Auld Lang Syne

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As 2009 closes behind us, we shall enter 2010 with a little more optimism.  There will be a plenty of skepticism to go around and of course we will still worry.  That’s the dynamics of humanity that creates a market.

In meeting with my former colleagues in May 2005, I had said that the market needs a correction.  The year of 2004 was surreal and that if it corrects itself a little bit now, that the fall would be less than if we waited.  What has unfolded was  a slow and steady decline in sales to its final culmination in 2009.  This was undoubtedly one of the toughest years in the real estate community for some time.  However, I do think that the market is leveling off, finding its “trough” so to speak.  This is the point at which I entered the real estate business…1982; almost a recurring act.  I started in 1982 during the depth of the recession, the market only improved from there.  Be advised that the word “improved” was not a cataclysmic event.  As then and most likely now, the improved market is a slow and barely noticeable climb, but up, nonetheless. 

The final straw to the American spirit that let to the recession of 2009, culminated in the 4th quarter of 2008.  The net equity in housing, which is determined by asset value minus mortgage liability, stood at $8.5 trillion in the third quarter of 2008, down from $12.5 trillion at the end of 2005.  The loss of stock and retirement equities plus $4.00 gas put the American people in a tail-spin by the end of 2008 and henceforth 2009 began.

Easy and available credit after 9-11 led to the constant flow of purchase agreements and sales orders in real estate and the construction industry.  The tightening of credit, which I hope will eventually ease some in the future, has led to the further demise of sales and new construction from coast to coast.  I don’t anticipate ever seeing the market days of 2004 for a long time.  The real estate industry and the consumers should adjust to the current state of affairs.  The market we have today, I believe, will be our market for at the least the next year or two…barring any unforseen catastrophes.  After that, it is too hard to see.

Helen Keller was once asked if there was anything worse than losing your eyesight.  She replied, “Oh yes, having eyesight and no vision is much worse.”

The year of 2009 lagged behind 2008 in many of our market sectors.  The American people were shaken to the core.  In trying to define that occurrence, I look to the Consumer Confidence Report.  The Consumer Confidence Index will probably show once completed that 2009 was the lowest year ever recorded.  During the 1982 recession it averaged around 60 points according to my information.  So far for 2009 it averaged approximately 44 points.  So if you find that things might have been  a little slower, quite frankly it’s because consumers were lacking the confidence to spend.  It was quoted and I have it in my blog that the 4th quarter of 2008 and the first quarter of 2009 would be the deepest, darkest days of the recession.  Consumer Confidence was at an all-time low of 25.3 in February.  That’s the lowest number ever recorded since the Index was started in 1967.  It has a ways to go, but keep an eye on it (the CCI).  It tells a lot of the story. 

Going forward, my vision tells me that Alexandria is not going to stop.  Probably not even slow down very much.  If you don’t believe that, just wait.  If you don’t get ahead of the progress, or involved, then you can just watch it and see it unfold.  This town is perfectly poised to take advantage of the new emerging economy.  You can see it…drive 50 miles north, south, east or west and tell me what you do see.  Small towns throughout the Midwest have bit the dust.  Th survivors will be regional centers.  They will attract the schools, shopping centers, hospitals, national retailers, public attractions, JOBS, recreational facilities and much more.  I’m sorry, but I don’t see any hope for the small agricultural towns of yesterday.  Other than bedroom communities because the cost of housing is less, they will probably be a poor place for real estate investing.  They will have a convenience store, maybe a bar, a restaurant, maybe an ag related business…but not much more than that.

I believe that the inventory nationwide will subside and residential construction will be back, with a vengeance.  Nationwide, at the current sales pace, the inventory of unsold new homes would be depleted in 6.7 months.  A forty year low.  Quietly this inventory has been going off the shelves and my beloved liberal news media doesn’t take the time to report this national news fact.  (Read July 29, 2008 and Dec. 7, 2009 blog)

One thing that is most certain is that the markets, the demographics, lifestyles, the economy, housing, jobs and more are changing as we enter another new era.  Have you ever read about Nano Technology?  Well you should, this stuff is awesome!  It has been said that it will change the course of humanity for the next 100 years.  Immense change is coming.

Charles Darwin once wrote, “It is not the strongest of species that survive, nor the most intelligent, but the one most responsive to change.”

Yes, the year of 2009 was difficult in many ways.  However, my young company had an absolute fantastic year in 2009, we contributed in 80 closed sales (4 pending) and will end with a better year than in 2008.   Yes, the real estate market is very much alive in Alexandria, as well as all of us.

One thing that I want to add before I close and that is saving money.  We all used credit more than we should have.  IF there is one thing that you learn from all of these events is that there is NO substitute for savings.  Another element that was abused is homeowner equity.  The best house that I have ever seen is the one that is PAID for.  Preserve and protect your equity, you will need it in the future.  Continue to stockpile your cash, no matter what.  We are consistently sold on the idea of spending.  However, if you save money, you will be light years ahead of those who don’t.  I may suggest a book, “The Richest Man in Babylon” by George Clason.  It’s a simple book, but it teaches one the principles of money.  Understanding the principles is the key.  One last thought, “It takes more energy to retain money than it does to create it”.  The rich know this, the poor do not.

I want to thank those you that supported us in 2009.  This is a fantastic town and fantastic people with a great future.  And when it comes to real estate, be sure to call my team and I.  We are fired up and eager to assist in any way that we can.

Merry Christmas and Happy New Year from all of us at Randy Fischer Real Estate.

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Inflation – The Trough – Upward and Onward

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In ending 2009, I am reading some reports about the economy and it appears as expected last year that by the end of 2009 we would be through this.  And with all the reports so far, it is the “trough” we are in.  I am now more concerned that the current adminstration’s policies will have a far more damaging effect to the economy in the near future.   With all the money that we spent as a government this year that we  didn’t have…well, try doing that at home.  The results are the same.  President Reagan, rest his dear soul, was pressured by the democrats to do the government programs like Obama did.  President Reagan didn’t for fear of inflation raising it’s ugly head.   His by-line was “stay the course”.  It worked, America seen the largest economic expansion that it had ever seen and the tax dollars flowed into the federal government.   I understand that the  “stimulus” money hasn’t really reached the American people yet, and we are for the most part out of the recession.  But now this  new debt is here.  Inflation?  You bet, we just bought and paid for it.

I’m afraid that this health care bill is going to cost a lot of money with little or no results to the poor or average American.  What the heck, if it means getting re-elected…spend it.

Enough of that:  Let me quote from my weekly Wells Fargo report;  “Economic recovery remains the baseline outlook.  This week gains were reported in industrial production, housing starts and leading indicators.

Housing starts rose to 574,000 in November compared to average starts of 540,000 in the second quarter.  Leading indicators for housing are also positive.  Expected buyer traffic is up in response to the first-time home buyer tax credit.  Single-family permits are running ahead of starts which suggests starts are sustainable at current levels.  yet, we remain cautious.  Our outlook is for just 660,000 housing starts in 2010 – not the 1.3 million of 2007.   Household income growth remains modest and credit standards are tighter.  Household expectations for home prices and the state of the market remain very subdued.  The calculus of home buying and finance has changed.

Sales of new homes regained their footing in October, increasing around 6 percent to an annual pace of 430,000, after uncertainty around the scheduled expiration of the first-time home buyer tax credit likely pushed sales lower in September.  Inventory levels of unsold homes have continued to improve and have reached levels not seen in nearly 40 years.  Once sales rise on a consistent basis, the sustained low levels of inventory suggest a pick up in new construction in coming months.

Inflation: A Note of Caution  This week’s consumer price report introduced an element of caution that we had expected.  Inflation, while “low” is not flat.  Over the past year, core goods CPI is up 2.6 percent compared to a year ago.  The overall CPI is up 1.8 percent compared to 1.1 percent a year ago.  With two, three and five year Treasuries all yielding below three percent these inflation numbers suggest negative, real after-tax  rate of returns for investors.  Meanwhile, average hourly earnings are up just 2.2 percent suggesting that rising inflation will put a damper on real income growth.  Finally, rising inflation brings into question if the Fed can maintain its 2.0 percent inflation target in the face of political pressure to keep monetary easing with unemployment above nine percent.”

Source:  Wells Fargo Securities

Inflation…best place for your money is in real estate when it rears it’s ugly head.  Keep an eye on my blog, I will be watching this weekly as the years unfold.  Inflation was kept in check for 28 years.  I almost think that an inflationary period is worse than a recession, from what I can remember of the Carter years.  That’s right, during Carter we had 10% inflation per year.  Taxes…before Reagan, were at 50% (some as high as 70%).  President Reagan cut taxes (to a max. of 28%) so that the money went back into the hands of the American people.  Man do I wish that he was alive today.  I see a replay of Jimmy Carter about to unfold.  So with that…

real estate is the best place for the average American to invest and ride out the future storm.  If the administration wins out on increased taxes (the capital gains tax is currently at 15% with a sunset provision during Obama that I don’t think he will give back) you may have to hold it until a favorable tax climate reappears.

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2009 State of Retail, Part Two

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Again, from the Minnesota Shopping Center Newsletter, the following tidbits of information that also seem to help point the way to the future…

“Retailers are about to embark on the holiday season of the serious bargain hunter.  According to the National Retail Federations (NRF) 2009 Holiday Consumer Intentions and Actions Survey, conducted by BIGResearch, U.S. consumers pland to spend an average of $682.74 on holiday-related shopping, a 3.2% drop from last year’s $705.01.

The NRF is projecting holiday retail sales to decline 1% this year to $436.7 billion.  While this number falls significantly below the ten-year average of 3.39% annual holiday-season growth, the decline is not expected to be as dramatic as last year’s 3.4% drop in holiday retail sales nor as severe as the 3.0% decline in annual retail-industry sales expected for all of 2009.  The anticipated $4 billion in holiday seasonal shopping sales is the slowest growth rate to date, according to a Forrester Research, Inc. study released in mid-October.”

Source:  Minnesota Shopping Center Association

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2009 State of Retail

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I’m a member of Minnesota Shopping Center Association.  It’s a great association with tons of information.  I don’t know many people there, I get to a few meetings, but I always read the newsletters.  Their annual State of Retail report is quite an unveiling every year.   Especially now with the decline in retail that has permeated the last several years.  There is always optimism at these meetings though.  Maybe that’s why I like real estate so much…mandatory optimism!   Here are some excerpts from their newsletter:

“There have been efforts to improve the economy with the stimulus program, but in reality not a lot of money has been spent.  The financial accounting rules have changed from “mark to market” to “mark to model” or term.  Banks are wary of lending and demand personal guarantees.  They are utilizing new tactics such as extending loans and utilizing new fee structures to create profits, for example “a loan that rolls, grows no loss.”  Life company lenders have become very selective, want perfect deals, low loan-to-value ratios and big spreads.  In the equity markets, the only active investors in 2009 have been the entrepreneurs.  The only active players in the market tend to be equity capital investment advisors, REITS and entrepreneurs.  Nationally, the actual amount of deals in the first 6 months of 2009 totals only $16.4 billion vs. $132 billion in 2008 and $443 billion in 2007.  The forecast is that CMBS transactions will come back in a different form.  Expect fee-driven Wall Street to “Re-REMIC” bad CMBS traunches, few distressed sales and money being allocated to stabilized deals.

Drew Johnson of RJM Construction spoke from an owner or development perspective – with optimism still reigning from over 3.5 million sf of retail development still advertised on MNCAR.  Currently the market is dominated by negative absorption, a decrease in sales, and an increase in retailer backruptcy.  The resenct fallout has delivered some lessons to the developer:

  1. Be wary of the small shop proforma trap (watered-down cap rate anchor ratio decrease); small shops are hard to lease and expensive to build, avoid the “over-build” stigma.
  2. Cycle will be back; developers will forget as the Met Council projects the area will add another million people by 2020.

There are three types of properties:  “The good, the bad and the ugly”:

  • The good – credit tenant, shop not overbuilt, time tested, and value has decreased 35-45%.
  • The bad – newer development with vacancy in third ring markets, weak demographics, junior-box exposure, and correct reposition if not sunk by refinance.
  • The ugly – unanchored with vacancy, soft goods retailer with con-tenancy clause, bank owned and built on “irrational exuberance”.

John Johanson of NAI Welsh discussed the facts, hopes and trends from the retailier/broker perspective.  As for the current market, there are no deals to recall, the last being over 18 months ago.  He asks if the landlord will be able to carry the costs from the economic crisis to to get to market value again.  The current retail property will be inventory for how many years?  The last new development, West End, is opening at 65% occupancy.  There are some bright points after many retailers have downsized or been forced out of the market.  The surviving retailers should be stronger such as Best Buy and Bed Bath and Beyond.  Property types on the market – too much big box, tenants are moving up fro c-b and b-a, they are paying lower rents, regional malls are uncertain who is the next anchor, lifestyle centers could be a big change for landlord’s lifestyle.  There are new deal terms coming: co-tenancy is history, kick outs will occur less frequently, there will be more sharing of cost, and renewals will see rents falling or flat exchange for adding lease term.  He forecasts that new development will be cost prohibitive based on “market rents” and land costs and that inflation is coming.  John questioned if this recession will change an entire generation’s habits.  Will our children learn to shop?  The upper Midwest has trailed the rest of the country during the entire recession.  Is our recovery coming?  We are experiencing things that other regions experienced last year.  The good news is that historically retail and food service sales have never fallen.  We have even experienced a .08% rate of growth in 2009.”

 

Source:  Minnesota Shopping Center Association newsletter Dec. 2009

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The Market Just Keeps On Improving

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Nationally, Inventories of new homes for sale continue to plunge.  At 239,000, the stock of unsold new homes is the lowest number in nearly forty years.  At the current sales pace, the stock would be exhausted in 6.7 months.

The improved inventory situation is helping to stabilize new home prices, which have been roughly flat over the past few months.

New home sales in October printed stronger than most analysts had expected.  Indeed, sales rose from an annualized rate of 405,000 in September to 430,000 in October, the highest sales pace since the Lehman bankruptcy last September.

Read my October 28th blog.  Drawing down the inventory is key to stabilizing pricing.  As of this morning, there were 530 active residential listings posted in the GAAAR MLS compared with 617 for a high on September 17th.  It has been steadily dropping, we will see what spring brings.

Source:  Greater Alexandria Area Association of Realtors, US Dept of Commerce and Wells Fargo Securities, LLC.

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Randy Fischer Real Estate…what are we doing?

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I am scheduled to have my 76th Closing for the year today.  My goal this year is to broker 78 closings.  I have plenty in escrow to complete that goal.  Last year, my first year in this firm, I brokered 68 closed sales.  I was satisfied with that, but I know that I need to do more (my best year ever was 2004 when I closed 117 sales personally).  The first quarter of 2009 and the fourth quarter of 2008 were very rough.  There were no sales to speak of.   My staff is top notch, the finest in Alexandria.  They are very knowledgeable and efficient.  Service is key in our business, I would like to think that no one gives better service than us.  If you get a chance, read the testimonials in the About Us column.

Next year the goal for Randy Fischer Real Estate, Inc. is to complete 120 closed sales( I need to beat 2004).   In my world; accuracy, speed and efficiency are imperative if you are to be a successful real estate agent in today’s market.  You couple those characteristics with an intensity for  local market knowledge and good business ethics and this should be the makeup for the agent of the future.  We are going through our own paradigm shift as well, let’s see how it all looks in the future.

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Condo/Townhomes. Residential-Alexandria, MN: Current date

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From the first of the year till today, there have been 22 sales logged into the local MLS system.  These sales are in the condo/townhome category and in Douglas County.  I knew that sales were down just by the showing activity, but I just had to check the data.

The average sale price of the units sold this year was $158,978.  In 2008, the average sale price was $157,443.

The 2009 closed sales data till December 1st compares with  prior years closed sales data till December 1st  like this:

  • 2009                     22 Closed Sales
  • 2008                     27       “
  • 2007                     36       “
  • 2006                     49       “
  • 2005                     39       “
  • 2004                     57       “
  • 2003                     42       “
  • 2002                     29       “

We are having a significant problem in the townhome market and the data shows us that to be true.  I know from my own struggles with my listings for 2009 that we were in for a rough ride in 09.  I think that we will see in the future that 2009 was a good time to buy.  I don’t know how a market can go any lower without completely going kaput.  Only time will tell the story to these writings.  Enjoy the Holidays!

Source:  Greater Alexandria Area Association of Realtors Multiple Listing Service.

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