A commodity broker in New York once told me that whenever the markets were stable and everyone knew all the facts about the crops, like wheat, soybeans or corn as well as precious metals, he could never make any money. Trading was slow and dull. However, when the Russians came into the market in the seventies because a severe winter had destroyed their wheat crop or an early freeze damaged the orange crop in Florida, prices fluctuated wildly and the traders made millions on the uncertainty surrounding the markets.
As a realtor in Downtown San Diego, looking at what has transpired in our real estate market over the last 4 to 5 months has me thinking of what my friend, the commodities broker told me. To say there is uncertainty in the real estate market would be an understatement. No one really knows what is going to happen next. But take my word; many people are making money on the confusion. Stock traders who shorted the mortgage company stocks made a fortune as the prices of these companies dropped faster than the playoff chances of the San Diego Chargers. Investors who saw the real estate decline coming sold their residential properties and moved their equity into commercial projects. As always happens, when one investment vehicle drops, the smart money moves somewhere else. In this case the stock market is benefiting from the stampede of funds from real estate to the equity markets. (Dow over 14,000)
Forever the optimist, I think that now is a great time to start looking at picking up some bargains in the real estate market in Downtown San Diego. Let me tell you why. In my lifetime I have seen a couple of instances of projections of doom and gloom. I lived in New York City when the city was going bankrupt in 1977. There was total despair in the real estate market. I was selling my house at that time so I could move to California. Every month I lowered the price of my house by a couple of grand and the house I wanted to buy in Napa Valley was going up at the same amount. You couldn’t give property away. I remember reading about the Bronfman family from Canada; they owned Seagram’s, the liquor company. They came into New York City and bought numerous buildings on Madison and Park Avenue at a time when everyone wanted out, for pennies on the dollar. Fast forward 4 to 5 years and they looked like geniuses. They quadrupled their investment. The house I sold, finally, for $77,000, 5 years later was worth $450,000. Today it’s well over a million dollars.
Let’s look at what happened during and after 9/11. I had just started my real estate business on 8/23/2001. What luck! Three weeks later, disaster!!!!!!!! Again, remembering what my friend the commodities broker told me, I went out and talked my clients into buying real estate even though they protested. Many of them bought two bedroom condos in Golden Hill for $125,000 that appreciated to where they were worth as much as $350,000 at one time. The point is that the time to buy real estate is when no one else wants to. Why buy when prices are going up? Doesn’t it make sense to buy low, and sell high. A good example is shopping in the supermarket. Let’s say you buy prime rib week after week at $10 a pound. Every week you buy 5 lbs. One week you go in to the store and there’s a special and the price is $5 a pound. What do you do? If you have a freezer you load up. Why? It’s a sale. If they raised the price to $12 a pound you would probably switch to chopped meat.
Stock market investors are very similar. A man says to his broker that he wants to buy some shares of IBM next week. The broker calls him and tells him the stock has dropped. The investor shies away because he doesn’t know where the bottom may be. Instead of saying that IBM, a blue chip company, is on sale, he wants to wait for the price to go up before he buys.
So, why will many of you say my thinking is flawed? Because, you say, we don’t know if prices have stopped dropping. That’s true. Here’s my feeling on that issue. All of us are affected by what we read in the newspapers and what we see on the TV news. I must say that the coverage afforded the real estate and mortgage crisis has rivaled the coverage that the OJ trial received. Personally, I couldn’t care less what happens to real estate in Columbus, Ohio, or Grand Rapids, Michigan. I feel bad for the people who are losing their homes but my market in 92101 … Downtown San Diego. So let’s discount all the news about Chula Vista (They are really hurting there) or Riverside County (Another war zone). Let’s look at our amazing downtown. Yes, things are bad. Prices have dropped over the last three years like a “turd from a tall cow”. But guess what? In four to five years the same properties that are being heavily discounted now will look like winners down the road.
Downtown San Diego is the same as a blue chip company. The trouble with many investors is that they were spoiled. They made a lot of money quickly from 2001 to 2004. Real Estate is a seven year hold investment. Investing in Downtown San Diego is such a no brainer, if you are willing to wait. One of my favorite sayings is,” Nothing is bad forever or good forever.” Yesterday, the stock market went over 14,000 because the investment community thinks the worst of the mortgage crisis in over. I have mortgage lenders who didn’t return my call two months ago, calling me to get some business. By February of next year all this doom and gloom will be forgotten and prices will have stabilized. Whatever the trend, it will change and reverse itself. Let’s face it: everyone outside of California would love to live in San Diego. We will have our hiccups, like we are having now, but in the long run, you can bet on our downtown. Will prices increase soon? Let’s discuss this topic.
I welcome your comments.
— ANTHONY NAPOLI