Correction Imminent In Many Upscale Home Markets
I received the following from H.S. Dent, author of The Roaring 2000's, The Great Boom Ahead, et al. I thougth I would share his insight with the rest of TCI. To view his website, visit www.hsdent.com
Home prices in high-priced markets will slow and decline over
the remainder of the decade, according to the October edition
of the H.S. Dent Forecast newsletter. These markets include
Dallas, San Francisco, Denver, Miami, Boston, New York.
Predicting an increasingly booming U.S. economy over the
remainder of the decade, the widely respected Forecast says
that upscale real estate is likely to be of significantly higher risk
than stock or mutual fund portfolios.
"Residential real estate may be nearing a long-term top over the
next two years with many markets not seeing new highs for decades
given the larger decline our demographic indicators are
forecasting after 2010," the Forecast said.
The Dent forecasting method is based on proprietary demographic
models that currently show baby boomers are peaking in their
trade-up home buying cycle.
Rodney Johnson, president of H.S. Dent Publishing, writes: "If you
are trying to decide whether or not to sell your current home or
purchase one in a certain area, then national trends are only
part of the equation. You must consider local demographics."
While demographic trends in many locations will put pressure on
high-end residential prices, a strong economy and low mortgage
rates will cushion the decline "until after 2010 when prices will
fall much more substantially," the newsletter said.
In upscale markets, there have been rising prices on declining
volume. "Like in stock markets, you are likely nearing a top,"
the Forecast points out.
Looking to more positive real estate trends resulting from baby
boomer demographics, the Dent analysis points to "continued
strength and rising prices in ex-urban and vacation/retirement
areas" as people in their late 50s and early 60s buy just ahead
of retirement.
Noting that only about a quarter of retirees relocate for
retirement, "the relocation of 24 percent of baby boomers over
the next two decades will cause major growth pressures" in
retirement areas, the newsletter states.
"This maturing segment, especially those in their mid-50s to
early 60s will represent a strong force in residential real
estate trends for the next two decades as the massive baby boom
generation moves in rising numbers into peak trade-up, vacation
and retirement buying," according to the Forecast.
"This is the primary reason that vacation homes and residential
prices have accelerated so much since 1999 in attractive
retirement/vacation markets like Miami and Ft. Lauderdale, and
why such markets are likely to out-perform again after this likely
near-term correction."
"The downside in upscale and the more bubble-like markets from
Miami and Ft. Lauderdale to Boston, New York and San Francisco
could be substantial," the Forecast advises readers. "If you are
already looking at moving or relocating or paring down real estate
holdings, assessing and acting sooner than later could make a big
difference."
H.S. Dent Publishing of Dallas, Texas helps people to understand
change and anticipate its arrival through its publications,
including the monthly H.S. Dent Forecast. The Dent methodology
is based on demographics, or the study of whole populations. Its
demographic models have consistently proven their ability to
provide incredibly accurate economic predictions.
HS Dent has a valid argument...wouldn't hurt to take some of it under advisement.
Dear Ram,
Thank you for your comment, I would never denegate da Dent. He does his thing well, What we were trying to point out, there are many arrows in the quiver and all should be considered and, as "Time goes by" different variables occur and all have bearing. You do one thing as you look forward in time and you do another in present time.
Example:
When I was 17, I was in the RAF and the Battle of Britain was on and frankly we were loosing big Time. My squadron 222 known as the trembling twos had two aircraft left at the end of the day and 4 pilots. I at the time only a Sgt Pilot due to my proclivity to fly low and slow upside down about one foot off the ground was the Senior Pilot of the 4. We thought we had lost. I mean against 100s of very agressive German types, 2 aircraft? So that night we ate and drank and made merry.
Merry left in the early morning and we went out to the Dispersal, warmed up the remaining 2 aircraft and sat waiting for the first scramble of the day. Thinking ahead I took out my German Grammer book and studied.
Suddenly it was nine oclock and no scramble. I called into 11 Group ask the Duty Controller whats the Gen. Nothing he replied its all stopped. No more bombers and fighters of Germanic extraction coming in.
The Battle of Britain was over, we had won by default. I threw away my German Grammer Book and started to work on my American Accent so that I too could conform and pick up girls like the other pilots.
My point. Jiggle the facts and look forward in time sometimes you get it right and then, sometimes there is divine intervention and they get you. Right?
Introspectioning ? Lucius
Great information. Thanks!
Interesting comments. However what I have discovered is this: If we knew about the WTC we would have been a lot more accurate. Every day I here prognosticators saying we are coming out of the downturn. Well if there was and expert that knew all this it would be fixed before it came. Truth is its not always economics that drives. Could be that fannie mae and the other mbs's allow you to round up on appraisals. Through in the fact we still are the most secure country in the world. People may decided to stay in there current home. I prefer to use current trend data and adjust with that rather than long term. Because no one really knows. In addition its very very important to read this. When you an investor no matter what the climate you make money. End of story. If your worried about the economy and whats going to happen. I would suggest a government job with a pension. Investors you hit a problem go under over it or through it. Expirenced Investors Know what I mean.
The "correction" in upscale housing markets will be felt most keenly in the "downscale" housing markets. Take an aging boomer with 3-4 kids and a desire to downsize. Chances are one of those kids will have a growing family, and will get into the house one way or another. That means that some starter home in some neighborhood or other will be sold on the cheap, either to someone who can just barely make the payments or to an investor.
Neighborhoods full of closely-packed starter homes will be on the downswing as far as owner-occupied percentages and general condition goes. The kids who are in the parents' place might not keep it up exactly as the parents did, but it'll be OK. It's those lower-strate neighborhoods that are going down.
Love Dent, he is Bent but,
Cut to the chase, Local Demographics, now cut to present time info.
Clauswitz said, "Strategic information is applicable in the analysis of the future battlefield, must not be considered at moment of conflict. At that time only present Tactical intelligence must be used."
Like wot's hoppening now? Man!
County of Los Angeles on 11-19-2003 a Wednesday normaly a light day on filings. Friday is the heavy day when all the Escrows record their stuff and the Title Companies go nuts. This date 50 filings NOD's this is gigantic. I am following now on a daily basis to see if this is an anomaly, just a crazy spike or is it evidence of a change in local economics.
Thursday 11/20/2003. End of day pretty normal. Still I have been alerted.
Translation: The time does approach when we will be able to attend sales after making accomodations with the Loss/Mitigators which are reflected by instructions to Trustee to open the bidding at a figure below the true amount and expenses owed.
Remember now a lot of Foreclosure Speculative Buyers do not attend the sale if the figure is too high versus the value of the property.
Now think a minute. Supose you and only you have been informed of the reduction in the first bid. "On behalf of the Beneficiary I as Trustee do bid the sum of $100,000." Instead of the posted amount of $200,000. There is nobody there but you because all the others wrote it off as too high.
The reason is because you are in touch with the Trustee and the Loss/Mitigator aka The Walter Mitty. The average Speculator just does not bother. Yip Hurray You Win!!
Happened before and as the Economic World doth turn, once more, it could be right around the corner.
Now, the hard part, which corner?
Expectantly Lucius