When to Buy and When to Sell
October 2008

30 years ago I had the privilege of visiting with a seasoned gentleman who spent the majority of his years in farming. He was well off and enjoyed the art of storytelling and had a passion for philosophy.

As a young man I was eager for knowledge and wisdom.

One statement from this statesman settled hard and fast for me. It was how he had accumulated his wealth.

The answer was so simple, one could easily dismiss it as benign, until one actually gave it good thought. He said “when everyone else was selling I was buying, and when they bought, I sold.”

In other words, as more people buy, prices tend to go up. When they sell, prices tend to go down. It’s basic law of supply and demand coupled with “buying low” and “selling high” philosophy.

This applies to real estate as well. Fewer buyers push prices down as sellers bid for buyers’ attention. More buyers and less supply give sellers the advantage and they can demand better terms. Prudent buyers, interested in building wealth faster, are now in the market. Not everyone is interested in wealth building, but if you are interested in getting more comfort and amenities for less money, this is also the time for action.

The economy in the Sioux Falls area is as solid as a rock. There is low unemployment, low mortgage rates, good job growth, and hundreds of millions of dollars of investments going into our economy every year.

The national economy is a different story. We’ve all heard about the financial crisis and real estate meltdown. Let me briefly explain why this will have little effect on our economy here.

It began several decades ago when well intended Congress’ wanted to increase home ownership. Throughout the 80’s and 90’s many programs were implemented to accomplish the idea. In 1999, a mandate by Congress and signed by Bill Clinton demanded that lower income families, minorities, and special interest groups reach predetermined levels of ownership. This opened the floodgates for sub-prime mortgages which has now come back to haunt us.

In addition, Fannie Mae and Freddie Mac took a free hand with regulations and expanded their reach (knowing the support of the US government was behind them). After the stock market crash of 2001, investors were looking for new opportunities and found it in real estate. Ridiculous loans were made. With more buyers and fewer homes available prices increased in many top markets ranging from 10-50% per year for several years. (The average in the US since WWII has been 4% per year). Obviously, things that go up that fast must come down to reasonable levels and they are doing so now. Weak management and shortsightedness left some financial institutions holding bad portfolios when real estate began to fall.

Life is full of cycles. The fallout of real estate values and the financial cleanout is just part of the process. Companies in trouble now are the ones poorly managed, full of greed or are just plain arrogant. Notice the conservative, cash rich, and well managed companies are starting to buy the weaker ones. This scenario isn’t bad, it’s good and necessary for the overall strengthening of macroeconomics.  Unfortunately, it’s been a long time coming and it seems bigger than it is, mostly fed by the media frenzy.

Long-term real estate has always been a consistent and solid investment. Given the strength of our basic fundamentals here, and in the nation as a whole, we will continue good fortune.

Dave Ramsey recently made the statement, “When you get on the roller coaster, stay on until the ride is over. You’ll only get hurt if you try to get off early.” In other words, stay focused on the long term.

Happy Dreams,
Tony Ratchford