Volatility Creates Interesting Moods And Opportunities

Thanks mj*laflaca for this photo

Big ups and big downs create interim situations that can favor the bulls and the bears. I always liked the Warren Buffet’s quote, “When the tide goes out we get to see who is not wearing a bathing suit!” I can just visualize Warren selling a surprised naked swimmer a pair of shorts for 10 times the value Nordstrom’s would charge. Yes, abrupt changes in the market do show us weaknesses, but they also expose opportunities.

We all know that the markets will inevitably go up and down. Yet, people often get caught up in the change and miss the opportunity that is created. I know this is true for residential real estate. I have seen many people sit and watch the market move around them. These folks tend to be purveyors of disaster. They might say, “I can’t believe the stock market dropped 200 points today. Yikes!” Others are realizing opportunity in this market and buying homes whose sales prices look more like 2005 ’s median price than 2008’s. I am also watching some listings receive multiple bids and sell for over the asking price. I even had a buyer who recently purchased a luxury home for less than it would cost to construct the home in todays market. Opportunity exists in both bull and bare markets.

I have also recently been looking at the big changes ahead in commercial and residential income real estate. I find it interesting that Shorenstein (one of the largest private real estate investment funds) has just raised its largest fund ever ($2.06 billion). It is interesting to see how the current market volatility has made for some amazing opportunities to raise real estate investment capital.

It has been interesting for me to note that powerful investors make moves when the future seems the most unclear to the masses. This is because value in real estate often occurs when the market is most inefficient. Currently the liquidity crisis has made our financial markets very inefficient. This has also translated in to inefficiency in residential real estate sales. The efficient days of placing a sign in the front yard and having 10 bidders at your doorstep have been replaced by an ebbing and flowing market. When everyone is running away from investing in the market, and the tide goes out, the professional investors begin to pick away at the deals that are left behind.

Most surprising in this market are the individual emotions and moods that tend to amplify the tides. I have often heard people say, “My friend said the real estate values are falling everywhere.” Often I have seen that the friend does not own a home. Yet, the ripple they create with their hysterical mood will affect the actions of a few. Savvy buyers and seller ground their moods with data and facts. They can then take powerful confident action in the market. They learn the characteristics of their market and then act when opportunity arises.

There are plenty of great opportunities in this market, as its ebb and flow opens and closes opportunities for selling and buying.