The Big Picture?

It was so good to find the temperature today above 40 degrees knowing full well it could be much colder for this time of year since I continue to be haunted with memories of last winter. I was doing a little sales research at the office before I had to be at my public open house and found that in some price ranges, our market values are continuing to contract. I was visiting with a client about several sales that took place recently which indeed polluted the statistics of arms length transactions with their having sold far less than expected in a shorter period of time. It’s well and good when one finds homes selling at a discount due to condition or functional obsolescence, but it’s not good when good homes sell too low because it’s like being in a bear market, each day’s low is the bottom for that day, but if the stock drops again the next day, then the true “bottom” has not been reached. As markets of any type continue in a falling pattern, a vicious cycle begins. There is an expectancy as the sun rises each day for there to be yet another drop. Make sense? This is one reason I assure people that when investing in a home, one must look at what can be purchased during the period of time they expect to close on a sale. Long term home ownership is geared to ride out the bumps and grinds of good and bad years. The wild card most people don’t consider is that the purchasing power of the dollar for goods and services has waned over many years. If you look at a table of a dollar’s value say 30 years ago versus now, you’d see the difference.

For example, if you had $100,000 in the bank in 1985, the purchasing power was much greater than if you have $100,000 in the bank today. Sometimes just for the heck of it I look back in my very old sales books to see what a given home sold for in the early 1990’s versus what it sold for recently. Now don’t take this comparison and run out and start buying homes in hopes for their values to quickly increase. The values of homes in Mason City move in a tortoise-like fashion with some years showing even a few steps back. Now we must talk about intervening circumstances. Say we start loosing more jobs in all labor sectors at an accelerated pace. Most people who loose their jobs don’t sit around waiting for another. They either tough it out as long as they can in search of another locally, or they start seeking employment in likely larger and farther away geographic areas. Should the employment opportunities not improve, sooner or later, those homes will hit the market. Market gluts cause prices to fall. Look at what the oil glut has done with the price of oil, and the price of crude continues to fall. I’m personally quite happy about petroleum prices falling simply because the cost of goods and services are too closely tied to the price of refined fuels. I’m hoping the drop in fuel prices will encourage more companies to expand into our area and create more meaningful jobs. When I say meaningful jobs, I mean those that can comfortably support a middle class family. I fear we are loosing too many of the middle class all over our country, and if we do, we will have lost the backbone of society as we’ve known it. I can’t imagine a society without a large middle-class population.

I hope I’ve shed a little light on some of the mechanics of real estate values. Can you see the big picture?

Joe Chodur

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