Specifically on house, Mr. Buffett says, “A housing recovery will probably begin within a year of so.  In any event, it is certain to occur at some point,” and Berkshire has been preparing with capital investment.

One thing that was not distinguished in the story was the difference between sales and sale prices.  When we hear a story based on a set of numbers (like sales in this story) it is easy to draw conclusions that are incomplete.  Some might think this means the prices are well on their way back and many people will confuse sales with sale prices.  Sale is one piece of the picture we need to look at but not the entire picture.  When we only look at a piece of a picture and try to draw a conclusion, you might not know what you are looking at or worse, think you are looking at something you are not.  When we look at sales for single family homes and condominiums in the Northwoods we see that the average sales price for 2010 was roughly $172,000 vs. $165,000 in 2009.  This is a 4.2% increase.  As we look at the Median (taking the middle number of a series of numbers.), we see that in 2010 the Median number was roughly $132,000 vs. $125,000 in 2009.  A 5.6% increase.  These are very valuable pieces of information that show that sales prices are moving forward in the Northwoods, despite the fact that they are not moving as fast as sales.

 You may have seen the last couple of interviews with Diana Olick (from Realty Check) on CNBC that I posted on the Eliason Realty blog recently.  She pointed out there were signs showing sales were starting to pick up nationally, despite the fact that prices don’t appear to be recovering.  She was not surprised by this at all.  In fact, she seemed to have expected it.  She reminded all of us that “sales and prices are directly related and . . . sales always lead prices”.  She states that during the boom, sales started going down and prices were still going up.  She reported then that this was unsustainable.  She also said that the sales will lead the prices when it comes to recovering.  Nationally, prices are still going down slightly, but sales have started to go up.  For three months straight there have been increases in both pending and existing sales.  With this in mind, Diana says “maybe it’s the beginning of the curb and maybe it is time to get back in.  You will never time the exact bottom of the market.”  Continued increases in sales numbers will make her believe in this position even more so. 

 So here are some more pieces of the picture, but it is still not complete.  We need to see what is going to happen to foreclosures.  We also have to realize, as I have said many times before, that Real Estate is always a local market.  So how do Diana’s comments apply to real estate in the Northwoods? 

 All expectations are that foreclosures will be similar to slightly higher in 2011 nation wide than they were in 2010.  Yet, locally, in the Northwoods I don’t know that we are expecting foreclosures to go up in 2011.  I have spoken to a couple of bankers about this.  They are expecting foreclosures to go down on their books in 2011.  One of the bankers I spoke to also said they feel the Northwoods does not see the high highs or the low lows that other places get.  With this in mind, he said our unemployment and foreclosures have been better than the rest of Wisconsin and the nation.  So, we feel that the Northwoods foreclosures will be no worse than or similar to 2010, we have to take that as a positive sign with the rest of the data we are collecting.

 In addition, there are some signs there is a lot of money on the sideline.  Nationally we heard that 58% of the people don’t feel real estate will rebound until 2012.  20% feel it will not be until 2015.  Only 10% feel there will be a rebound begun in 2011.  On www.EliasonRealty.com last week we asked what 2011 will bring to the Northwoods real estate market.  Over 55 people participated here were the results. 

• 32% felt the prices were going to be flat
• 23% felt declines of 3% – 9% were likely
• 38% felt the declines would be 10% or greater
• Only 7% of the people felt there would be 3% gain or greater

 So what does all of this negativity mean?  It certainly seems to indicate that the confidence is not there to get people “off the fence” to buy real estate just yet.  It may sound strange but this can be a huge positive.  When everyone is negative, that means few people are buying.  This means there are far less buyers than sellers and prices are going to have to go down to generate sales.  When this happens in the stock market, typically the bottom is often signaled by a time when there is significant negative confidence (tops are also found at times when there is significant positive confidence).

With all of this in mind, what do I think? This is what I said in my Market Report in early 2010. 

“I believe we will continue to see the volume and units of real estate sold continue to increase over that time.  So won’t that push prices higher as well?  Eventually it will.  Despite the positive moves so far in 2010 and the fact that I believe these trends will continue, I believe we will see this buyers market continue at least through the spring of 2011.  This is because I believe prices will have trouble getting good traction until we are able to reduce the inventory of properties.”

 I predict 2011 will mark the bottom of the Northwoods Real Estate prices.  That is a big prediction.  I realize trying to call a bottom is very hard.  Yet, everything I am seeing says that 2011 will likely push out the majority of pressures that are pushing our market down.  The recovery will not be quick from here and won’t see 10% appreciation on prices year after year from this point on.  I suspect the Northwoods will show 2% – 5% price increases off of the Median and Mean averages and that sales have 10% – 15% increases in 2011.

January 8, 2011 11th Annual Original Northwoods Polar Bear Plunge – At St. Germain Lodge & Resort. Plunge begins at noon. Call for pledge sheets and registration form. To benefit Angel on My Shoulder, a non-profit cancer support foundation. In 2009, an astonishing $29,000+ was raised by 144 jumpers and over 1,000 spectators to benefit Camp Angel/Camp Teen Angel and other programs of Angel On My Shoulder. For more information, visit www.angelonmyshoulder.org or email them at angel@nnex.net. (715) 542-3433 (800) 860-3431

January 15 & 16, 2011 World Championship Kitty Kat Races – Black Bear Lodge Held on Little St. Germain Lake. Wisconsin Kids Snowmobile Racing Association or WKSRA information from Black Bear Lodge

January 14-16, 2011 AMSOIL World Championship Snowmobile Derby, in Eagle River.

January 21& 22, 2011 Snowmobile Radar Run, in St. Germain on Lt. St. Germain Lake. Visit www.radarracers.com for more information.

February 2 & 3, 2011 Vogel Enterprises Groomer Show – Equipment displays and demonstrations from 9:00 AM to 4:00 PM. Food served by the Bo-Boen Snowmobile Club. (715) 479-4200

February 11- 13, 2011 National Adult Pond Hockey Championships on Dollar Lake in Eagle River; named the recipient of SportTravel Magazine’s 2009 SportsTravel Award for the nation’s best amateur single-sport event. Watch exciting hockey action as more than 200 teams compete on 24 lake rinks for the National Championship. Click here for complete tournament information

February 18-20, 2011 Save A Star 2nd Annual Winter Weekend Getaway at Black Bear Lodge. Everyone is welcome to attend this great event to help raise money to increase awareness of the dangers associated with improper prescription drug use.

February 19, 2011 27th Ride With The Champs – Join us in St. Germain for the nnual inductions into the Snowmobile Hall of Fame. Ride with past and present race champions and snowmobile VIP’s, and then attend the induction ceremony.For information, visit www.snowmobilehalloffame.com, email info@snowmobilehalloffame.com or call (715) 542-4488

February 19&20, 2011 Great Northern Sno-Cross Series, in Eagle River.

February 26, 2011 Bo-Boen Hosted Vintage Snowmobile Race Held at the St. Germain Community Park with registration at 7:00 AM and racing starting at 10:00 AM, this event is hosted by the Bo-Boen Snowmobile Club. There will be food and drinks available. Part of the Northern Vintage Snowmobile Race Series. For details, visit the NVSRS website at www.nvsrs.org or email them at info@nvsrs.org. (715) 493-4981 or (715) 272-1722

February 26, 2011 Great Northern Sno-Cross Series, in Eagle River.

March 5 & 6, 2011 Klondike Days – Voted Wisconsin’s #1 Winter Festival! Held in Eagle River, take a trip back to the pioneer days with River Red’s Rendezvous, witness an actual Lumberjack competition and learn about our great history with the Native American cultural exposition. Sleigh rides, dog sled races, snowshoe races, food, arts and crafts, the list goes on and on! Visit Klondike Days.org or call 1-800-359-6315

 March 19, 2011 3rd Annual Ice Golf Tournament At The Black Bear Lodge Benefiting the Vilas County Food Pantry. Held from 9am – 2pm on Little St. Germain Lake. Includes 9 holes of golf, appetizer spread at the Bear’s Den, trophies, raffles and door prizes. Special package prices available! Click for more information

March 18-20, 2011 Ice Masters 3 on 3 Hockey Tournament – Held at the Eagle River Ice Arena. For more information contact Randy Athens at 715-479-3471

 We realize that real estate is largely a local market, but below are a couple of recent articles from CNBC on the latest National and big city reports.

CASE-SHILLER COMPOSITE INDEX

U.S. single-family home prices fell for a fourth straight month in October pressured by a supply glut, home foreclosures and high unemployment, data from a closely watched survey showed Tuesday.

The Standard & Poor’s/Case-Shiller composite index of 20 metropolitan areas declined 1.0 percent in October from September on a seasonally adjusted basis, a much steeper drop than the 0.6 percent fall expected by economists.

The decline built on a revised decrease of 1.0 percent in September and took prices down 0.8 percent from year-ago levels. It was the first year-on-year drop in the index since January.

The housing market has been struggling since home buyer tax credits expired earlier this year. To take advantage of the tax credits, buyers had to sign purchase contracts by April 30.

“The (housing) double dip is almost here, as six cities set new lows for the period since 2006 peaks. There is no good news in October’s report,” said David Blitzer, chairman of the index committee at S&P.

Eighteen of the 20 cities showed weaker year-on-year readings in October and all 20 cities showed monthly price declines.

Unadjusted for seasonal impact, the 20-city index fell 1.3 percent in October after a 0.8 percent decline in September.

 NEW CONSTRUCTION

Despite the fact that sales of newly constructed home bumped up 5.5 percent in November, month to month, one analyst was prompted to call it, “Another Miserable Report.”

Patrick Newport over at IHS Global Insight noted that while the seasonal adjustments pushed the numbers up, in reality November’s actual sales volume was the lowest ever recorded.

Even the National Association of Home Builders couldn’t muster much enthusiasm. “The gain represents a partial bounce-back from a near-record low, downwardly revised number of new-home sales in October,” went their release.

“While builders continue to face a great deal of competition from short-sale and foreclosure properties, the improvement registered in new-home sales in November is a good sign,” said Bob Jones, chairman of the National Association of Home Builders.

Still, the builders are concerned about lack of credit to build new homes. They claim that when demand surges, they will not have product to offer. This even as the Commerce Department reported an 8.2 month supply of newly constructed homes at the current sales pace, but the current sales pace is pretty awful.

As we came to the end of 2010, I was asked to do all kinds of prediction pieces, which I dutifully did. Neither I, nor anyone who studies housing, can make any promises in this market. There is simply no historical context with which to judge.

“Inventory management continues to improve. The number of new homes for sale fell to the lowest level since 1968.,” notes Newport. “And though the turnover rate—the median time it takes to sell a new home—inched up 0.1 month, to 8.2 months, this is a vast improvement over March 2010, when the turnover rate hit an all-time high of 14.4 months.”

As we came to the end of 2010, I was asked to do all kinds of prediction pieces, which I dutifully did. We picked some stocks, looked at sectors and geographic regions, and noted the headwinds.

Neither I, nor anyone who studies housing, can make any promises in this market. There is simply no historical context with which to judge.

I continue to believe that while we can argue ’til we’re blue about credit, government incentives, fraud and blame, the fate of the housing market lies in confidence. The minute Americans see a real reason for hope, a lift from the bottom—and a potential for profit— housing will come roaring back.

Last year at this time, I quoted Warren Buffet in our Market Watch.  He said, “that the more stocks go on sale; the less people are interested in purchasing them.”  I believed that applies to real estate as well and pointed out in last years Market Watch that “right now real estate is on sale, yet the number of residential transactions were down over 36%. . .”  I also said, “In the past, when real estate prices have gone down, history has almost always shown it to be a buying opportunity.  We believe it will be no different this time around.” 

2009 was painful for real estate up North.  Sales were down no matter how you looked at it.  Units Sold, Total Volume, and Average Sale Price were all down significantly in 2009.  This is the same 2009 that I thought would be a buying opportunity.  So do we still believe 2009 was a buying opportunity?  It is far too early to tell if history will prove that 2009 was a good buying opportunity, but I still believe it was.

What makes us believe this?  Well, 2010 is showing very real signs of recovery.  There are some very real signs of rebounding in the 1^st quarter of 2010 when compared to the 1^st quarters of previous years.  2010’s first quarter shows a 44% increase in sales volume vs. 2009.   This is the first increase in 1^st quarter sales volume since the increase from 2005 to 2006.  The units sold in the 1^st quarter of 2010 increased 35% over the 2009 units sold in the 1^st quarter.  This is the first time we have seen that number increase since the 2004 – 2005. 

So, the more important question is, do we think we are still in a buying opportunity?  And my answer is yes. 

I believe we will continue to see the volume and units of real estate sold continue to increase over that time.  So won’t that push prices higher as well?  Eventually it will.  Despite the positive moves so far in 2010 and the fact that I believe these trends will continue, I believe we will see this buyers market continue at least through the spring of 2011.  This is because I believe prices will have trouble getting good traction until we are able to reduce the inventory of properties.  Why do I feel this way?

• First, I believe the units sold and volume will continue to grow because we are still down significantly off the highs in those categories from 2004 – 2006 range.  We did not have the excessive speculation that went on in some locations (i.e. Florida, California, Vegas, etc.) but we still probably had some excess growth that was not healthy.  Despite this, I believe our pull back due to the financial crisis and excess growth has also likely gone too far.  This will mean we should start to rebound.
• Yet, I also feel there is too much inventory on the market that needs to be sold before our real pricing moves can start to recover and that will take time even with the increase speed of sales.  NOTE: The best properties will go first though.  As we start to increase our speed of sales, we will eat through the best values first and as we spend the next year or so developing the base to rebound from, the best values will likely disappear forever.
• The final reason I think people will look back and say 2009 – 2010/2011 was an incredible buying opportunity is the historically low interest rates we have right now.  The rates people can get today are really incredible.  I mentioned last year in the last buyers markets over the past 50 years we have faced interest rates in 12% – 19% range.  It was, in fact, a major reason these buyers markets were so hard to get out of.  Yet, in today’s buyers market, interest rates should actually help us recover instead of being an anchor to the recovery.

If you are considering purchasing a property in the Northwoods and have mid to long term horizon for your purchase, I think you will find now an excellent time to buy.  Otherwise, you might be saying “I wish I would have I purchased a place in 2009 – 2010”. 

Tim and Richelle Kruse