The good old days...

From the Jack’s Winning Words blog of 10/29/2008 comes this - “Today’s trying times in about twenty years will have become The Good Old Days.” (Bernard Meltzer). A corollary to that might be a line that I use a lot with my wife when adversity hits - “Someday we’ll look back on this and laugh.” She has often told me that for really bad things that day will be a long time coming, which may apply to the situation that we find ourselves in these days in the real estate market.

Home values have fallen a very real 20-30% in this area (worse in Detroit, Ypsilanti and Pontiac), so it’s going to take quite a while for us to be able to look back and laugh and I seriously doubt that we’ll ever be able to call these “the good old days.” If we get back to what was our historic appreciation rate of 3-4% per year, it will take 8-10 years to gain back the value that has been lost. Some houses may never get it back due to other factors.

So we need to accept that a fundamental and permanent reset of values has occurred and that we all lost in this reset. Life goes on, however, so we need to move on, too. If you owned a home during this period and now need to sell it, hopefully the loss in value was made up in the equity that you had (had being the operative work there). If you bought at the peak of the market – sometime between 2003 and 2005 – you just have to accept the fact that you have lost money on this investment and that it’s not coming back anytime soon. Yu may be “under water” on your mortgage and have to bring money to the closing table in order to sell. That happens every day. It’s not pleasant, but you just have to deal with it.

If you are a buyer, with nothing to sell, the market is still yours. While prices might stop dropping, they will likely never be lower in your lifetime, so buy now. You should only buy, however, if you see yourself holding on to the property for 3-4 years. It’s not the time to be flipping houses – buying and selling right away. Houses that you can get really cheap (usually foreclosed properties) these days usually need lots of work. Unless you are a builder yourself, with the skills, tools and equipment, connections within the trades and ability to buy materials at builder prices; it is a losing proposition, even at the depressed prices that you might find.

I see a lot of houses that are in a second foreclosure, which now have nice new kitchens or new carpets, roof, furnaces or other things that would-be flippers have put into them. The would-be flipper has run out of money and time and ended up in foreclosure himself. Now, a first-time buyer can come along and get a house that doesn’t need as much at a great price. Many of these now bankrupt flippers were themselves young singles or couple who thought that they could make a quick killing on the real estate market. Even the seasoned pros at flipping have been very cautious about investing in this market. So, proceed with extreme caution into that brave world.

As for me, I think the good old days are just ahead of us. We'll muddle through the current recession somehow; while the gang in Washington (no matter who wins) flails away at this rescue package and that; until time eventually fixes everything and they can start patting themselves on the back for their decisive actions (having conveniently forgotten the good old days when they caused the problems in the first place). In the mean time we can amuse ourselves watching the perp-walks of various mayors, ex-governors and legislator's on TV.