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The Real Estate Market as seen by a Financial Expert

September 28, 2011 Leave a comment Go to comments

DO NOT READ FUTHER, until you have seen this one minute video

On Wednesday, I was one of the 800 people at Roundhill Country Club as Barry Habib, RPM Mortgage’s Chief Strategy Officer, presented “understanding the financial markets.”

If it sounds like a dry and dull topic, you’d be surprised at how fascinating Habib made the material.

He opened with a 20 second video clip of six young people in jeans. Three wore black shirts and three wore white shirts. They were standing in a room, and circling around each other, the white shirts passing a basketball back and forth between themselves, and the black shirts with their own ball. Habib challenged us to watch the clip and keep count of how many times the white shirts passed the ball.

I sat up eagerly and focused on the white shirts, and counted each pass carefully. Chest pass, bounce pass, all with those black shirts weaving in and out, and you had to focus on the white shirts. There were 14 passes. That turned out to be the correct number.

However, then Habib asked, “how many people saw the gorilla?” A few hands went up, but most of us were convinced there was no gorilla in the clip. 

He played it again, this time asked us just to watch. A bunch of people passed balls around and then a guy in a gorilla suit walked out into the middle of the circle and stood there. It was amazing to realize that as focused as I had been on counting the white shirt passes, I never saw this great big gorilla.

Habib likened this to our world today, saying that just as we were too preoccupied by counting the white shirt passes to see the gorilla, most people today are too preoccupied by what the media is telling us to see the market clearly.

Habib spoke of inflation, and put it in terms that frightened me.

Using Zimbabwe as an example, where inflation was once 98 percent, if you could purchase a bottle of water for one penny on August 1, by August 31, it would cost $10.6 million.

And bringing the point home, for all of us that are saving money so that we can one day retire comfortably — imagine if your life savings turned out to be only enough for the next day’s groceries?

We’ve had low inflation, as high as 6 percent in the early 90’s, but Habib warned that it can creep up on us before we know it and can be hard to contain. 

However, he is optimistic, and thinks we can contain it if we see it coming.

But for people looking to hedge against inflation, Habib suggests real estate and gold are the two best bets. Historically, he points out, gold leads the way and real estate follows. Habib sees the recent rise in gold pointing to a strong real estate market to come.

Especially, considering the fact that most people stay in their homes for 13 years — that’s the average. Sure, everyone wants to buy at the “bottom of the market,” but the exact bottom will be hard to gauge.

If it’s near the bottom, is it better to buy on the way down or on the way up? Habib makes the point that, you can get a better deal on the way down, when sellers are fearful, and there’s more inventory. Once prices begin to rise, the seller’s fear turns to greed: they want more for their home and there are fewer homes to choose from.

Habib stated that we are close to bottom and already there in some markets. He reminded us, sitting at the Roundhill Country Club, that 30 years ago, the homes in the neighborhood sold for around $37,000.

Historically, real estate appreciates at about 6 percent a year — but this is not along a straight line. There are ups and downs along the way.

Consider how long you plan to keep the home. If the answer is six months or a year, well then, this may not be the time to buy. But if you plan to stay in the home for the average of 13 years, Habib convinced me that this is a great time to buy.

Habib did a beautiful job of demonstrating that the gorilla in the room is that real estate is a great opportunity right now. I left convinced that it’s time to stop counting the balls the white team is passing.

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