“Be fearful when others are greedy, and be greedy when others are fearful.”
October 30, 2008
That's not a quote from an obscure Greek philosopher, nor a pearl of wisdom from the Depression Era. No, that quote was actually made last week by none other than this gentleman…
…and he has more than just a little bit of credibility when it comes to investing. In this particular article in the USA Today, Warren Buffett is referring to the buying and selling of stocks. And he's buying stocks right now, not just on behalf of Berkshire Hathaway, but also for his own personal portfolio. Now that's confidence….
Does this mean that Warren Buffet thinks the stock market has hit bottom? Absolutely not. He'll be the first to admit that he doesn't try to guess where the bottom is. But he knows a bargain when he sees one, and right now he is scooping up blue-chip stocks at severely discounted prices. More importantly, he knows that these assets may lose some value over the next few months, but on HIS investment horizon, he's confident these will return a healthy profit. That's how he became a billionaire.
Is this relevant to real estate? Absolutely. Besides providing a roof over your head, homes have become an “asset” and consequently should be treated like any other investment. And while we're being continually bombarded with all the negative news on the economy, it's critical to keep a few facts in mind:
- Homes prices are as low as they've been in years. In some areas they have dropped more than others, but overall if you look at the prices today and adjust for inflation, home prices are the cheapest that they've been in probably over a decade. As an example, before this year when was the last time you saw a decent home for sale in White Oaks for under $800k? It has been awhile. We thought this price point was gone forever – now it's becoming commonplace again.
- Money is still relatively cheap. Although loans are a bit more difficult to get, rates are still near historic lows. You can get conforming loans for the low 6% range, agency jumbo's (up to $729k) for the mid-6% range, and jumbos over 7%. The “funny money” rates of a few years ago are likely gone, and the current rates will likely only increase (if they change at all.)
- Real estate is generally less volatile than stocks. While the real estate values have certainly taken a beating, it's nothing compared to the carnage on Wall Street the past couple of weeks. And when you look over the past 10 years, real estate has performed FAR better than the S&P 500.
- Real estate offers tax benefits that stocks don't. Don't forget that the interest on your mortgage is tax deductible, and a huge chunk of any capital gains that you realize upon selling the home is exempt from taxes. Those two factors add greatly to the calculated return on investment (ROI.) Try getting that kind of benefit with stock…
So is the San Carlos real estate market close to the “bottom”? It's impossible to tell, but as I discussed in last week's podcast, properties under the $1.1M mark in San Carlos are starting to get snapped up again. And I think it's likely only a matter of time before the high-end will do the same.
For smart buyers in San Carlos and other part of San Mateo County, it's definitely time to be greedy in a fearful market.