When Bad Things Happen to Good People

Pensacola Milton Homes

Kevin Costner in Bull Durham: "We've got us a natural disaster."

Imagine the worst. You succumb to my slick sales talk and immutable will and buy an investment house in Pensacola right now. You've been to my website, www.pensacolamiltonhomes.com, and you have done everything right are prepared to collect your filthy lucre and join the ranks of heartless capitalists and start voting the straight Republican ticket. But.... then something happens.

Let's just say that the Spring of 2007 is unusually warm. It encourages early migration of huge flocks of birds which infect the Hong Kong airport with a new virulent strain of bird-flu that mutates to spread human-to-human. This super-virus catches the 8:15 to LAX and makes the connection through Atlanta to PNS (Pensacola Airport) landing approximatley 24 hours after it mutated. It catches a cab to a swanky northeast side subdivision and goes to work being fruitful, and multiplying. Even if it only multiplies by 2, twenty percent local population is dying by Monday. By then, ten more percent are carrying it back to Atlanta with connections to who-knows-where and another 10 percent are taking it to school and work with them. Ten days later Pensacola is an historic footnote: the place where the deadly bird flu started in the USA. It's going to be a place with a lot of vacant houses.

Follow along; in the 25th day the CDC publishes it's 7th set of treatment modalities for the super flu and transmits them nationwide. The treatment is aimed at simple survival and finally it's beginning to work. By the end of the first month the mortality rate has dropped from nearly 70 percent initially to less than 10 percent. They simultaneously announce a break through in the lab and predict a vacine by weeks end.

Day 40 - they overestimated the lab results at first but now, they have a vacine. The President, Supreme Court and Speaker of the House get the first doses as Vaxin and MedImmune in the US and Chiron in the U.K. gear up for rapid mass production.

Day 92 - Local community groups, FEMA and NGO's, following CDC guidelines for supportive treatment and quarentine have stopped the rapid spread of the disease. They were assisted by a late cold snap in the northern tier of states that not only kept everyone inside, but seems to have somehow had a direct effect on the virus itself. Out doing even the most optimistic predictions the drug companies have rallied - 90% of those at risk are vaccinated.

Day 108 - The CDC reports almost no new cases in a week. The worst damage and the highest mortality rate seems to be limited to Pensacola and the surrounding area where, in part because of the large retired population, a terrible 37 percent of the local population is dead. It will be a year before the hospitals recover and place the last of those patients permanently disabled by the disease. Most of the disabled have some form of chronic brain dysfunction from the severe hypoxia they suffered when their lungs were first attacked. The survivors, shaky and bewildered, begin to rebuild.

- BREAK BREAK -

Back to real estate.

I said before that a normal market economy will tend to moderate. When disasters happen they affect supply and demand simultaneously. In this case supply has increased (the deceased's house go on the market) and demand has dropped (smaller population).

The next is obvious - the sales price of real estate decreases dramatically making buying more attractive and Pensacola begins to seem like a great place to live. For every person who buys a house the supply decreases. As the supply decreases, the population increases (people are moving in to the houses they bought) and the market regains, eventually, a dynamic equilibrium. For the home owners who did not panic or were not forced to sell, they find themsleves in an enviable position. And, that's where you wanted to be when we started this conversation - right?

Before we go, you ask, "Well, what about hurricanes." That exercise is on page 72 of your text and includes the variables "huge demand" and "under supply". You can apply the same "moderation" theorem to solve the problem. Just remember, there are always outside forces at work (hurricanes, forest fires, earthquakes and Democrats) and the equilibrium is always dynamic.

I was told the other day by someone who has a really close up look at a very small part of the market that she has seen the turn around. She is saying the buyers market is bottoming out and that moderation is again at work. Like I said, she has a microscopic view, but she's a smart lady and worth watching. So, let's do that.

Meet me here again at the regular time and I'll tell you what I found out. You too can report here and are invited to leave your opinions, gossip and palaver. We take all comers.

Jordan
www.PensacolaMiltonHomes.com

End of All Days

Pensacola Milton Homes

"Rates have been headed lower for more than two months as financial markets have become convinced that a slowing economy will help ease inflation pressures and that will keep the Federal Reserve from raising interest rates further." Associated Press Oct 5, 2006

"Deficit Dips to Lowest in 4 Years": headline foxnews.com October 11, 2006

"The current administration is behind in the polls and the election is less than 30 days away." Me, October 12, 2006

BTW, did I mention that the price of gasoline is dropping daily?

Listen, I am as skeptical as anyone when it comes to politics, so who knows what December will bring. I am very disappointed in the current administrations inability to admit mistakes or alter policy for fear of having to admit they were wrong to start with.

Nonetheless, the above are signs of normal market corrections. I may not have expected them this early but market forces always tend to moderate – all other things being equal. We could have anticipated that the rampant sellers market would end when supply caught up with demand. We maybe could have guessed that by wildly over-building (along with rebuilding) we would enter a strong buyers market. But, who knew it would be this soon?

So, barring natural disasters, how soon will this 10 month real estate inventory drop back to the usual 2 or 3 month inventory?

Could it be that in a year we are looking back at this as a great time to have invested?

I’m not trying to make a point here or to view the current disaster-rebound through rose colored glasses. I’m trying to take a look at market forces and guess what comes next.

This is a time that you can pick and choose real estate at prices lower than they have been in 26 months. Some people call that opportunity.

Next time we talk about natural events that alter the market.

So stick around

Jordan
Pensacola Milton Homes

The sharks are back in the water

Pensacola Milton Homes
I was talking to a friend of mine today who invests in real estate a little (and like most of us is conservative enough to keep some savings in cash and some in stocks or mutual funds) and he asked when I was going to bring him another property to buy cheap, fix up and sell in 60 days.
Todays revelation is that the sharks are back. Investors are again looking at the market conditions here and saying; "Hey, it's time to float some money again." After all there are a LOT (about 6700) of residential properties available, prices are falling, and despite the TV pundits complaints about the economy, interest rates are either falling or, at worst, stable. Don't get me wrong, check the date of this post and then check the news - there is plenty of bad news to go around. It's just that the economy seems good.
It's the back side of the equation that is the problem. Buying cheap and fixing up is getting easier every day. But selling in 60 days, or 90 days or even 120 days at a 20% mark up (the investors usual goal) is tough right now.
My advice to my friend is: buy something cheap, fix it up and rent it out for 2-4 years then sell it. You know the drill - borrow some money and let someone else (the renter) pay back the loan.
There are great oppotunities presenting themselve right now - but only for the patient investor.

Check out land, homes and multi-family listings at my website Pensacola Milton Homes

and stick around

Jordan

Pensacola Milton Homes

Pensacola Milton Homes: "Monday, October 02, 2006" There is a question from the floor - "What's next?" I am always leary of people who claim to know the future or what other people think. Watch any political TV talk show and no matter what the screaming-match de jour you will always hear two things; 1) "The American people want... (or don't want, or think)" and 2) "If that happens then xxxx will happen..."

Our brains try desperately to find patterns in the numbing amount of input we feed them. We have enough challenge trying to analyze what just did happen without the greater challenge of predicting what come next. But, survival depends on that prediction. Touch the red-hot burner, check your gas tank with a lit match or wander down the wrong street and poor predictive skills will severely limit your chances of producing offspring (who would only inherit your propensity for sudden death and have problems of their own). So, predict we must.

Alright - enough philosophy. Here's my guess:

Yes, things are going to reach some dynamic stability because that's what capitalism does. Sooner or later supply and demand curves meet and prices must approximate value (def. Value vs Price).

There is a demand for housing. Realtors are closing about 625 properties per month in this area - there are more when you count FSBO's and corporate sales. There are about 6700 properties for sale through Realtors (again, not counting FSBO's, etc), so we can extrapolate about a 10-11 month inventory right now.

The Haas Center at the University of West Florida publishes an economic report every quarter that includes information about real estate sales and permits pulled. These are free to the public and are, I believe, at least partially funded by Gulf Power. (ftp://143.88.89.2/NW_Florida_Economy/)
1st quarter 2004 (Before Ivan) real estate sales were 1,787. So what? you ask. Well 1787 divided by 3 months gets you just under 600 sales per month. So, in 30 months of massive displacement and destruction and wild economic times it looks that we are selling real estate at a rate about the same as we did before.

The obvious question presents: "OK Mr. Smartypants, if we are selling about the same amount of real estate every month then why are there 6700 properties for sale today?"

I will leave that for the gentle reader to cogitate and hope that others will chime in. The answer (my opinion) is multi-faceted and lends itself to pattern recognition and market prediction (remember prediction? We were talking about prediction) because it looks like the same things are happening now further west along the gulf coast where they had their big hurricane (Katrina) a year after we did.

So stick around

Jordan
www.PensacolaMiltonHomes.com

The Big Inning

The beginning

September 16, 2004 was the watershed date (no pun intended) for the Pensacola area real estate market. It was the night Hurricane Ivan directly impacted the area and catalyzed what had been slow market forces in to a sudden and largely unexpected metamorphosis.

We had always counted on slow, steady growth. These local backwaters were largely undiscovered by foreign (this is the south, so "foreign" means anyone from out of state or Miami) investors and the strong military presence here meant a steady flow of new dollars in to the economy.

Unlike Silicon Valley we don't have paroxysmmal spikes in the local tax base as new millionaires are hatched out of the dot coms, and unlike Detroit we don't falter as a singular local economy has its tail kicked by the Japanese.

What we do have is a ton of military active duty, retired and dependents that have a steady income with COLA raises. That has always kept the entire economy, real estate included, right about the national average. Just before The Storm we were looking at about 600 closings per month at an appreciation of 8% - 12% per year over the previous 5 years. No surprises.

Since that night in September 2004 we have awoken to a new day - a new paradigm is the current cliche. Things got real wild and now, 2 years and one month later, they are trying for some "normal", although so far we don't know what that normal will be and we sure aren't there yet.

So, follow along. I keep the facts at http://www.pensacolamiltonhomes.com/ and here I report the rumors, hints and allegations. Here you find opinions, reports, guesses and eyes on recon. It's the feet-on-the-ground raw data.

So stick around.

Jordan