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Commentary Archive

All I have seen teaches me to trust
the Creator for all I have not seen
                                    -- Emerson

THE CREDIT CRUNCH MONSTER
By B.K. Haynes, Accredited Land Consultant
Septeber 2007

Are we heading for a recession? Many leading economists expect a serious downturn at the end of this decade. But in 2008? I don’t think so.

There is, however, concern among some observers that economic darkness could be upon us sooner than expected, this due to the emergence of the Credit Crunch Monster and the failure of government policies to put it out of our misery.

Economic indicators such as job gains or losses and retail sales figures, can easily miss the deleterious impact on spending that looming credit problems hold out for consumers and the business sector in general.

Keep your eye on the price of oil. Sky high gasoline prices in coming months will be another ominous sign that the Credit Crunch Monster is still unrestrained and keeping consumers at home.

Weakness by the Fed in countering this threat to the economy through (1) token interest rate droplets and (2) a counter offensive against inflation, will do little to make the monster go away. Anything less than aggressive moves by the Fed to attack the monster head on can lead to panic selling of stocks and hedge funds and continue to prolong recovery of the real estate market.

Consumer reaction to the Fed moves—and hence a signal of where the economy is headed—will be apparent in coming months through observation of a sustainable movement in the stock market, either up or down.

Also keep your eye on the price of oil and the inflation rate. It would not bode well for the economy if these leading indicators were to abruptly rise while the Credit Crunch Monster is still on the loose.

Significant and aggressive reductions in interest rates by the Fed could encourage consumption, construction, and manufacturing, while steadying the real estate market and giving consumers a healthy dose of confidence in the economy. A deep recession is expected at the end of this decade. Maybe now we need a break to get ready for it.

"BOOMSDAY" AHEAD FOR COUNTRY PROPERTIES
B.K. Haynes, ALC Accredited Land Consultant
Spring 2008

Buy at the bottom and sell at the top. This is a familiar and recommended mantra for investors considering the purchase and sale of homes, land, stocks, commodities, or financial instruments. This article discusses the real estate scene as I see it for the rest of this decade.

Technical indicators and documented trends of the 20th century—the latter of which are fueled by factual demographic data—show that the price of homes and land is poised for an upward swing, with only a slight delay in the recovery. In analogical terms, the anticipated real estate recovery could be likened to a plane stuck on the runway for months on end waiting for permission to take off to another top.

In the winter of 2008, excess inventories of home and land products have yet to be worked off to comfort levels that consumers feel are proportionate to demand. Real estate prices appear to have topped out in the summer of 2005, first on the West Coast, followed by accelerated price declines in 2006 and 2007 along the eastern seaboard and in scattered overheated markets throughout the U.S.

Who, or what, is responsible for the holdup in the real estate recovery? Here are four principal factors behind the delay: (1) geopolitical problems—mainly trouble with Iran and the Iraq War; (2) the unstable price of gasoline; (3) distress over the sudden loss of home equity; and (4) media hysteria over a perceived wholesale collapse of the sub-prime mortgage lending business.

For those observers sitting on the sidelines of the real estate game, it is important to grasp what professional investors already know—what goes up must eventually come down. In recent years, the overvaluation of real estate in the U.S.—largely induced by a spurt of low interest rates in the early 2,000s—acted to make real estate more affordable for consumers, while at the same time spawning excessive speculation.

By 2003, consumer buying power had reached peak levels due to the burgeoning wealth of aging Baby Roomers. The end result was a shortage of home and land product and the creation of a classic sellers’ market.

Considering the current surplus of unsold homes and building lots— and in the absence of dramatically lower mortgage interest rates and falling gasoline prices—clear-cut definition of an upswing in the real estate market will likely not be evident until mid 2008.

Based on decennial cycles in the 20th century, another significant sellers’ market should emerge before the upcoming presidential election and is expected to last until another full-scale market bottom at the decade’s end, at which time investors will want to have a high degree of liquidity.

It would appear that now is clearly the time to buy select rural real estate, while it is— in most cases— being sold at hugely discounted prices and can therefore be considered significantly undervalued. For short-term investors, the time to take profits would be in the projected peak boom period of mid-2009, before credible evidence suggests to the general public that the next crash is at hand.

Technical data show that recent weakening in the real estate market has reduced new home sales and housing starts to normal levels, last seen in the year 2,000. Those familiar with past bubble booms and busts recognize that the recent real estate downturn is not a bust, but only an extended correction, as it has been characterized by leading economists and investment analysts.

In effect, the current real estate slump is not indicative of a “bubble burst,” but is simply a correction within the context of an existing “bubble boom” in the U.S. economy that will be finishing its run over the next several years. The media, of course, would naturally play up the “bust” angle because negative news is more sensational than positive events for readers, listeners, and viewers.

In its worse connotation, the prolonged dip in real estate prices can be viewed by alarmists as a possible suspect in the killing of the economy, when, in reality, the downturn can intelligently be interpreted by alert investors and many economic analysts as a precursor of a wide-spread bust poised to emerge in or around 2010. A caveat to this conclusion is that the carnage to consumer home equity positions left by the price correction was so severe that it has dealt a death blow to the indiscriminate construction of McMansions. Most home and land owners, who have held on and weathered the price correction, will, in most cases, find their equity positions restored and embellished after the real estate market takes on its upswing definition later this year and rises to another top.

One of the fundamentals in the real estate market is that homes and land exist in a state of constant turnover, with these assets generally purchased with the proceeds from the sale of existing real estate. As homes and land become more affordable—due to lower mortgage rates, scarcity of supply, and through price corrections—the assets have had, in the past, a tendency to be traded upward, exposing the inventory of new homes and land parcels to excessive speculation. It is obvious that the 2005-08 price correction has produced an abundance of affordable real estate, while curbing speculative activity.

As the market recovers from the slowdown, it is important to realize that demographic changes in the U.S point to a growing trend toward down-sizing in the home market, with sellers cashing out larger homes for the purchase of smaller, less expensive dwelling units. It would be reasonable to assume that the large-scale, unrestrained construction of gaudy mansions and overly expensive homes is a somewhat dated concept not likely to be embraced by national home builders. It takes many years for large scale housing developments to get off the ground. The process begins at the land acquisition stage and starts working its way through the nightmare of political concerns and environmental objections, then proceeds to the desks of planning and regulatory officials and, finally, to the construction phase.

Developers at the starting gates of upscale housing developments in 2008 could find themselves losing the race for profits. This is largely because the spending power of Baby Boomers to buy such luxurious digs will be trending downward, this in the twilight of an overall crash in the economy that could, again, leave the building industry with an inventory of expensive unsold homes.

For months now, doomsday commentators have been shouting that the sky was falling on the real estate market and that the calamity would bring about a recession. In fact, the state of real estate is only a single component within the overall economic picture. A crash in this one segment would essentially be a blow to the real estate market caused by a faltering economy, not the other way around. The global boom in economic growth and the strength of baby boomer spending should boost the value of real estate assets in the U.S. for the next two years. Of course, real estate, like politics, is largely local. So location, location, location, is super important. Investors in country properties should scout for desirable real estate that is easily accessible by main roadways and located less than two hours from major cities.

Early-bird selection of prime resort properties — particularly waterfront—by investors prior to project completion by reputable developers could be a sound and profitable move. Well located rental properties and moderately priced homes with acreage should also deliver significant profits if purchased soon and sold at the peak of the coming seller’s market. But remember, the surge in Baby Boomer spending will have receded fundamentally by 2010, this as the expected slump in the economy takes hold. Investors will need to be liquid at that time to capitalize on those real estate foreclosure and distressed property opportunities that accompany economic downturns.

Investors should keep in mind the fact that real estate bubbles and their related busts are more likely to occur in densely populated metropolitan areas, this due primarily to the scarcity of land. Consider the fact that six of the most unaffordable housing markets in the English-speaking world are in the U.S.—five cities in California, combined with Honolulu, Hawaii. It is not a forgone conclusion that a real estate bubble burst will affect all markets simultaneously, as would be the case in a stock market crash.

New growth restraints in some outlying counties can also restrict the amount of land available for housing, forcing the clustering of homes and perpetuating regional bubbles as people bid up the price of homes, this while developers scurry around, paying higher and higher prices for buildable land.

The 20 most affordable home markets in the English-speaking world are all located inland, away from the coastlines. 16 of the 20 are in the U.S., with four in Canada. A few simplistic lesson points for investors in country properties are (1) concentrate your activities in good rural locations with growth potential; (2) buy at recognizable market bottoms; (3) sell at the top; (4) avoid irrational market frenzy that could expose you to the next bubble burst.

Demographic-based data reveal that, in coming years, there will be diminishing future demand for high priced homes in and around major cities and population centers. An aging population, led by the Baby Boomer segment, will call the shots on economic growth in the near future, this through the power of their massive build up of wealth stashed away for retirement. Primary homes for this population sector will—of necessity and preference—be smaller in size. This group will seek out moderately priced homes and dwelling units in small towns and rural areas near major cities, while intensifying their search for affordable homes and condos in resort communities.

The purchase of homes with acreage, small farms, and fixer-upper homes in the countryside will be primary objectives for retirees, as well as principal targets for short-term investors in country properties. The changing demographic nature of our population will bring about price rises for affordable homes and land in the near term, the trend eventually leading to another overvaluation of properties in attractive regions, many of which are destination points preferred by new retirees.

Real estate in California, Florida, New York City and its environs, and the southwest U.S. are particularly vulnerable to the coming bubble burst.

City dwellers seeking lower priced homes and refuge from congestion will be propelled toward the countryside in coming years by the explosion of broad-based internet that will allow them to work from their homes. The demand for country properties will grow exponentially as these workers move further out, drawn to less crowded regions offering abundant outdoor recreation and affordable housing. That idyllic little cottage in the country will be on the minds of many escapees seeking a haven from the nightmarish events that could occur at the end of this decade. And, of course, the threat of terrorism will act to drive many city people out of the ominous “blast zone.”

A noticeable price pattern was evident to economic observers throughout the 20th century that showed real estate prices falling significantly following a 5-year lag from their peak figures, these high numbers generally emerging at mid-decade. This same pattern appears to be developing in this decade, with a slide in prices that started in 2005 and is now beginning to level off in 2008.

As in the past, this recurring trend calls for real estate prices to climb in the near future, before falling again to a market bottom on the heels of a recession. Many leading economists and financial analysts point to charts showing that the next real estate bubble burst will be incited by a collapse in the overall economy in, or around, 2010-2012. Sellers of high-priced homes, disappointed in the scarcity of buyers, along with devaluations of their property often reaching 40%, should find a way out of their lost equity troubles through the rising tide now evident in the stock market—a financial surge that should lift all boats.

Timely action by the Fed to drop long-term interest rates, along with a concerted effort by private sector lenders to develop a comprehensive program of restructured financing for sub-prime loans, could help consumers sop up the existing inventory of moderately priced homes and lead to a quick recovery for the real estate market in mid to late 2008.

For investors in country properties, here are some chilling predictions about the economy: The spending wave by Baby Boomers will decline significantly at the end of this decade, while their entitlements will pose a huge drain on the economy. Moderate inflation will edge up over the next few years, followed by a growing deflationary period which will be deadly to many holders of real estate and become the hallmark of a deep recession beginning at the decade’s end.

Plummeting mortgage interest rates will help lessen the blow to the economy, this as a surge of refinancing provides a measure of stability to the real estate market. Geopolitical troubles will haunt the U.S. for the rest of this decade. Throughout the 20th century, almost every president elected in a year ending with the number eight has faced a war or economic calamity during his second year in office.

Tremendous opportunities exist for investors who are in the right place at the right time with the right means, whether the market be favorable to either buyer or seller. The problem that for most investors is that they either fail to act, act too late, or fail to correctly judge the market.

B.K. Haynes has been a land broker in Front Royal, VA for 42 years. He is the author of seven books, the latest of which is How I Turned $50 Into $5 Million in Country Property — Part Time (2009). For more information and commentary log on to www.bkhaynes.com.

A Senior Moment
April, 2007

A very self-important college freshman attending a recent football game, took it upon himself to explain to a senior citizen sitting next to him why it was impossible for the older generation to understand his generation. "You grew up in a different world, actually an almost primitive one," the student said, loud enough for many of those nearby to hear. "The young people of today grew up with television, jet planes, space travel, man walking on the moon, our spaceships have visited Mars. We have nuclear energy, electric and hydrogen cars, computers with light-speed processing and," pausing to take another drink of beer.

The Senior took advantage of the break in the student's litany and said, "You're right, son. We didn't have those things when we were young........so we invented them. Now, what are you doing for the next generation?"

©2007 B.K. Haynes

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INVESTOR ALERT!
By B K Haynes, Accredited Land Consultant
April 2008

The recent correction in the stock market has occurred earlier than expected, this at the tail end of the correction in home and land prices. My data, research and analysis of the country properties market is that the market peaked in the late summer of 2005 and has now hit the bottom after an unusually long correction period of almost three years.

Economic fundamentals currently at play, past cyclical trend lines, and demographic data, do not signal a significant and prolonged recessionary period for at least the next two years. Savvy stock market investors and real estate speculators who are aware of these cycles, trend lines, and demographics are now buying stocks and real estate at bottom line prices with the intent to sell at market tops.
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The next top in the country properties market is projected to be in the closing months of 2009. Properties purchased at the current market bottom will yield significant profits if sold before the anticipated crash of 2010. At the decade's end, prices on country properties, in general, are expected to stabilize, temporarily drop slightly in some regions, and increase only moderately for an extended period of time, this as the country works its way through another prolonged recession.
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The current correction in the stock market should be short lived and will be followed by a bullish run-up in prices, essentially re-establishing its market high. Fear of a severe recession occurring in 2008 is unwarranted. The significance of the precipitous drop in stock prices at this early juncture is that the anticipated "real" recession or economic across-the-board "crash" will likely occur in 2010 or 2011. A secondary stock market correction is likely to occur in 2008, prior to the election of a new president.

Investors should be alert to a calamitous event-such as a terrorist attack, natural disaster, or war--prior to, or shortly after, the 2008 election. Such a calamity will fit in with a 20th century cyclical pattern that has, in the past, acted as a precursor to socio-economic upheavals of a major kind and dimension. Some observers say that the prolonged credit crunch and real estate price correction is, in fact, that precursor.

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©2008 B.K. Haynes

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Return of the Pilgrim: Old Thoughts for the New Year

By B K Haynes, Accredited Land Consultant

I live in a house that was built before the Revolutionary War.
After my wife died in 1988, I built a sanctuary and a study in one of the old rooms.

I had been studying world religions and metaphysical books for several years. So my library is full of spiritual literature. Over the old fireplace I had hung a picture of Christ. He is standing in a pasture. All around him are sheep. And he's holding a lamb in his arms.

In the front of my desk is a picture of The Last Supper. Statues and pictures of Christ in the room outnumber the other figurines that I have gathered from around the world. I have assembled these mementos in a shrine to the great Savior and his tolerance of other faiths. I wear a crucifix around my neck. But I didn't know Christ. I had lost him somewhere along my busy way.

One day I was sitting in my study, reflecting on my life. I could own any kind of car I wanted. I could vacation anywhere in the world. Money was no object. I could travel first class. My sojourn could last as long as I liked. I remember thinking how good God had been to me.

The Gathering Storm

Soon thereafter, a recession blew in like a snowstorm, stopping my fast-moving real estate business in its tracks. I made one bad decision after another. I was heavily in debt. The market was crashing all around me. I had confidence in the wrong people. Cash was buried in debts so deep I could not sleep. I spent most of my time managing crisis after crisis. My spiritual studies were almost worthless to me in this dilemma.As a matter of fact, the more I read about spirituality, the more confused I became.

Finally, I had to release most of my employees. I began to question my spiritual path. I studied and believed in Christianity. . . Buddhism. . .Hinduism. . . Rosicrucianism. . . Mohammed . . . out-of-body travel. . . Indian mystics. . . psychic readings. . . ghosts. . . past lives. . . the Seth books. . . A Course in Miracles . . . anything metaphysical or spiritual. .    

The Unseen World

I read somewhere that, "what is not seen is more powerful than that which is seen." Yes, I had faith in an unseen world. I had faith in spirits. I had faith in the spiritual nature of people. If someone said they were going to church, I assumed they were spiritual. When I visited a psychic reader, I instinctively knew she was spiritual, this because she allegedly talked to spirits. Yet I had suddenly come to the conclusion that the spiritual world is a potentially dangerous place to go poking around in. The Bible advises against such ventures.

If, in fact, what is unseen is more powerful then that which is seen, then how do we know what powers have control over us when we commit our senses to a smorgasbord of spiritual beliefs and elements? Such a commitment would be self-defeating to those seeking meaningful divine guidance through prayer; and such a wide-ranging spiritual search would leave sincere seekers with a never ending thirst for a soulful connection to the hereafter.

The Unbelievers

     Notwithstanding the blurred vision of agnostics and the absence of faith by atheists, there is no denying the existence of evil in the world-a force that committed Christians believe exists in opposition to God's Holy Spirit. Of course, many disbelievers feel that the story of Christ is a fabrication, created by Judeo-Christian fiction writers of the ancient scriptures. In the modern world, disbelievers often discount the messages and prophesies of the Bible, this while questioning its divine legitimacy and denying the power of prayer. Those without faith are left to their own frail mental devices for the construction of a moral compass to make their way through a brief life in a physical world that ends at death.

The Path to God

The Bible says that the way to God is through Christ and that the Holly Spirit will come upon those who have faith in Christ. True faith acts as a bridge from this world to the next. Tolerance of other world religions is, of course, necessary for human survival and contentment in a diverse, contentious, and changing world. The danger for Christians is, of course, the potential dilution of faith through socio-political correctness. Shakespeare said, "He wears his faith but as the fashion of his hat; it ever changes with the next block."

It can be sad that any person, such as I, could live in spiritual poverty when I had at my disposal great Christian resources. You might say that I was naïve and overdosed on spirituality. You know how it is with an addict. He can never be fulfilled. He thirsts, and he hungers, but he remains a slave to his addiction. I read somewhere that if someone hungers or thirsts for spirituality, and he is without Christ, his hunger and his thirst will never cease. In other words, without Christ, he will live in spiritual poverty.

I do believe that many of us live in spiritual poverty when we have the rich Christian resources of the Bible, prayer, and faith in Christ, and we don't use these virtuous assets to advance our lives and the lives of others. John 16:24 says, "Until now, you have asked nothing in my name. Ask and you will receive, that your joy may be full."

The Amazing Power of Prayer

When I was beaten through with trouble, I practiced positive thinking. I had written a book on success motivation. I reviewed what I had written. I tried to will my troubles away. Surely, what had brought me success before could steer me back on course. But the waves were too high. The sea of trouble that I had created for myself was too stormy. I couldn't navigate. I was lost. Here's how I was found.

One Sunday, after I had returned home from attendance at my last church, I gave up all of my attempts to solve my problems by myself. I prayed, while turning my life over to God through Christ. I asked the Creator to use my life as he sees fit. I said, "Dear Father, I come to you this morning to thank you for helping me with my financial problems, as I realize I could not have solved them by myself." I prayed as if God had already given me a plan. I took my own will out of the way and allowed God's powerful will to come through.

Of course, I affirmed my faith in Jesus Christ, acknowledged my sins, and accepted the atonement of Christ, who I believe had died to remove those sins; because I know that, without Christ in my heart, I would still be alone-a voice in the wilderness crying out to a God I could not perceive.

The result was like this. I had been caught up in a terrible storm, and suddenly the sea was calm again. I could now see the shore. Money came to me when I needed it, often from sources I had overlooked. Real estate was sold that I never expected would be sold so quickly. Christian friends appeared in my life. From the day I asked for Christ to come into my heart to give me direction, my financial burdens are no longer too heavy for me to bear. Have my troubles gone away? No. In business, there will always be problems. The difference is that I now admit I cannot solve them by myself alone.

Unanswered Prayers

Catherine Marshall, writing in Guideposts magazine, said that "a demanding spirit, with self-will as its rudder, blocks prayer. The reason is that God absolutely refuses to violate our free will." We see evidence of this principle in the Bible. So, unless self-will is let go, God cannot move to answer prayer. When I was in trouble, I tried to solve problems by myself, and I received more troubles. Any prayers I made were blurred, unfocused, and undelivered--as if they were returned to the sender by a vague higher power. Such misguided prayers can be an exercise in futility. But when I prayed to God in the name of Jesus Christ, I received answers that led me out of spiritual poverty and away from a troubled life.

What did Christ do in times of trouble? He could have escaped the cross. Even in the Garden of Gethsemane, after the betrayal, there was still time for him to slip away. But the message we receive from the Bible is that Jesus used his free will to leave his ultimate fate in the hands of his Father, Almighty God.

We Are Not Alone

This process of surrendering our free will to God is difficult for the human mind to comprehend. We're afraid to give up our self-will because we don't know what is going to happen to us in such a circumstance. We fear the unknown. Fear, of course, is a human passion given to us by the Creator to deliver us from evil and to assist us in effectively using our reasoning power.

From Shakespeare we learn, "Present fears are less than our horrible imaginings." In a sense, unbridled fear can act as an evil force when unleashed against the Creator in the form of fervent disbelief. Fear of God's existence is quite different from that of being a God-fearing person, and one of the seven basic human fears is that of "lost love."

Arguably, the denial of God's existence can act as a muted fear in the minds of many unbelievers and agnostics-a fear that a strong faith in a loving God will not protect them from evil and that therefore they must rely on themselves for the solutions to their problems. Devout and committed Christians believe the first step in reclaiming that "lost love" is the acceptance of Christ as the Son of God and as the Redeemer of our sins. This offer of redemption is open--without coercion, threat, or torture--to all human beings on the face of the earth, regardless of their faith, religion or belief system.

The Christ Connection

Atheists and their brethren point to the Holocaust, ethnic cleansing, genocide, and human suffering to bolster their disbelief in a loving God who would allow such a profligate sacrifice of human lives. Faithless skeptics adopt these talking points while forgetting or ignoring that such a Creator has given us free will to use for the good of mankind or to abuse for evil purposes, and that human illness and deformities are but examples of human frangibility in an imperfect and ever-changing physical world. Pity and true forgiveness are among mankind's fruits of such misfortunes and misgivings.

Faith has a saving connection with Christ. We can find ourselves cast overboard in a sea of troubled waters; yet, through faith in Christ, we can reach out for his rope line of safety. I thought I was doing good works in business. But good works in a secular-oriented world can often drift off into some never-never land of compassionate secularism having no connection with Christ. In such a spiritual disconnect, we often find scant reward for our works and sometimes a boatload of more troubles.

Lesson of the Logs

     In the northwest United States, lumbermen customarily float logs down the river in the springtime. Sometimes the logs get jammed up. But, in the pile, there is always a key log. If you locate that log, and pull it out, you can break up the jam. And the logs can then continue to float down the river or waterway. Using this timberland supply problem as an analogy, I found that, in my spiritual studies, my mind was essentially jammed up. It was therefore compelling for me to break the jam so that I could deal effectively with business problems.

The Enlightenment

I needed to stop trying to understand the ethereal world so that I could find my way through the troubled world of the present. With this tactic in mind, I chose Christ as my guide and went back to the church. I remembered that specific Methodist church of my late teens, where I had found fellowship, a spiritual foundation, and the power of prayer. It was through that same church that I had been introduced to my late and only wife. I recalled the Methodist church of my early business years, where I worshipped with my wife and young son and where I had grieved when she died.

Return of the Pilgrim

In the darkness of the recession, I chose Christ as my spiritual guide and redeemer and returned to the church. I began this commitment with regular attendance, Christian fellowship, and Bible studies. Soon I found the key log that would act to un-jam my thought processes. You can characterize such a procedure as being "born again" through Christ--hardly a unique experience, because such epiphanies have been chronicled since the beginning of Christianity and are widely acknowledged to be critical healing elements in modern Christian life.

Immanuel Kant, the early philosopher, (1724-1804) once said, "There is a limit where the intellect fails and breaks down, and this limit is where the questions concerning God and freewill and mortality arise." That's where faith comes in. Instead of trying to understand what I was not supposed to comprehend, I faced my fears and came to God through Christ. He showed me the way out of a troubled life, and I found peace.

©2008 B.K. Haynes

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21 Reasons the Sky Ain't Falling on Real Estate - and How to Profit if it Does

By B K Haynes, ALC
February, 2008

It’s true. The sun is setting on the real estate market. But the sun also rises.

Figures from the National Association of Realtors show that, in mid-2005 --at the peak of home buying activity in the U.S.--an historic 40% of these residential units were purchased for investment or for use as second homes.

Will this speculative activity and glut of homes cause
the real estate market to continue to underperform?

Successful investors in such lively real estate sectors as homes and land understand the fundamental factors that influence present and future market values. And skillful players in the race for profits tack toward the following trends as these tendencies become apparent and give direction to real estate price movements: (1) demographic spending currents, (2) real estate supply components, (3) mortgage rate levels, (4) basic consumer affordability, (5) state of the economy, and, (6) consumer sentiment.

Consumer outlook in a factual real estate bubble burst would obviously call for broad base panic selling--a scenario that is not clearly evident in most of the U.S. at this time and certainly not widely anticipated in the near future by astute market watchers. Nevertheless, such a disastrous state of affairs could actually occur at the decade's end. But for now, let me repeat. The sky is not projected to fall on real estate - across the country - anytime soon.

When will the Bubble Burst?

At the present time, a tsunami of price reductions by sellers and builders has engulfed and subsequently watered down profits and consumer equity in the regional real estate markets. Notwithstanding this unfortunate turn of events, it is highly unlikely-as some pundits would suggest-that sellers are now retreating en masse along a path to self destruction of their equity positions.

If an allegory between death and material loss could logically be drawn , it would appear that some sellers have already, (1) passed beyond the denial and anger stages over lost equity and are, (2) now in a bargaining frame of mind. But, given the demographically-proven strength of current and projected consumer buying power, it would seem somewhat premature to assume that, (3) their minds will soon be flooded with great depression that will lead to, (4) imminent panic sales of real estate throughout the country and, therefore, to (5) the immediate acceptance of barbarians at the gate.

Barring a cataclysmic event, such as a nuclear war, or world-shaking terrorist assault on Western socio-economic structure and stability, the real estate market and the health of the economy in general should-with a correction or two - trend upward over the next few years, this as supply and demand for the real estate product reach proportionate levels.

(1) Moderate inflation is expected through 2010 adding strength to the economy and power to your earning capacity.

(2) Interest rates will decline slowly as economic growth is spurred on by the sustained spending years of aging baby boomers.

(3) For investors, the process of recognizing a market bottom and seizing the moment often pays greater returns than the tactic of selling for a profit at the top. In this recent downturn, overbuilding and aggressive speculation by investors clipped the wings of many high-flyers in the real estate market. Both excesses have been primary factors in the flattening and erosion of home prices, a trend that actually surfaced in our thriving post-recessionary economy prior to a peak demand for homes in mid-2005.

Prior to that time, abnormally low mortgage interest rates had stimulated home sales, pushing up home ownership to historic levels. The nation's home supply then began to outdistance demand, thereby creating unsustainable asking prices in many regions of the country. By mid-2008 this correction in home prices would have been playing out over an approximate 3-year period, beyond the length of a normal recession. My analysis and evidence shows clearly that we are at the bottom of a dip and that we are now emerging from a somewhat bearish market.

(4) Demographic data show that consumers still have immense capacity to buy homes and land. It is a myth that excessive consumer debt loads and unusually low interest rates have preordained an imminent broad based real estate crash.

(5) Consumer debt and mortgage lending will begin to level off as an aging population-still flush with substantial home equity assets-casts off much of their mortgage interest load.

(6) The sun also rises on real estate. What goes down also goes up. In sync with this market cycle, a diminishing degree of real estate price erosion is expected to continue into 2008 as excess inventory is worked off.

(7) The strength and thrust of baby boom spending will continue to energize the economy until at least 2010. Historical data shows that a prolonged recession is likely to take hold at the decade's end.

(8) Certain sectors of the real estate market will outdistance others in growth potential in coming years. Baby boomers will downsize to smaller homes in preparation for their retirement years, this trend boosting the second home market. And echo boomers will provide a steady and lucrative market for builders of lower-priced starter homes.

(9) Prices on lower and mid-priced homes will continue to rise throughout this decade as U.S. government-charted demographic spending trends show accelerated demand in this sector. Higher-end homes in overheated areas pose some downside risk in valuation.

(10) Real estate in the following sectors should benefit from an aging population: (1) vacation and resort properties, (2) good usable land close to small towns and near major cities, and, (3) well-developed apartment projects.

(11) Real estate is regional and cyclical in nature and not prone to sudden crashes across the board like the stock market scenario. Predictable cycles of consumer spending and reflections of their personal needs can now be charted for a particular population base through the accumulation and analysis of statistical data.

(12) Demand for real estate is ongoing and diverse. There will always be a need for the product in one form or another. A growing consumer trend is to pack up and move away from city and suburban life to other less stressful environments. This fundamental change in lifestyles is mainly fueled by a basic desire for lower priced homes. Other factors at play in these changing times are: (1) a longing to work from home, (2) a craving to relocate to a less congested region, and, (3) a desire for more leisure time activities.

(13) Current demographic data from the U.S. Bureau of Census charts show the degree of home ownership in this country rising to a level exceeding 70% of the population base. Most of this increase in ownership will come from the purchase of lower priced homes.

(14) High-end homes will gain some price stability in the near future from the emerging stock market bubble-this until the next bust dilutes the liquid assets of investors and upscale homeowners.

(15) Like politics, real estate is basically local. Charisma, market timing, and location, location, location are all super important. Significant profits and asset safety await those who migrate to, or invest in, upcoming "hot" markets that offer affordable homes and a better lifestyle. This wise, albeit self-serving tactic, is essentially induced by demographic data that identify a formidable army of rich folks, led by affluent retirees, all on the move and in retreat from their "McMansions" and high-end abodes to less lavish huts and a more folksy lifestyle. Left behind to grieve over their diminishing returns in overheated markets will be a rag-tag rear guard of amateur investors and untrained speculators.

(16) If you plan to sell your home in the near term, follow closely the anticipated upswing in real estate prices that should be evident in the spring and summer of 2008, this as the current and unprecedented surplus of homes in many regions is largely wiped out through the whirlwind of price cutbacks and purchase incentives now gaining strength in the real estate market. This emerging growth trend will be forcefully driven over the next few years by a thriving economy and fueled by unquestionably strong consumer buying power.

(17) As I explain in my latest book, How I Turned $50 Into $5 Million in Country Property - Part Time, the most opportune time to sell your home or land in the near term would be to do so by the end of 2009, and no later than 2010.

(18) The best time to snatch a bountiful deal on a first or second home, or to buy prime land, would be now, at this discernible upturn of the current dip, while potential purchasing rivals, such as green speculators and weak-kneed investors, are few and far between and often nowhere to be seen

(19) The years 2008 to 2009 should be of particular interest to investors in vacation homes, since the huge looming army of baby boomers, advancing through their peak purchasing years, are now closing in on the second home market. Buyers will have their best tactical advantage by seizing real estate objectives in early 2008 while sellers are off-guard on valuations. Sellers will gain most of the high ground bargaining power in 2009, when they will be best positioned to draw the line on prices.

(20) Real estate investors should strive to be relatively liquid by the end of 2010. This strategy calls for a plan to set aside a substantial stockpile of cash-accessible assets, while giving appropriate attention and care to your core real estate holdings, such as your primary homeplace, vacation abode and any profitable rental properties.

(21) In a worse case scenario, all real estate sectors could theoretically fall from grace at the decade's end, this calamity potentially occurring in concert with a crumbling stock market and accelerated terrorist activity. Smart real estate investors will build up their stores of cash, CDs, T-bills, no later than the end of the decade to weather the potential storm clouds ahead. Future millionaires and billionaires will then set their sights on once-in-a lifetime buying opportunities in prime exurban and resort area real estate.

©2008 B.K. Haynes

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Cracking the code of the next bubble burst in real estate

By B K Haynes, Accredited Land Consultant
February 2008


In a recent conversation about the coming bubble burst in real estate I heard the code words, "DEEP PLACE" What do they mean?

These two words unlock the code that reveals when the bubble burst will actually occur, the reasoning behind the theory, the effect on our economy, and investor reaction to unfolding concurrent events. Demographic shifts and cyclical economic trends are both at play in the following scenario.

"D" means deep trouble for the country at the end of the decade - 2009 -10 -- when access to credit and ready cash will again be tight.

"E" signals that the economy will be in turmoil. The second "E" refers to the upcoming presidential election year, when history shows an economic decline and calamity, such as war or a natural disaster, occurring with regularity two years after a new president takes office in a year ending in the number 8 - this recurrence spotlighting 2008 as the Devil's year.

"P" means that a precursor to the primary disaster such as a stock market crash and/or a terrorist scare - will be evident prior to the emergence of the expected calamity at the end of this decade. Many people in the western world will misinterpret this precursor to be the real "end times" of recent prosperity and misjudge their investment decisions. Other observers feel this precursor has already occurred with the prolonged downturn in the real estate market.

The code word PLACE is significant to investors.

When broken down, "P" means that prices on investment assets, such as stocks and real estate will plummet in a classic buyer's market.

"L" stands for location, leading astute real estate investors and "sharks" to feed in the blood bath of previously fat markets.

"A" is for auctions, which will be common as panicky investors, developers, and real estate owners scramble for liquidity at the decade's end.

"C" means that "cash" will be king in these hard times.

"E" signals the need for experience in navigating through the troubled waters ahead.

Untested and ill-advised investors could lose their shirts. Smart investors will be prepared to pluck enormous benefits from a down market. Some sharp players will make millions at the decade's end. Look for real estate prices in general to rise from mid-2008 until late 2009, with only sporadic dips. Then prices will stabilize across the country before potentially declining again as much as 10% to 30% in specific overheated markets. Most analysts and economists are not predicting a 1930's style depression or a doomsday scenario at the decade's end-only a serious economic setback for the country at large. Any parallel calamity to the anticipated downturn is speculative, though 20th century history reveals an ominous and recurring connection between economic turmoil and preeminent calamities.

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