What do real estate, inflation, and CDs have to do with each other?  Other than the obvious - that they are all part of the financial picture in the US?  Wait, we don’t have inflation.  No, not yet, but it is coming.  The stimulus package will make certain that it happens.  If you didn’t live through the late 70s and early 80s, let me explain. 

Did you know we have seen many economic cycles that occur at about 30 year intervals?  Part of my college training was in economics, accounting, and finance.  My degree is in Computer Information Systems, because when I hit differential equations being taught from an engineering perspective, I decided a BS in Computer Systems was not where I wanted to be.  So my degree provided me with an education in programming, systems analysis, and business systems.  I never regret it.  I use what I learned every day and actually wish I also had a degree in economics.  I guess I’ll just hit the public library more often.

In the late 70s and early 80s inflation was rampant.  Everything was rising quickly, there was a shortage of oil, and interest rates went to double digits.  I personally paid 15.75% for a 2nd mortgage in 1982.  Ouch.  But I also made 16.5% on a 6 month CD.  The problem is that it was all funny money.  Incomes went up but so did the cost of everything.  In 1976 our home cost $39,000.  In 1988, our next home cost $163,000.  That same home today is worth over $400,000.  In California, it would probably be closer to $1Millon.  Who in middle class America can afford that?  With creative financing, a lot of people did, but then the stream of buyers dried up - just like in the early 80s.  ARMs, owner financing, assumptions, and other creative lending tools were the only way people could buy homes 30 years ago.  Sellers paying points for the buyer to buy down their rate was common.  Our seller did it to get us to 9 5/8%.  By 1982 that rate was a bargain when new loans were at 12.5%, hence we took a higher rate 2nd when we remodeled.

So what does all this have to do with 2009?  When the government starts printing more money and there is no gold standard, inflation happens.  Where do you think that $1.4Billion is coming from?  Future debt created by funny money.  So what will you invest in?  The stock market?  It will be a wild ride and may only go sideways at best for many years.  But still a good choice depending on your time horizon.  CDs or bonds?  Lock in low rates now to be eaten up by inflation later.  How about real estate?  Yes, what about real estate?  It’s tangible.  They aren’t making any more.  It goes in cycles that rise and fall with the economy, i.e., inflation.  Right now is a perfect storm for buying real estate.  Fear is keeping many buyers on the sidelines, but for the bold with a vision, history tells us you can be very wealthy down the road by making good use of real estate, by buying wisely, and letting the rising market and tenants paying down your mortgages help you leverage those early properties into more.  My grandparents started doing this during the depression.  They retired rich in real estate they owned without mortgages.

So educate yourself.  There are pitfalls with real estate that you need to be aware of, but the future can be quite rosy when you do it right.  For a great little treatise on how to do this, read the book or get the CD of The Automatic Millionaire Homeowner by David Bach.  David writes many books with great themes.  For this market, this one is his best.  Much success to you!  For more recommended reading, check out the Recommended Reading List Page.

What a crazy year 2009 has been already.  I’ve been busy listing homes, took 2 full days to attend CDPE (Certified Distressed Property Expert) training in January, and attended the CRS Sellabration in San Francisco in early February.  The real estate market continues to change and opportunities for buyers and investors are ripe.  Low interest rates, prices that haven’t been seen in many a moon, and lots of people looking for rentals in our local Colorado Springs market has created those opportunities.

Sales in January 2009 were down close to 17% from December, primarily because of everyone sitting back with bated breath waiting to hear if there is something in the stimulus package that will make their home purchase more profitable.  Many potential buyers are also waiting to see if their job will still be in place as the economy tumbles.  Stock portfolios have been hit hard as well, so investors are licking their wounds at the moment and trying to figure out if they can jump into the real estate fray anytime soon.  The good news is that inventories are also down, making it easier for sellers who are trying to sell increase their chances of a sale.

In this market, price is paramount!  We saw 1/3 of our sales go to distressed properties in November and December of 2008.  Some markets are much much worse.  What it means for sellers is they have to compete on price with short sales and foreclosures.  That will continue to reduce inventory and voila, one day the market will turn around because there will be more buyers than homes available.  That isn’t going to be anytime soon because another wave of foreclosures is coming, but history tells us it will happen.  Real estate has always been cyclical and we are in one hell of a cycle since 2007.

Prices rose too quickly because of easy money and lack of accountability.  One of 4 homes sold in recent years was either an investment purchase or 2nd home.  A whopping 25%!!!  When the bubble burst, there was a lot of collateral damage as plunging prices were brought to most neighborhoods.  As the cycle continues, buyers who were priced out of the market over the past several years will now have an opportunity to buy.  Investors will salivate over the opportunities for low priced rental properties.  Yes, the people with money will make money.  Wouldn’t you like to know how to be in that group during the next buying opportunity.  Stay tuned as I launch seminars to help you later this spring.

So that’s where we are now.  Lots of opportunity, but not a lot of credit available unless you have stellar financials.  For buyers who can buy now, have fun shopping.  It’s a great time to be in the real estate market!  Your dream home awaits.

In an effort to help my clients understand the real estate market, which is changing constantly, I send them statistics and updates on a weekly basis.  It helps people make decisions that move them toward their goals with real estate.

I decided it would be a good idea to let you, cohomesgateway readers, in on this information as well.  You may not be in the Colorado Springs market, or you may be just browsing the web trying to decide if the time is right to buy or sell, andyou may find this information useful.  I’m happy to elaborate on any points if you want to contact me directly.

So what is going on with Colorado Springs and Pikes Peak Region real estate?  Teller County was hit hard when gas prices rose to $4 a gallon levels.  All of a sudden the drive into Colorado Springs to work while living in the mountains seemed like a huge investment of resources so people working in the Springs have been choosing to buy homes closer to their work.  The mountains have an appeal for many though, so gas prices dropping by 2/3rds will probably help that area once again.  There are always buyers who want the mountain and smaller community life in Woodland Park, Divide, Florissant, and other mountain towns.  After all, it’s closer to the ski resorts!

In Colorado Springs and points east, we have hit a low in sales over the past 4 years.  Less than 500 homes sold in November and again in December, 2008.  This is a time of year when we would expect sales to be closer to 600-700 per month.  This has caused a lot of sellers to abandon the market and sit on the sidelines, thus reducing inventory 15% since June, which is an excellent step towards market recovery.  This is not the time for sellers to “play real estate”.  There are no profits to be had and real estate professionals are not inclined to let sellers test the market with their limited marketing funds in this tough market.  Sellers have to be motivated to sell and understand that means competing with 34% of sales going to foreclosures and short sale properties locally.  Price is the key because the bargain shoppers are those in the real estate market, just as they are in the malls looking for the after Christmas steals.  Weren’t you there?  I was.

The median price for the Pikes Peak MLS has stayed in a 20% range over the past 4 years with the high being $225,000 in mid-2006 and the low $187,000 for November, 2008.  We never had the go-go market of other areas such as Phoenix, Las Vegas, and Florida, but sales happened a lot more quickly from 2004-2006 than they are now.  We have 10 months of inventory without anything new coming on the market, even with a reduction in inventory since June, 2008 of 15%.

Only homeowners who are 100% committed to selling should have their homes on the market now and the more limited inventory will help us move to a seller’s market as the economy improves.  Nothing ever stays the same.  A change will come and buyers who sat on the sidelines fearfully while prices and rates are low will be scrambling to make attractive offers on the most desirable properties to encourage sellers to take their offer over others.  The best homes always sell.  It’s just a matter of what buyers will willingly pay because the biggest fear is to overpay.  Too many people have experienced that in rising markets and are now looking at being part of that 34% of distressed sales.  Or 70-80% distressed sales as is happening in other markets.

So what’s a person to do?  If you are considering buying, but thinking about renting, look at your goals.  How long do you plan to be in the house?  Can you still save money and pay a mortgage?  Remember that the tax breaks of owning a home are a form of savings over renting.  If this is a 2nd home or investment purchase, can you withstand vacancies or managing multiple mortgages if your income changed?  Would owning real estate make you sleep better or worse?  If you think renting is better, have you considered the 6-12 months of rent you would be throwing away to pay someone else’s mortgage?  Have you saved money for a down payment, for home repairs, for an emergency fund?  Have you tried setting aside the difference between your current rent/mortgage payment and the new payment amount for a few months to see if it fits (the side effect is you are saving your down payment!)?  Would you be comfortable and still have money for fun activities or would you be house poor?

I could fill a book with questions to ask yourself, but you get the picture.  Make sure you have goals.  Seek the help of experts.  Then have fun making a purchase or selling and moving to the next town or bigger or newer home that you desire.  There are some great deals out there.  It’s a fun process.  Make the right decisions so you can enjoy it and smile when those new keys are put in your hand.  You’ll know you are taking the right step!

Here’s another good video if you want to learn more about where we’re going in the real estate market.  Okay, so it’s a competitor speaking, but this is an equal opportunity blog.

http://cosmos.bcst.yahoo.com/up/player/popup/?rn=289004&cl=10728866&src=finance&ch=1316259

Perhaps you haven’t seen the articles by Smart Money and Forbes that put Colorado Springs in the top 10 cities to rebound the quickest from the national real estate malaise.  Yes, it is true that during 2008 a lot more homes are going unsold than are sold and for those that are selling it is taking longer than even a year ago, but many would-be sellers ARE finding renters when their homes don’t sell. 2008 hasn’t been a great time to put your home on the market if you DON’T have to sell, but it looks like we may be turning the corner in Colorado.

I’ve attached 2 links to KOAA so that you can get the latest local news.  For those buyers who are sitting on the sidelines or who are putting in offers way too low for sellers to accept, your window of opportunity may be closing.  As we all know, increased demand causes prices to go up.  Inventory is being reduced now, so when the local market turns around, it will probably do so in a way that makes sellers and homeowners very happy as their equity increases because of demand.  Everyone gets their turn for a good deal as markets change.

Click on the link below for the video.  The second link takes you to the KOAA website.

 http://static.koaa.zope.net/includes/video/480×400_zope.swf?id=x1949200974 

 http://www.koaa.com/news/

I subscribe to a number of real estate related websites and came across a good article on RISMedia today.  Are you sitting back waiting for the economy to improve so that you can pounce on a house once you feel the waters are safe?  Are you prepared to do this?  Have you talked with a lender to make sure you can act when you find the right house?

Read this article and learn what is new that you may not be aware of.  Could any of this affect you?  Be prepared and all your dreams CAN come true!

Another wild week, with volatility in the stock market and not much news about the real estate market because it’s a lot more boring right now.  The upcoming election is front and center and comments from the peanut gallery I frequent are that we are ready to be done with political commercials!

Interest rates popped up this past week, so for some their immediate home buying opportunity is gone.  But by watching the markets we know nothing stays the same for very long.  If you have a lender relationship, stay in close touch so they can let you know when rates are where you need them to be in order to buy or refinance.  You can’t lock a rate until you have a home you want to purchase, so when you find that house with the help of an expert in your area, make sure you get a pre-approval letter from your lender so you can act quickly and possibly get help from the seller to buy your rate down if necessary.  When you work with professionals, they can advise you on the best path for your situation.  If you don’t know who is professional in the real estate and lending industries in your area, get a recommendation from someone you trust.  You never know what is possible until you take action.

The private banking system has done it’s job since the Great Depression, but the international potential for bank dominoes to keep falling prompted the federal government to take an ownership stake in 9 large banks as part of the bailout.  That means you and I will own a stake in these banks as citizens of the USA.  The banks involved initially are Bank of America, Merrill Lynch, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, State Street and Wells Fargo.  These banks have agreed to limit top executive compensation and golden parachutes as part of their participation.  The federal government will also guarantee loans between banks to help create more liquidity.  This is turn should free up money to allow businesses to continue to borrow, help home purchasers secure loans, and inject credit where needed in our economy.  This action won’t create a quick fix, but should help keep the financial sector stable as we plow our way through a recession in coming months and hopefully help keep it from becoming a deep recession. 

Last week in the stock market was a lesson in fear.  This week things don’t seem so bad since the market was up over 900 points on Monday, a one day record unmatched in this century or the last.  Today was pretty non-eventful.  So what does the stock market have to do with real estate?  The stock market drop since the high in October, 2007 has caused the evaporation of trillions of dollars in assets.  Starting in 2006, home equity that homeowners thought would be there for them to borrow against evaporated as well.  Both are long term investments, but we seem to have forgotten that.  The go go market of the past decade in both the stock market and real estate was the only market some people knew.  So people acted as if their homes were bank accounts.  They are finding out very painfully that they weren’t.

 Some lenders and credit card companies took advantage of the “we want it now” mentality that has permeated our culture during this time.  Credit was easy; way too easy to get.  Without financial discipline and boundaries on spending, a lot of people got into trouble.  That’s the other side of the financial equation: greed.  Unfortunately when it comes to money, the two controlling emotions are fear and greed.  What’s the answer?  For some people, the next few years will not be pleasant as they try to dig out from under foreclosure and possibly bankruptcy.  If they are not careful, the mindset that got them there in the first place will put them back there again.  Unbelievably, the credit card companies still will give bankrupt consumers credit cards so “they can create a credit history again”.  Of course, in the meantime, the consumer gets to pay very high interest rates and the credit card companies continue to make a profit.  Everyone else is left holding the bag as the federal government tries to fix all the mistakes made by congress, companies, and consumers alike. 

Although it may not be sexy and showy, being a responsible consumer and working from a spending plan is the fastest way to creating wealth and homeownership that is manageable.  It’s a proven statistic that homeowners create a lot of wealth for themselves (when they do it right) that renters will never see because they are paying their landlord’s mortgage, not their own.  Yes, doing it right is really boring and consumers may have to wait to buy their first home until they have a down payment, stellar FICO scores, and steady income.  They may have to buy a used car instead of a new one.  Their first home may be 20 years old and not as big as they like.  But if people take a measured approach to purchasing the largest asset they will most likely ever have, they will have fun in the process and be comfortable with the outcome instead of living in fear that they may lose that asset.

Have you ever heard the term house poor?  Don’t let your house own you.  Be able to live in your own home and still have money for stuff for the house and for doing the things you enjoy.  If you are unsure how to get there, take a trip to the local library and check out some books on buying homes.  Not the get rich quick flipping houses books, but the realistic books showing you how to take planned steps to homeownership.  Also look for classes in your community that help you understand the process.  The resources are there.  All you have to do is look for them.  And look for professionals to help you.  A reputable realtor and lender are your first line of defense.  Get referrals from people who had a great experience buying.  Buying a house should be a lot of fun and this is an excellent market for the buyer who is prepared to do it right.  Fantastic opportunities are everywhere.  Make sure you have planned well to be able to take advantage of the opportunities before taking that step.

Is the bailout going to work?  Right now we are on a slippery slope.  As long as foreclosures keep happening, prices will be affected in the neighborhoods where they occur.  Tightened credit will help keep bad loans from being made in the future, but what about those people in trouble now, or who don’t know they are in trouble yet because they don’t know how rate adjustments will affect them?  There may not be immediate help in the bailout bill signed by congress and the president, but the Help for Homeowners program is now in effect and should help hundreds of thousands of homeowners who owe more than their home is worth.  Once the assets purchased by the federal government are valued we should see improvement in the financial sector, but it’s not going to be a quick fix.  For anyone anticipating trouble keeping up with their mortgage, now is a good time to talk to their lender about options available to them.