Hard Lessons Learned in the Reno-Sparks Real Estate Market- April 12,2007

Bill O’Neil, one of the greatest growth stock investors of our time, once said, “When your cab driver gives you a Hot Tip on what stock to buy, it’s time to sell.”

2005 was an amazing year for my real estate business. It was also a year full of friends and relatives who were supposedly making a fortune buying and selling real estate, And why not? Everyone was buying real estate like there was no tomorrow. We had DEMAND- One that seemed to go on forever.

So I figured, yeah, why not join the party? So our family did. We bought a house North of Reno.

 

Honestly, I believe it is the single most “Unwise” (I’m being nice to myself) investment decision in the history of our ancestors. We weren’t late for the party, it was over. We bought it in the middle of 2005 and got the house by the end of the year. Looking at one of the graphs I saw in Investors Business Daily, the real estate market reached its absolute top in June-July of 2005.

A wise man once said, “People fear when they should hope, and hope when they should fear.” I was hoping when it was time to fear.

After that mistake, I vowed never to make the same mistake. I needed answers to my big questions. Luckily, I had a friend to do it with (Thanks Dan) and we did and are still in the process of doing a post analysis of what really happened. As Robert Kiyosaki once said, “ Numbers tell a story”. What we’ve discovered is that we can make an educated guess of what the future holds when we study what happened(history will always be the best teacher) and what is currently happening. These are 5 components I believe every buyer/investor should consider studying.

1) Building permits- Permission granted by a local government to build a specific structure at a particular site.

2) Housing starts- The number of residential building construction projects that have begun during any particular month.

3) New home sales- Investopedia says, “A new home sale is considered to be any deposit or contract signing either in the year the house was built or the year after it was built.”

4) Existing home sales- “The existing home sales report does not look at newly built houses or the sale of new houses. This indicator is thought to be a good measure of demand in the real estate sector.”-investopedia

5) Median price of homes locally and nationally (go back a year or more)-“Numbers tell a story”

NOTE: You can get building permits, housing starts, new home sales and existing home sales statistics in briefing.com.You can also ask your trusted realtor for local and national median prices. Get a whole year of history or more to gain better perspective.

Building permits and housing starts, for me, are especially powerful in determining future real estate activity. Here’s a great illustration:

 

Housing starts 2005

1) Jan – 2183 k

2) Feb – 2229 k

3) Mar – 1836 k

4) Apr –2005 k

5) May – 2004 k

6) Jun –2045 k

7) Jul –2035 k

8) Aug –2038 k

9) Sep –2134 k

10) Oct –2017 k

11) Nov –2121 k

12) Dec - 1933 k

Housing starts 2006

1) Jan – 2303 k

2) Feb – 2126 k

3) Mar – 1996 k

4) Apr – 1863 k

5) May –1953 k

6) Jun –1841 k

7) Jul –1772 k

8) Aug –1674 k

9) Sep –1740 k

10) Oct –1488 k

11) Nov –1572 k

12) Dec - 1643 k

Note: Notice the decreasing numbers from March 2006 onward compared to the same time on March 2005.

But then again, I also know that many of us won’t have the time to go through all this.

I love what Bill O’Neil said, “When you see the CEO of a company on the front page of a major business magazine, it’s time to sell.”

Bill, you hit it right on the spot...

TIME MAGAZINE JUNE 13, 2005 ISSUE: Home Sweet Home-Why we’re going gaga over real estate.