Income for Life |
Posted: 07 Feb 2008 09:58 AM CST In the media these days, the U.S. real estate market is Jennifer Lopez. It's all about the bottom. In the Wall Street Journal Blog "Real Time Economics,"James Glassman, economist at J.P. Morgan Chase, argues most of the necessary decline in home prices has already occurred. "Given the present trends in income and house prices, real estate excesses of the past five years will have vanished by spring 2008," he argues in a new report (PDF) Thanks, James. Spring of '08 you say? Right around the corner. Great, but ... "There is no sign of a bottom in any of these data," Ian Shepherdson, chief U.S. economist for High Frequency Economics, says in this article "Is now the time to purchase a house?" Robert Shiller, the oft-quoted Yale University economist, says the bottom is not imminent and "could be in five or 10 years." Of course, there are more answers to this question than you care to know. Lehman Brothers says we'll see the bottom in 2009. The personal finance magazine Kiplinger agrees with 2009. It's a safe bet you could find the bottom answer in any year between 2008 and 2012 if you poke around Internet news sites long enough. But right now, you're reading this blog. So I will give you my own best answer to the J-Lo real estate market question. My Answer is: Does it really matter? I'm actually stealing that answer from a man who once provided it to me. I think the story applies here. In September of 2001, I was working with the guy who is my closest thing to a financial planner. I had been talking to him for several days about various topics when the 11th of that month rolled around and the world changed forever. The stock market, obviously, was affected by the 9/11 attacks. I saw opportunity in the market, but NEVER having success with stocks, asked my financial planner guy what I should look at. He told me to look for companies who would take a huge immediate hit after 9/11 but that were certain to survive. The crisis might have crippled them short-term, but they were never going to go away. For me, that was Boeing, which, when the markets re-opened, was trading at nearly $25 per share (about 43 percent) off its 52-week high. It was a value. So I called my guy and asked him "Should I buy now? What if it drops a little bit more?" His answer was simple: "Does it really matter?" It didn't. A value buy is a value buy. I bought as many shares of Boeing stock as I could afford, at $33 per share. In a few days, the stock dropped to about $29 but never went lower. Like I guessed, people DID NOT stop flying after 9/11. Boeing did not stop making airplanes, and in a little over two years, when Boeing shares reached $66, I sold half of my stock, taking my principal back. I let the rest, "house money," ride for a while. When Boeing stock kept hovering between $85 and $95, I decided to start thinking about selling, not wanting to be too greedy. I started watching the stock price hourly, thinking "OK, is now when to pull the trigger?" What if I sold at $90, and it rose to $91? What if I don't sell, and it drops to $85? Then I thought "Does it really matter?' I sold at $88 a share. My overall return on investment was 233 percent. My guy was right -- the $4 per share I didn't wait for at the beginning really didn't matter. I still am happy with my only victory ever in the stock market. And the story reminds me of today's real estate market. Are prices going lower? When do I buy? Where is the bottom? When is the bottom coming? What if I can get an even better deal tomorrow? Does it really matter? Real Estate right now is the Boeing of Sept. 11. In short-term crisis, yes, so prices have dropped significantly, making it a value. And, like Boeing, it's not going anywhere. It will survive. Just as people kept flying after 9/11, people will keep living in houses after this housing slump. And in apartments. And condos. I'm no genius, but I'm pretty sure of that. If you can find a great property in a great area for a great price, do you need to know where its bottom is? If you can make returns on investment that far eclipse my return on Boeing stock RIGHT NOW, why would you care about where the "bottom" is? Are you so slick, sophisticated or successful an investor that you need a 250-percent return instead of a 200-percent return? If you can double or triple your money now, is it worth waiting to see if you can do a little better? Go ahead, ask yourself the question. Does it really matter? Mark Koestner |