October 8th, 2008 by Michael Oliver

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When I’m not showing properties and in my office I watch CNBC almost non-stop during the week. This week like last has seen the stock markets just crumble with the uncertainty of the financial sector. Buyers seem to be on strike and few are willing to be a net buyer of stocks and get long. (Or take the opinion that stocks are going to go UP over the “long” term and buy at current levels.)As the markets have shown most participants are losing money and selling trying to avoid further losses. There is little doubt that the stock markets are making for a tough climate to make money in, and people are in a “panic” to try to get out of their positions and avoid losing anymore then they have to.

“OK so that’s great but what does it have to do with Real Estate?”

Everything, when people watch the stock market fall significantly over the past 3-4 weeks, they essentially go on strike from making purchases. I think regardless of how rich someone is at their base level they feel it is best to take the conservative approach and save where possible. So this is translating very directly into real estate in Tucson AZ and I’m sure the rest of the country. On my own listings I have seen a huge drop off in showings very few buyers are willing to even go out and “look” at properties. From all the agents I speak with daily they are seeing the same drop-off in activity. So what does that mean? Well listings that were or should be getting 2-3 showings per week are getting maybe 1 showing per week. Homes that should be getting or were getting 5-6 showings per week are now getting 1-2 showings per week…See where I going with this? It’s important for sellers to realize that as (or when) the stock market is very jittery it is locking up big ticket items more so then it would be otherwise.

I believe things are getting cheap, really cheap. Now I could sit here and explain that homes are getting cheap in Tucson. (Which they are) I could also talk about how interest rates are very realistic as long as you can get a loan. (Not a guarantee right now.) But for the most part, most people #1 only think “Wow a real estate agent trying to get me to buy a home….never heard that before.” Or #2 “Even if it’s a great time to buy I wouldn’t believe a real estate agent about it.” I understand all these reservations. Real estate agents 75% of them anyway when asked a question think to themselves “How do I answer this so that I stand the chance of making money or a commission”. I know that’s what the public thinks, and to some it is the way they operate their business. Now truth be told those same agents are out of business within a year typically and never to be seen again because no one trusts their opinions and they are not what I or any true real estate professional considers “good business tactics”. So I’ll give you examples that are not exactly 100% directly related to real estate but maybe they can help paint the picture that things are getting way, way overdone in my opinion.

-Bank of America (BAC) is currently at $21.91/share, down about $16 dollars a share in a little over a week….Now they did miss their earning estimates a couple days ago, and questions are being asked “If they can’t meet there earnings estimates, why are they buying all these other companies?” All of those companies cost B of A roughly $750 billion I believe. * Disclosure-Keep in mind I am not a stockbroker so my numbers may not be 100% dead on accurate but since most wouldn’t believe me that’s it’s a time to buy real estate maybe I can at least convince someone that things are very cheap in the stock market also and if you by some B of A it helps me in no way so take it for what its worth.* So B of A in my mind is essentially too big to fail (I know you have heard this before but it is true with them, JP Morgan Chase, and Citibank.) If B of A failed it really wouldn’t matter because the entire banking system of the US would be a complete mess. I don’t think things will get that bad.

Google (this one has not much to do with Real Estate) current price $338.11/share down from roughly $445/share less then 3 weeks ago. The conventional wisdom is that with a slowing economy earnings will be way down for companies whose revenues are generated off of advertising….This is true however anyone who spends a lot of time online or runs websites understands Google for lack of better words “owns” the internet. Just like Microsoft “owns” the software market. Google in the same sense “owns the internet”. Online ad revenue will continue a significant increase regardless. The internet is for most businesses the best practice way to grow your business by advertising. This trend will not change unless some-sort of “Super-Internet” is developed and Google would dominate that too so don’t worry.

McDonalds (not a direct Real Estate connection although I believe they are the largest single owner of real estate in the world, #2 is the Roman Catholic Church.) Currently $54.97/ share couple days ago roughly $64/ share. I guess every 5 year old and under decided they didn’t like Happy Meals anymore….This stock is down $10/share or roughly 15% or so in a week? This like the other examples shows that the stock market is just crazed right now. I think this also is a pure buy, McDonalds is about as safe a company as you can get into. Essentially they sell cheap food that everyone can afford regardless of economy, furthermore they get paid (the corporate company) “rent” from the franchisee plus a cut of the sales. So even if a bunch of franchises fold, they still own the land and just have to find a new franchisee.

The moral of the story is that all these companies in my opinion are 1st class corporations that are getting hammered because the overall stock market is in a “panic” sell. Yes times are not normal however; stepping up to the plate is a lot of what makes the difference between making money and not. When the real estate market in Tucson was going crazy way more people wanted to buy regardless of the actual price. Now the exact opposite is true, the “herd” mentality is hardwired into humans however it is about the worst financial discipline one could have. Take a minute and think about all this the next time (which right now is about every 5 seconds) you hear people talking about “getting out” of the markets or reacting in a very emotional way to a financial decision.