Randy Fischer Real Estate Blog

Got a report via email today from Wachovia Economics Group.

Sales of new homes slid to 342,000 units at an annual pace in May, off of a downwardly revised level of 344,000 in April.  Over the last three months the net revision was a loss of 32,000 units.  While the market was looking for a slight gain, this report reinforces the picture of a market moving sideways for some time.

INVENTORY LEVELS CONTINUED TO DECLINE:  Inventory levels (of new unsold homes) continued to improve and have now fallen 144,000 units over the past year.  Inventory levels are now back below the relatively stable range held during the late 1990’s.  With very little new construction in the pipeline, and even less incentive to begin new specualtive building, we expect that inventory levels will remain depressed for sometime.  This should begin to take pressure off of prices in the medium term. (New homes for sale:  May @292,000).

This info will concur with my thoughts.  Nationallly, inventory levels are down, and maybe headed lower.  I believe that we are in the trough of  this downturn  (that began in 2005) as well,  it should only improve from here.  The inventory in the Alexandria market has progressively swelled from the 2004 market levels.  This increased inventory level coupled with the decrease in sales activity pushed this local market into it’s own meltdown as well.  As of yet, our inventory hasn’t seen much decline, and our sales haven’t improved enough to offset pricing.   After 2nd quarter statistics next month, we will get  a better picture.   But in the trough, I think that we are.  Pricing is key, it’s all about the price right now.  If you have dry powder, right now is the time to buy.    Much like in the 1982 market, it progressively got better as habits and confidence changed and improved.  I have seen predictions that new construction will be at 700,000 units next year.  Still far below 2006, but nonetheless, a doubling from 2009.   Personally, I don’t know how we can hold back from building new homes at an explosive rate at somepoint.  We are increasing US Population at the rate of 3,000,000 people per year.  The floodgates will have to open up, home ownership is still near and dear to every American’s heart.   The Alexandria market has stalled, there are fewer new residential construction homes here as well (although I did sell 3 spec homes, and we are going to dig 3 more).   Sales of building lots have tanked from the stats of ten years or less ago.  But, if you look around there is plenty of commercial activity, maybe more than ever(refer to Archives December 2008).  Buildings need people, people need housing.  When I commute within a 30-40 mile radius of Alexandria, this community has retail, medical, industry, schools, I-94…that other communities don’t have and maybe never will.  So even though our market may be suffering in some areas right now (some folks are making money-this is the economy where wealth is created), a very bright future lays just around the corner here in Alexandria.

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My Team and I have been very busy.   There seems to be buying activity, pricing is key.  I do believe that the market is in the trough, the bottom we have been waiting for.  U.S. consumers have cause for concern, although this is definitely the time to buy.  These are the times when wealth will be created.  You have to buy and have ownership, to create wealth.   We will slowly work our way out of this, it was inevitable, although some businesses are thriving in these market conditions.  The market was almost delusionary from 02 to 06, a correction was needed.   Understanding the forces of money, a lifetime it will take.   One of the reports that I recently read said that the market will not get ”good” again till 2012.  That makes sense, a slow steady climb.  Much like it was back in the 1980’s.  I’m very familiar with that market (I was licensed in 1982).  I will submit 2nd quarter stats soon, I can’t wait to see them myself.   Also, keep an eye on the consumer index, it should be out this week.  I will report it as well.

On another note…homeowner equity.  It’s something that we have had a tendency to discard or misuse.   I just want to say that one must do everything in their power to protect the equity in their home.  I have seen many houses in my career and the best home I have viewed is the one that’s paid for.

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May…54.9!  The consumer confidence is at it’s highest level in 8 months (September 2008 - 61.4)!  I can tell it on the street that the worst appears to be over.  It was predicted that the first quarter of 2009 would mark the bottom, the consumer’s appear to believe that.  Maybe the news media can spin this story to the negative?

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I was in real estate class last monday.  Here are some statistics from the instructor:  Projected population for the state in 2010 is 5,452,500 people.  Projected increase for the decade is 533,000 people or 11%.

Some age group projections:  The Biggest Gainers are, a.) 60-64…..30% increase.  b.)  65-69…..22% increase.  c.) 55-59…..19% increase.           The Biggest Losers are,  a.)  40-44…..12% decrease.  b.)  35-39…..4% decrease.  c.)  10-14…..2% decrease

Projections for 2010—Households:   a.)  Projection for 2010 is 2,182,200 households, an increase of 287,100 or 15.1% for the decade.  b.)  The biggest increases will be in married couples without children, up 223% and people living alone, up 21%.  These two groups will account for 80% of the change.

Projected annual rate of growth of Minnesota hoseholds beyond 2010:  a.) 2010 to 2015…..increase of 1.2% households equals 0.9% population.  b.) 2015 to 2020…..increase of 1.0% households equals 0.7% population.  c.) 2020 to 2025…..increase of 0.9% households equals 0.6% population.  d.)  2025 to 2030…..increase of 0.8% households equals 0.5% population.

Side Notes: 

First wave of Baby Boomers turns 65 in 2011

The population is Aging

The population growth rate will slow.

Minnesota is 2nd in Home Ownership

Minnesota is 8th in Family Median Income

Minnesota is 2nd in United Health Foundation’s ranking of State Healthliness

Minnesota is 9th in percentage with a college diploma

Minnesota is 2nd in percentage with at least a high school diploma

Minnesota is 4th in percentage with Health Insurance

Minnesota is 4th in Men Labor Force Participation

Minnesota is 1st in Women Labor Force Participation

Minnesota is 2nd in Lowest Poverty Rate among the 50 States

There is a lot of growth out there in the population; worldwide, nationally and locally.   The United States is growing at the rate of around 6700 people per day (go to US Census Bureau website).  I am a little surprised that Minnesota hadn’t grown more as in 1980 there were 4 1/2 million people here.  The projection now is for 5 1/2 million people in 2010.  That’s 30 years, roughly one million people have been added to Minnesota.  I think back on the price of real estate in 1980 compared with today.  Lake lots on Lehomme Dieu were priced around $25,000, now one could expect to pay around $500,000.   You can invest in the stock market, precious metals, collectibles…(real estate?)whatever you feel most comfortable with.  But first and foremost, save 10% of your income and invest it wisely.  There are more people coming to the US , MN and Alexandria.  Increased demographics will increase your opportunities.  If you are looking for solitude…we still have it available here in Alexandria.  However,  you may want to consider buying it today.

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I checked the Greater Alexandria Area Association of Realtors Multiple Listing Service this morning, there were 86 townhomes for sale with an Alexandria address.  I was told that someone had said there were over 120 for sale in the Alexandria area.

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Sorry that I haven’t blogged for awhile.  Been Really Busy.  I have sold 9 of my home listings and 1 lake lot in a 3 week period.  Plus, I listed a bunch.  I hope my staff isn’t too worn out yet, we just getting going.  Been a long winter.  Although, I can’t complain, we have had consistent and steady sales right through the 4th quarter and the 1st quarter… they were tough months though.  Good thing I saved some powder from the beginning of 2008 to help carry us through.  I hope that the rest of the industry is fairing okay, because sales were down.  Based on where the past few weeks has been, I gotta believe that the worst is definitely over from that recession.  It won’t be easy here for awhile, my prediction is that the rest of 2009 will remain relatively flat for pricing with sales posting a modest increase over 2008.    The inventory continues to trend downward, which is a good sign.  If we ever get back to the 2004 inventory levels, (however, I don’t know if that is possible) we would have a sellers market again.    I do see a seller’s market again, it might be a few years, but that will happen.  The business of real estate is fairly predictable, and Alexandria is fairly predictable.   If I seen a 10-15% drop in pricing from it’s high on some of the inventory, I would say that was on the extreme side of the sales.  Now in Arizona, Florida…they had product that was down 70% from it’s high.  That didn’t happen here, if it did…well, I gotta believe that you could get it for free then in Phoenix(I’m a little partial to Alexandria).  Check with the assessors, their data shows consistent upward momentum in pricing.   Better yet, I’ll go and get the report and load it up on my blog. 

What has been confusing for a lot of folks that I see, is that they had an appraisal from 2005, 2006, or say 2004 that said X.  When it’s realized that the X number is unattainable, they lost money.  But from what was paid in 2002, 1998 or prior and eventually sold for today, they made money.  Maybe not as much as the high of the market, but nonetheless, there was a profit.  If you had never been in a recession before, you probably never believed that real estate could go down?

Historically, real estate will earn 3% or more on average.   With leveraged funds, tax benefits and appreciation, the returns can sometimes be in the double digit arena.  This has been the nature of real estate for most of my career.  When the market went ballistic, I never felt that it was real.  I personally did 117 closings in 2004 with over $30,000,000 in closed sales volume.  No assistants, just an incredible amount of hard work and long hours.  The tax man loved me, I think I paid for a nuke that year.  But the returns were not real, that’s when you know it’s going to change.  I told my old partners in May 2005 that the market needs to trend downwards now and maybe at a modest pace, because it needs to correct itself.   My sales volume went between $15,000,000 to $20,000,000 in unit sales volume/year from 2005 through 2008.  I think that we would have made the correction work had it not been for $4.00 gas.  I believe that finally took American’s consumer confidence down in October to the 1982 levels and the final death blow to world-wide markets.  If I had more power, I could have maybe done something about that, but I think that I will stick to real estate in Alexandria.

On another note, I was reading the spring 2009 Snow Goer magazine and found this report: POLARIS REPORTS RECORD EARNINGS  For the full year ended December 31, 2008, Polaris reported net income from continuing operations of $117.4 million for the year eneded December 31, 2007, reresentinga 13 percent increase.  Sales for 2008 totaled $1,948.3 million, an increase of nine percent compared to sales $1,780.0 million for 2007.  “In 2008, we delivered record sales and earnings per share and gained market share in every one of our businesses, despite a weakening operating environment and uprecedented volatility in the world’s financial markets,” said Scott Wine, Polaris Chief Executive Officer.

“During the fourth quarter the retail sales trends for the powersports industry and Polaris weakened significantly as the overall economic environment continued to deteriorate,” Wine said.  “These retail sales trends for each of the industries and geographic markets in which Polaris competes are expected to remain soft for much, if not all, of 2009.  As a result, we will be more conservative with our production and shipment expectations for 2009.”

Snowmobile sales increased 19 percent during the 2008 fourth quarter compared to the prior year’s fourth quarter.  the increase reflects the benefit of product mix changes related to the timing of shipments of new models within the year, according to Polaris’ press release.  For the full year 2008, snowmobile sales increased 15 percent compared to the prior year reflecting lower dealer inventory levels and good snowfall.  CONGRATULATIONS, POLARIS!  (I thought that was a great article)

Right next to that one, was one about Arctic Cat.  Same story…SALES AND PROFITS WERE UP IN THEIR SNOWMOBILE BUSINESS, COMPARED WITH THE YEAR PRIOR!

Like I said before, turn off the news…they want you to believe that all is BAD.  That way they (the news media) make money.  It’s  a crazy world, but protect your brain and what you feed it.  You’ll be a lot happier:)

I gotta go and sell some more real estate, it’s hard work to keep up.  Thank the Lord my Team is so good.

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My Wachovia report from April 3, 2009 said that “the personal saving rate has leapt higher over the past six months to about four percent…the personal saving rate has not been as high as it was at the start of 2009, on a sustained basis, since the 1990’s mid-cycle slowdown.  In fact, the saving rate hovered just barely above zero percent from summer 2005 until mid-2008 at the height of the last expansion and into the first part of the downturn.  Despite the current increase in the saving rate, our view is that America still roundly has a culture biased towards consumption, as opposed to saving, that will continue to guide us through this cycle and beyond.  However, for now, consumers seem suitably spooked  by the current state of the economy to increase their own personal reserves.  The saving rate will likely continue to rise for the next several months driven higher by declines or weak growth in consumption as well as near-term tax relief.  These will at least be partially, but not entirely, offset by weak wage and salary income growth as a result of the turmoil in the nation’s labor market.  While the worst of the outright declines in consumption may be behind us at this point, households may adjust to a new long term equilibrium”.

In their April 17, 2009 report; their current statistics backs up the one that I stated in my July 2008 blog  “The Market Today”.  In the July 2008 blog, I quoted that “if the rate of decline continues, we would be at historic levels of about 300,000 unit  one year from now”.  This is in regards to the new homes built but not sold.  The 4.17.09 Wachovia report said that “Sales of new homes will likely continue to struggle during the first half of 2009 as employment, economic concerns and mortgage market troubles outweigh the improvements in overall affordability we have seen.  Declines in completions and in general building activity mean less supply will be coming to the marketplace.  Inventories may return to the “equilibrium” levels of the late 1990’s by early this summer.   There are a number of powerful incentives to purchase a new home in place today, including builder discounts, tax rebates for first-time home buyers and exceptionally low mortgage rates.  (New Homes for Sale:  February 2009 at 330,000)

Existing Home Resales:  Peaked over 7 million in 2005.   February 2009: 4.72 million.

Another quote from the April 2008 report:  “We estimate just 740,000 housing units will be started in 2010; the average during the 2003-2005 bubble period was 1.95 million units”.

U.S. POPULATION CLOCK (4.20.09 at 15:15GMT)  306,255,531.   The February 19th count was 305,849,952.  The difference was 405,579 in two months.

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I was a little surprised by the sales for the first quarter in the Douglas County Lakehomes closed first quarter compared with 2008.  There were 12 sales in 2008 and 10 in 2009.  The highest priced sale this year so far was $700,000 and those honors go to me:)  Last year it was $625,000 for high sale in 1st quarter.  Average sale price in 2008 was $357,500 and this year it was $344,300.  Overall, my opinion is WOW.  Not bad at all, could be a smoking great year.  If that was the deepest and darkest spot of the recession, bring it onnn! 

The consumer confidence reached an all time low in February of 25.3 on the index.   Presently, it stands at 26.0 and the next read is April 28 at 10am ET.  I always said, let the consumer confidence go to zero.  It can only go up from there.  Maybe the 25.3 will be the bottom.  My records show none lower ever.  That means that the consumer confidence will only get better from here…unless we can possibly find another new bottom.  Let’s hope that ain’t the case.   I’m not complaining, I had 3 house sales for the week:)

I still am not watching the news…and I can’t think of anything that I missed.

Got any comments for me out there?  It gets a little lonely here in cyberspace.

Have a great weekend.  (67 degrees right now)

Statistical information provided by the Greater Alexandria Area Association of Realtors Multiple Listing Service.

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Douglas County Hospital named among the Top 100 small hospitals across the nation…WOW!  Read the full article in the Echo Press at www.echopress.com .    Great Story!

Douglas Machine plans to expand scientific research division.  A $1.6 million dollar project…Douglas Scientific, one of it’s divisions, makes a revolutionary fluid dispensing and array tape platform for genetic screening and discovery.  (This is high-tech stuff, good luck Douglas!  Great to have you in our back yard)

Got any more good news, we are Happy to Blog it!  If you want the negative junk, watch your TV.

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In reviewing the sales stats for the Greater Alexandria Area Association of Realtors Multiple Listing Service, I have the following information to share:

In first quarter 2008, there were 53 sales in the residential sector in Douglas County.  14 of them were in January, 21 in February and 18 in March.  Seven sales were REO or Bank Owned representing 13% of the sales.  By price:  11 sales were $0-$100k,  19 sales were $101-$150k,  10 sales were $151-$200k,  10 sales were $201-$300k  and 5 sales were over $300k.

In first quarter 2009, there were 39 sales in the residential sector in Douglas County.   11 of them were in January, 17 in February and 11 in March.  Thirteen sales were REO or Bank Owned representing 33% of the sales.  By price:  17 sales were $0-$100k,  9 sales were $101-$150k, 7 sales were $151-$200k,  4 sales were $201-$300k and 2 sales were over $300k.

Overall, sales were down first quarter 2009, over 2008 by approximately 26%.  The seven sales in 2009 that were $151-$200k , topped at $179,800.  So that means that 33 of the 39 sales in the first quarter were below the $180,000 price tag.

Statistical information provided by the Greater Alexandria Area Association of Realtors Multiple Listing Service.

These statistics however grim, do have a bright spot.  Even though sellers are taking a hit on the chin, it is probably one of the best times to buy real estate I have seen in my career.  The housing affordability index is off the charts with interest rates and prices where they are.  The fear and  paralysis that people have when investing into their future is normal.  Usually, by the time that fear goes away it’s too late to get in on the best deals.   Some refer to that as the “herd mentality”.  To make the most of any market, try to do the opposite of what the rest of the people are doing.   People with money will usually advise you in that direction every time.

Couple of other things, probably that I don’t proclaim to know too much about but:  this Summit Meeting that President Obama is at…that will probably change a lot of things in the future.  One being maybe the dollar’s usual standing as being the top currency in the world.  There may be another one or two that enter that arena.   Keep an eye on China.  Also, our national debt is incredibly high.  If inflation rears it’s ugly head like it did during President Carter…the best and probably the only place to be invested is real estate (especially for us “lay” people).  

Keep a close eye on the horizon, try to predict the future events, get in the crossfire with your investments.  There are books out there that keep you thinking.  I read Megatrends in the early 80’s.  He said that as the world becomes more technically advanced, people would reach out more to connect with other humans.  Hence, cellphones, email, texting, computers…there are more visionairies like this out there.

World Population is going through the roof.  We are no way near ZPG.

U.S. Population is rapidly growing.

The need for food, clothing, shelter, sanitation, clean air, energy…all of this will affect the human race for the next 100 years.   And we haven’t even started to talk about the advent of nano-technology.  It’s going to be an exciting ride…the next century that is.   And don’t forget, it all needs real estate…and turn off the daily news.

I would appreciate some feedback, let me know your thoughts

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