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September 05, 2010



Personally, I'm finding countless (and I mean the vast majority of) MLS listings priced around the $350,000 mark that in the late 90's to the year 2001 were purchased for around $150,000 (this basic ratio holds with great merit and accuracy in this price range).

One current example is an active listing in Southwest Minneapolis priced at $389,900 which was purchased in 1998 for $159,000. No big improvements were made by the current owner. Even at a nice 6% appreciation between 1998 and 2010 that listing should only be priced around $275,000. Where's the $390,000 coming from? That's 30% overpriced! I'm not seeing a 2001 price here!

Simply, this property and many, many others listed today need to "adjust" downward by a large percentage to hit normalcy (notice I said adjust and not deflate). Now, should I buy that property now or wait until the price drops to around $275,000? It certainly isn't going to appreciate for 5 to 7 years. What if I have to sell? No appreciation and/or equity?

The real abnormal today is seller's are "still" pricing their homes at near bubble prices expecting miracle workers to sell them at those overinflated amounts. I feel sorry for today's real estate agents that are facing buyers and promoting these prices. How do they sleep at night? Tough road when your livelihood depends upon sales commissions, I guess. Fact is, many agents are telling their friends to wait and rent for now!

I could give you a list of 50 homes that if you could get the seller's to sell them at true 2001 prices they would sell in less than a month. Trust that people will be smart enough to know when prices have truly leveled out. Keep the term "adjust" separate from "deflate". American's are smart enough to rationalize this. No PhD needed ;)

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