either.
What about now?
All we read/hear about is how real estate prices are going down, yet in July of this year, nationally, prices were up compared to last July. As a state, California was up, while the Bay Area was up also. So Cal? You guessed it, up. The media reported almost 54,000 notices of default for the 2nd Quarter - a near record high. They are comparing it to the 1st Q. of ‘96 when about 61,500 notices were filed, but fail to mention that 2 million more home have been built in California since then! Minor detail I guess. What if instead, the media’s headlines read: XX% of Mortgages are Not in Foreclosure? The media and the financial markets’ over reaction reminds one of an hysterical nine year old girl, surprised by a small spider. The problems they point out are absolutely real, but they’ve been predicting the end of the world now for two years. I’m gettin’ kinda tired waitin’ for it.
Now let’s review all the terrible Wall Street fallout from the dreaded sub-prime market.
Bear Stearns, a key sub-prime player, reported 2nd quarter revenue of over $2.5 Billion — a new record. Yeah, sounds like tough times to me.
2nd quarter profits rose over 30% for Merrill Lynch — Morgan Stanley 
($5.2 billion in subprime
loans) enjoyed a — this is good — 60% jump in earnings. Yep, things are tough all over Wall Street due to the sub-prime mess.
Makes you wanna send ‘em a sympathy card, don’t it?
Goldman Saks and Bank of America also kicked some pretty impressive booty.
I’ll give short shrift here to the media’s reporting (Man, is that giving them credit.) on foreclosures.
They make little or no distinction between delinquencies — notices of default — and foreclosures.
The Mortgage Bankers Association, National Homebuilders Association, and Inside Mortgage Finance all agree the media’s reporting on the topic is inaccurate. Duh. Where’s Captain Obvious when you need him?
The next 10 years?
The next decade will see a 25% increase in those over 50 years old. We, ah, I mean they, for many reasons, have more money than any generation before them. This age group is already spending, gulp, $2 Trillion (1,000 billion) every year. Every year. Every year.
Last year over 2 million Boomers turned 60. Fully 1 out of every 4 of them don’t plan on retiring, because they don’t want to,
not because they don’t have a choice. Think about that. They’ve discovered how cool it is to mix work and play, and have learned how to do it.
In other words, many Boomers, as they head for that gorgeous sunset are literally jumping for joy.
They have lots of money, and are still investing in real estate. They obviously know something most of their predecessors don’t — Purposeful Planning works — and it works big-time.
Oh yeah, almost forgot — the answer to the test question. It was a trick question. You already figured that out though, right?
This entry was posted on Thursday, November 8th, 2007 at 10:52 am and is filed under Real Estate Investing, Purposeful Planning, Retirement, Market Correction, subprime, Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.