Here’s a sobering bullet that I read on the “Seeking Alpha” news feed:

•Home prices spiral. U.S. home prices fell the most in at least 17 years and are under continued downward pressure from the highest foreclosure rate on record. According to Federal Housing Finance Agency data released yesterday, home prices are down 5.9% from the previous year while Q3 foreclosures rose 71% from the previous year. Every quarter another 250,000 houses enter foreclosure, with each foreclosure pulling down the value of nearby homes by a total of $220K.

And sadly foreclosures are even up in the Berkshires. As a seller, you must be cognizant of this information. As a buyer with good credit and cash – what an opportunity!! Stay tuned as this marketplace continues to unfold. I am now calling it a rolling crash as it’s been coming for months and may continue for months.

I was re-reading my blog entries from last winter and spring and boy did I call it. We are in a recession – gee what a surprise!!

But it’s not a garden variety recession – it’s one caused by the biggest credit bubble in history and the consumer is not likely to buy the US out of the recession any time soon. The consumer was also lured into cheap credit both taking equity out of their houses to spend beyond their means and amassing huge balances on their credit cards. So not only do the banks,hedge funds and corporation have to de-lever BUT so do the consumers. This is bad and good. Bad because there is no quick fix and we are likely to be stuck in a recession for a good year or so. The good news is we may become SAVERS!! And saving is a good thing!! It keeps money in the banking system, it takes the burden off of our children’s futures and it helps avoid the types of problems we now face.

So, the US government has helped thaw the credit markets and lending is beginning to happen again but the Stock Market is behaving like a yo-yo, not even a roller-coaster. I think it’s because there is uncertainty about the magnitude of the recession, uncertainty about the outcome of the election and uncertainty over the future of the US capitalist system. We have never experienced the Fed as the lender of first resort – is it a bailout or a movement toward socialism?? I wish I knew. I am however an optimist and I believe we will work things out and happy days will be here again.

Hello friends. Where have I been during this mess? For one, I’ve been staying calm and remaining very focused and working very hard. The pundits are working 24/7, the central bankers are wringing their hands, and Iceland (yes the Country) has declared bankruptcy. What happened? Everyone was drunk on the excess of extremely loose credit and no amount of aspirin is curing the headeache and the puking.

And then I open the local paper, the Berkshire Eagle, and as clear as day Greylock Federal Credit Union has advertised on an entire page – “We have $100 million to lend” – They are solvent and thriving!! Wow – this local thing really does make sense – they didn’t sell their mortgages, loaned money in a market they understand and are happy to loan money to people they know. Seems so simple.

So as the world financial markets spin out of control, the Berkshires seems to function in its own orb. I hope it continues.

Last week I cut out a piece from the Wall Street Journal titled “Get Real With Your House Price” and of course because it caught my eye, I wanted to share it. For a long time I have felt like a salmon swimming up stream when discussing pricing with sellers in this market. My advice is: “How you price your property is how the marketplace perceives your desire to sell it.”

For instance, I just closed a sale last week. My seller had listed her property with another agency and had no success. When she called me, I had to give her the bad news that despite the fact that she bought her house in February of 2006, she stood no chance of selling at a profit. The market had gone down since then and if she really wanted out, I said list it at the price at which you purchased it and you will broadcast that you really are a seller!! And voila – we had many showings and a purchase price just $1500 below the asking price.

So, back to the Wall Street Journal article – it asks a simple question – “How can sellers tell if their homes are overpriced? Look for the following signs:
1. Not Enough Showings.
2. Some showings, but no contract.
3. Similar homes are now selling for less.
4. Repeated negative feedback
5. You’ve cut the price but not enough.”

I didn’t write the article but it resonated with me like I had. If you are a real seller or are thinking of selling, pay attention to the pricing!!

Winter’s over. The days are longer. Things feel better. Is it the vitamin D or are we emerging out of the depth of the bust? I’d like to believe that things are basing.

What I’ve noticed in the real estate market is that sellers (and I mean real sellers) are reducing their prices and are telegraphing that they want offers. Buyers (and I mean real buyers) are making offers on these properties and transactions are happening. Additionally, I have a May 6th Wall Street Journal article pinned on my bulletin board boasting “The Housing Crisis is Over”. And I believe that it is a well-reasoned article grounded in sound statistical information.

So where’s the conflict – it’s the economy stupid!! Gas prices are still making new highs, inflation is really showing up in the data and a myriad of other indicators are spelling RECESSION. So I might suggest that we all hold onto to our hats and get ready for a wild ride.

Don’t be greedy, be realistic. Get a bicycle. Plan ahead for the coming winter and pay attention to the election campaign.

Who says they don’t ring a bell at the bottom? Have we hit the bottom in the real estate market?
Well, I’d like to think that we are close.

Here’s how I suspected we were at the top:
1. When everyone, and I mean everyone, I knew was talking about real estate.
2. When every other person I met was getting into RE Development and/or had sold a piece of real estate for a sizable profit.
3. When HGTV had a show called “Buy it and Flip it”.

And yes, the housing bubble resembles the Internet bubble if only in that during that period everyone I knew was abuzz about which dot com stock they just made $100/share. So when your butcher is all of the sudden a stock picker or a real estate developer its a sign we are at the top.

So let’s take the flip side of the euphoria. If we get one more daily dose of depressing news, I’ll scream. And don’t we all feel down? And aren’t we all talking doom and gloom? And the media is just piling on the bad news. I think we’ve all capitulated….why don’t we just close our eyes and pray it ends soon.

OK – so isn’t this the opposite of the top? Have we hit bottom? Is it today, maybe. Next week or next month, maybe. But isn’t it when it’s the darkest that the light shines brightest. We all want to see the glimmer on the horizon…Perhaps the time is now and if so blue skies can’t be far!!

And remember – Price and Proof are never available at the same time (A lesson well-learned in graduate school !!)

Back in 1993 I experienced a small meltdown in the fixed income/mortgage backed securities market. Fortunately I worked for a money management firm that focused on neutralizing risk and adding incremental value through security selections which provided yawn-evoking enhanced returns over a stated benchmark. In 1994 our team successfully raised close to $15 billion in assets – my mantra, “Bonds are Boring.”

Now let’s get down to reviewing definitions:(all will be quoted from Merriam-Webster)

FIXED Pronunciation: ˈfikst Function: adjective Date: 14th century
1 a: securely placed or fastened : stationary b (1): nonvolatile (2): formed into a chemical compound c (1): not subject to change or fluctuation

INCOME ˈin-ˌkəm also ˈin-kəm or ˈiŋ-kəm
Function: noun
Date: 14th century
1: a coming in : entrance, influx
2: a gain or recurrent benefit usually measured in money that derives from capital or labor; also : the amount of such gain received in a period of time

If we pay attention to how these types of securities are defined we wouldn’t expect anything more from them. If you want equity-like returns, stick to equity.

Now let’s apply this to Real Estate. In previous blogs, I reiterated real estate’s traditional role as an inflation hedge and store of value with little liquidity. Not a buy and flip asset or an ATM machine.

REAL Pronunciation: ˈrē(-ə)l Function: adjective Etymology: Middle English, real, relating to things (in law), from Anglo-French, from Medieval Latin & Late Latin; Medieval Latin realis relating to things (in law), from Late Latin, real, from Latin res thing, fact; akin to Sanskrit rayi property
Date: 14th century
1: of or relating to fixed, permanent, or immovable things (as lands or tenements)
2 a: not artificial, fraudulent, or illusory

ESTATE Pronunciation: i-ˈstāt Function: noun Etymology: Middle English estat, from Anglo-French — more at state Date: 13th century
b (1): possessions, property; especially : a person’s property in land and tenements (2): the assets and liabilities left by a person at death c: a landed property usually with a large house on it dBritish : project 45British : station wagon6: farm, plantation; also : vineyard

Real Estate is tangible. We are not growing more of it (other than developments and high rises.) But it is not equity and does not promise double digit returns. It promises something that’s physically existent.

Buy real estate because you need a house to live in and can afford it, or land for farming or passive enjoyment because you can afford it, or commercial building because it makes sense for your business to own real property. It’s real, hang onto it if you can.

During my days in financial services we jokingly called Bear Stearns, Bum Stear…little did we know how true that would turn out to be. I also really wanted to work for the venerable investment house in the mid-1980’s. Back then the chairman was Ace Greenberg – he ran a tight ship and was known for his “Paper Clip” memo – basically chastising any employee who wasted firm resources and threw out paper clips. What a difference 20 years makes.

Between this, Eliot Spitzer and countless other recent disappointments, how does one rationalize all this news and move forward with optimism. We all need to wake up and review some general truisms and principles by which to live!! Firstly, if something seems to good to be true (like repackaging crappy mortgages into A or better-rated mortgage-backed securities ) it usually is too good to be true!! Secondly, if you don’t understand it, and big, complex words are used, don’t automatically think you are stupid – it probably isn’t logical so avoid it like the plague. Thirdly, stick to value when investing in stocks, real estate and consumer goods – for stocks look for companies with real year after year earnings and cash flow, for real estate, look to areas that have not been over-developed and locations with few or no foreclosures, and for consumer goods – stick to the basic necessities. And lastly, work hard and stay focused and positive!!