When should I get off the Fence?
A Real Estate Investor’s Guide on Trying to Time
The Market - When to Buy or Sell
Research by Bob Peerman
April 13, 2009
1. What is the current state of the U.S. economy?
According to the First Quarter 2009 Survey of Professional Forecasters, the U.S. economy is in the
third and projected final quarter of a deep 3 quarters of a year recession. While a contraction of the
U.S economy of -1.8% is projected for Q2 ‟09, this is a substantial improvement over the contraction
in the previous 2 quarters (-6.3% and -5.2%). So while GDP growth is not expected to turn positive
for another 3-5 months, the Long-term, GDP is forecast to average a 2.56% annual growth rate over
the next 10 years as the country works through this financial crisis and returns to prosperity.
Leading indicators are showing signs that a turn-around in the U.S. Economy is not too far around the
Source: First Quarter 2009 Survey of Professional Forecasters
While Economists generally agree this is the worst economic downturn since the Great Depression,
most believe that despite the current pain, particularly in unemployment, another depression isn't
likely. David Goldman makes comparisons between this economic recession and the Great
Depression are common, and shows how much worse it was.
W1: .DJI Dow Jones Industrial Average 8063.86 +226.75 +2.89%
.DJI Close: 8063.8599 Hi: 8079.9502 Lo: 7839.8901 Open: 7839.8901
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
30 Yr Fixed Rate Mortgages
2. How Did We Get Into This Financial Crisis
There have been many fingers pointing as angry individuals search for reasons why they are being
asked to bail out the very companies who took unnecessary and imprudent risks with individuals who
were paid very handsomely for their participation in the subprime fleecing of America.
In my opinion the most important cause was deregulation combined with ineffective government
regulation that remained of our financial markets. Had our government and their appointed regulators
(FNMA, FHMC, the SEC, the FDIC) appropriately protected the American public from fraud, the
greed, corruption, and loopholes that were exploited to approve and finance financially unstable
homeowners could never have taken place. But it also took the incompetence, complicity, and/or
fraud on the part of the rating agencies, mortgage brokerages, appraisers, banks, investment banks,
foreign investors, home purchasers, and their investment advisors.
Wikipedia cites the following as Causes for the Subprime mortgage crisis:
Boom and bust in the housing market
High-risk mortgage loans and lending/borrowing practices
Inaccurate credit ratings
Policies of central banks
Financial institution debt levels and incentives
Credit default swaps
Inflow of funds due to trade deficits
Boom and collapse of the shadow banking system
In its "Declaration of the Summit on Financial Markets and the World Economy," dated 15 November
2008, leaders of the Group of 20 cited the following causes:
During a period of strong global growth, growing capital flows, and prolonged stability earlier
this decade, market participants sought higher yields without an adequate appreciation of the
risks and failed to exercise proper due diligence. At the same time, weak underwriting
standards, unsound risk management practices, increasingly complex and opaque financial
products, and consequent excessive leverage combined to create vulnerabilities in the system.
Policy-makers, regulators and supervisors, in some advanced countries, did not adequately
appreciate and address the risks building up in financial markets, keep pace with financial
innovation, or take into account the systemic ramifications of domestic regulatory actions.
Video: What caused the financial crisis
3. Where do we go from here?
Although there are as many opinions as there are economists, there seems to be a general
consensus that things are moving toward a recovery in late ‟09 or in „10. According to a survey of
economists by Chris Isadore, recovery hopes are begining to blossom. Mark Zandi, chief economist
for Moodys‟ economy.com said
… the problem with confidence today is that when things aren't going well, many people can't
picture things getting better, just as they have trouble imagining declining prices of homes and
stocks during a boom period.
Confidence is a very fickle thing. It can go from abject pessimism that pervades now to a more
balanced view of the world rather quickly.
A NY Fed model indicates that the economic recovery has already started, and that the recession will
end this year.
Even the slightly more pessimistic UCLA Anderson report, says 2009 will be hard, but forecast a
recovery in 2010. They believe that the economy will continue to sputter for the rest of this year, but
will see some relief next year.
Generally investors in the housing and the stock markets, try to take advantage of dips and anticipate
an economic bottom long before a positive reversal of GDP is computed. That is why housing and
the stock market tend to be leading indicators, while changes in GDP (which tell when an economy is
in or out of recession) are lagging indicators.
4. Trying to Time the Bottom
of Prices in Your Real Estate Market
First off, be advised that different real estate markets will find their bottoms at different times, so
listening to the national news to find the bottom in your particular market is futile at best. Add to that,
different price ranges in a particular market will find their bottom at different times.
The lagging nature of the GDP indicator is one reason why if one is going to take full advantage of
this massive readjustment of real estate prices, he needs to start shopping for investment
opportunities at least 12 months prior to the time when the GDP is calculated for the previous quarter
and newscasters subsequently “inform us” that we are now well past the end of a recession. By the
time the press declares that we have reached a bottom in the economy or the real estate market,
buyers will and already have passed the most advantageous time to buy in many markets.
Remember, all real estate markets by their very nature are local.
If one has a house to sell before he can take advantage of the deals on the market, then they need to
start listing their home and shopping for a new one at least the average number of Months on the
Market for comparable homes in their area (currently about 9 months for the average US home).
Contact a realtor who is highly skilled in market analysis, absorption rate calculations, and distressed
properties for the best deals in your area. Owners who are in position to move to a more expensive
house should list now, since they will save more on the house they buy than the profits they forego on
the house they sell, because the market is softer the higher the list price right now.
My advice to make money in this market is to list your home as soon as you can get it perfect for
showing if you are moving up or sideways in price. You don‟t have to sell it until you have an
acceptable market offer, and for most people, they can‟t make money in this market buying a new
home until they sell the old one. But if you have the luxury of being able to wait for a decent offer,
when so many other home sellers cannot wait, you can really take advantage and come out ahead
with your real estate investments at this particular time in this economy. If a homeowner is trading for
a less expensive home and can afford to wait for the market to improve, he will probably make more
money by waiting in this market.
Much like with the stock market, now seems like one of the best times to search for the bargains and
readjust your investment portfolios to make money accordingly. At least with real estate, no
fraudulent accounting department is going to steal your money in a Ponzi scheme nor is a malicious
hedge fund manager going to make money by driving your home value to oblivion by selling it short
like they can with your stock investments. As hard as it is to value a home, it is easier than valuing a
company based on their financial reports, since you never know which ones you can trust and which
ones will go out of favor with investment managers.
Almost everyone is looking for the best real estate deal they can get and want to be the genius who
buys at the bottom. If you want to be that genius who times this market right, you need a talented
realtor working hard to find the best buyer and/or best investment available in this market. There is
no time to waste. Your trusted and savvy financial advisor(s) and realtor could be your biggest ally
right now in restoring your financial health after this crisis and securing your financial future.
The Current State of the U.S. Economy
Bob Peerman, Broker, MBA, MS, GRI, e-PRO
1. Current State of the Economy
Economy’s plunge seems to be leveling off
Economists generally agree this is the worst economic downturn since the Great Depression,
but they say despite pain, another depression isn't likely.
Great Depression vs. 'Great Recession' - How the two downturns compare
Global Economic Shock Worse Than Great Depression
Bureau of Economic Analysis - National Economic Accounts
Subprime mortgage crisis, from Wikipedia
2. Economic Forecasts
First Quarter 2009 Survey of Professional Forecasters
NY Fed Model Suggests Economic Recovery Has Started, and Recession Will End This Year
2009 will be hard, with recovery forecast in 2010
Recovery hopes begin to blossom
GDP Shrinks 6.3% in Q4, Q1 Outlook Not So Good
World Bank Gives Bleak Economic Outlook for 2009
Fed pushes back recovery forecast
March Job Losses May Signal That Worst Is Finally Over
Employment reports show mixed picture
Payroll firm says employers cut more jobs than expected in March,
but an outplacement firm says planned layoffs fell for second straight month.
Why small companies keep shedding jobs
FDIC chief sees glimmers of hope in US banking
Banks brace for derivatives 'big bang'
Bailed-out banks eye toxic asset buys
5. Financial Markets
Stocks extend best 4-week rally since 1933; Dow breaches 8,000
SEC favors short-selling curbs
Long-term inflation target of 1.7% to 2% set by Fed
The Inflation of the 1970s
7. Unprecedented Spending and Borrowing
by the U.S Treasury
Deficit Projected To Swell Beyond Earlier Estimates
CBO Expects Trillions More in Borrowing
National Debt Graphs by Zfacts
8. Record Low Mortgage Rates
Mortgage rates fall, setting yet another record
Federal Funds and Mortgage_Rates_2001_to_2008
9. Existing Home Sales Data
Volume and Price Bounce off of Jan Low
10. Real Estate Indicators and News
A Return to Rationality in Home Prices
Housing Affordability Index
S&P/Case-Shiller Home Price Indices
Average home prices reset to 2003 levels
S&P Residential Real Estate Indicators March 2009
Your home: What D.C. is doing
Pulte Homes in $3.1 billion merger
11. A Shift in Perspective in Financial Planning
The 7 new rules of financial security
How to play by the new money rules
12. Washington's Plan to Stimulate the Economy
Some say taxpayer dollars are being wasted.
The $787 billion stimulus plan includes funds designed to create jobs.
$700 billion TARP Funds Committed in 6 months
House passes $3.55 trillion budget outline
Video: What caused the financial crisis
13. CNN Financial Crisis Archive
14. Links to Recent Articles on the Time and Business Week Web
Pages on the Financial Crisis, Economic Recovery, and Housing
How to Know When the Economy Is Turning Up
World Markets Surge with Recovery Hope
By AP / JEREMIAH MARQUEZ Thursday, Apr. 02, 2009
The Hope in America's Foreclosure Capital
By NANCY GIBBS Thursday, Apr. 02, 2009
What New Unemployment Numbers Mean
By 24/7 Wall St. Tuesday, Mar. 31, 2009
The End of Excess: Is This Crisis Good for America?
By Kurt Andersen Thursday, Mar. 26, 2009
Is the Economy Starting to Recover? Or Just Less Bad?
By Justin Fox Thursday, Mar. 26, 2009
By Barbara Kiviat Thursday, Oct. 23, 2008
Fannie and Freddie Offer New Plan to Help Homeowners
By Barbara Kiviat Wednesday, Nov. 12, 2008
How to Fix the Housing Market
By Barbara Kiviat Thursday, Feb. 12, 2009
Will President Obama's New Housing Plan Work?
By Barbara Kiviat Thursday, Feb. 19, 2009
Saving the Housing Market By Speeding Up Foreclosures
By 24/7 Wall St. Wednesday, Feb. 18, 2009
Saving the Real Estate Market by Paying the Neighbor's Mortgage
By 24/7 Wall St. Friday, Feb. 13, 2009
New Data Say House Prices May Be Nearing a Bottom
By Barbara Kiviat Thursday, Jan. 08, 2009
25 People to Blame for the Financial Crisis
The Financial Crisis Blame Game
How Financial Madness Overtook Wall Street
By Andy Serwer and Allan Sloan Thursday, Sep. 18, 2008
Ground Zero of the Real Estate Bust
By Barbara Kiviat / Denver Thursday, Aug. 16, 2007
Signs of Hope for Housing?
by BW Staff This St. Patrick's Day, even the economic data reports were wearing green. In a
welcome surprise, U.S. housing starts jumped 22% in February, according to ...
February 16, 2009
Financial Crisis: “Silver Bullets” for Toxic Mortgages?
With the financial crisis quickly becoming President Obama's primary burden, his Administration has
intensified its efforts to stem the rising tide of foreclosures in ...
January 30, 2009
Housing Recovery: Not Yet, but When?
It looks like the U.S. homebuilding story entering 2009 may be much like 2008, with weak demand,
high cancellations, lower pricing, and industry inactivity. Current ...
Additional Periodical Article References
(Reprints available through Time and Businessweek)
Recent Time Articles About the Financial Crisis
“Real Estate‟s Fault Line” – Barbara Kiviat August 27, 2007
“The Price of Greed” - Andy Serwer and Allan Sloan, Sept 29, 2008
“25 People to Blame” – Nancy Gibbs, Feb 23, 2009
“Why your Bank is Broke” - Stephen Gandel, Feb 9, 2009
“It‟s Now or Never for Larry Summers” – Michael Scherer and Massimo Calabresi, Feb 9, 2009
“How to spend the Stimulus” – Michael Grunwald, Feb 16, 2009
“Let‟s Get Serious about Housing” - Barbara Kiviat
“How Stressed is Your Bank?” - Stephen Gandel, Mar 2, 2009
“House of Cards” – David Von Drehle, Mar 7, 2009
“One Bad Bond” – Stephen Gandel, Mar 7, 2009
“Crisis or Opportunity” - David Von Drehle and David Von Drehle, Mar 23, 2009
“How AIG Became too Big to Fail”, Bilaa Saporito, Mar 30, 2009
“A World of Troubles” – Apr 6, 2009
“That Was Then, and This is Now”, Kurt Anderson Apr 6, 2009
Recent Business Week Articles About the Financial Crisis
“The Bail Out is Broken” – Jane Sesseen, Feb 9, 2009
“Housing: Guess Who‟s Playing Watchdog” – Chad Terhune, Feb 16, 2009
“Stress Tests for the Obama Bailout” – Jane Sesseen, Febg 23, 2009
“The Home Foreclosure Fiasco” – Brian Grow, Keith Epstein, and Robert Berner, Feb 23, 2009
“What‟s Dragging Europe Down” – Jack Ewing, Mar 9, 2009
“Nationalization: Who Would Bear the Pain” – Peter Coy, Mar 9, 2009
“A Dogfight over the Rescue Plan” – Peter Cox, Mar 23, 2009
“This Rally May Be for Real”, Mandel on Economics, Apr 6, 2009
“Signs of Life”, Palmeri, Havanesian, and Gopaul, Apr 13, 2009
Research and Article Link Courtesy of
Broker, MBA, MS, GRI, e-PRO
Fridrich and Clark Realty, LLC
5200 Maryland Way, Suite 101
Brentwood, TN 37027
615 263-4800 (office)
615 370-1346 (home office)
First in Service
Confidentiality: This information is intended for the recipient or this email only
and is not to be distributed without permission of the sender.