The Next Great Bubble Boom - Posted by Skip

Posted by Wayne-NC on May 17, 2006 at 11:53:08:

You are starting to follow my thinking. That money has to go somewhere so I do not believe in a financial crash. As you say, it will be interesting to see.

The Next Great Bubble Boom - Posted by Skip

Posted by Skip on May 16, 2006 at 04:34:50:

The Next Great Bubble Boom by Harry S. Dent. Is anyone familiar with this guy? Basically he says most RE markets have already seen their highs. He’s predicting a major RE crash around 2010. He’s also predicting a huge rally in the stock market until 2010 at which point it will crash as well. After 2020 we’re supposed to have something like the Great Depression.

Re: The Next Great Bubble Boom - Posted by gerald(tx)

Posted by gerald(tx) on May 16, 2006 at 14:00:40:

Actually, Harry S. Dent has a pretty good track record with his predictions. It’s all based on the population of the wave of baby boomers and their predictable spending habits.

His followers rode the stock market wave to great heights in the 90s. Of course that is a global market. RE, on the other hand, is all based on local markets.

He is well worth reading for his view on economic cycles. The Donald Trumps of the world would probably take his advice very seriously; us small RE investors – again, it’s more of the local market situation with us.


Re: The Next Great Bubble Boom - Posted by John Corey

Posted by John Corey on May 16, 2006 at 05:12:17:


I take it you have read the book. The great thing about predicting the future is very few people ever check to see if the author was right.

There is no single RE market. Many areas of the world have already gone up and not burst or are still waiting to start up. If we restrict the conversation to just the US then we can compare CA (high prices and rapid rises) to much of the Midwest (still praying that appreciation will arrive). Hence the bubble theory is false if you focus on the Midwest.

RE is made up of many local markets and the local markets are not well connected (interest rates being the one thing that tends to impact multiple markets at the same time).

It is very true that when RE prices rise too fast (compared to job growth and income levels) they have to slow down, stall, fall before enough demand will return to the RE market.

Why bubbles matter very little to RE investors.

Savvy RE investors are buying property at 30% below the present value. If you buy at 30% below how much risk is there from a correction? How big of a correction could happen based on historical data? Hence what risk is such an investor taking? If they buy at such a deep discount and then sell in the near term they book a profit even if the market is flat or falling.

Note also that when RE markets fall (it has happened in a lot of locations including CA, etc) the real fall is not large (most falls are under 10%).

Most people think of a fall is the market has slowed and is not rising as fast. If prices actually go down year on year the decrease is slow to happen and lasts for a period of time (1-3 years) unless there was a shift in the population. Even cities that have seen a net decrease in the population (Buffalo has shown a net decrease for 20 years) the ‘fall’ is not rapid like with the stock market. RE is not a liquid investment so the rate of change is rather slow in comparison.

The majority of residential RE is owner occupied. Most owners will stay put if they can not get the price they want. Only when they are forced to sell (job relocation, divorce, death) will they sell and get beat up on price. Hence residential RE is not a normal market is that there is a tendency towards a reduction of inventory rather than a proportional lowering of prices.

So, savvy investors can make money even if the market is not rising. Speculators require appreciation to come out ahead. RE markets are very small and there are many of them rather than the stock market which is more like 2 in the US (NYSE and NASDAQ). If you check the figures you will notice that even when prices are falling people still need places to live unless they are willing to move or die. Hence there could be a local shift to rentals or a next decrease in the population. With the first the investor is fine. With the second the investor might need to look at the locations where people are moving to (Buffalo to FL for example).

Predicting a bubble makes for great book sales.

John Corey

Re: The Next Great Bubble Boom - Posted by adam

Posted by adam on May 16, 2006 at 12:02:49:

there is another book you might like, it is rich dads prophecy by robert kiyosaki.

Rich Dad - Posted by Robby C

Posted by Robby C on May 17, 2006 at 07:21:53:

Adam –

What does R. Kiyosaki say in that book?

I like his easy to read and simpleton terms.

Thanks –

Robby C

2016 - Posted by Wayne-NC

Posted by Wayne-NC on May 17, 2006 at 09:59:59:

That is when the babyboom is in full swing retirement mode and withdrawing all their assets from the stock markets. It was a good read that keeps you awake, alert, and interested but I find some fallacy in it. The book can be debated a lot. I look at it as just another thing to be aware of.

Re: 2016 - Posted by RichV(FL)

Posted by RichV(FL) on May 17, 2006 at 11:39:34:


Thats interesting. When they do get into full swing and withdraw assets from the stock market do they put the cash in a CD or savings account to live off of? Do they get that second home they always wanted in the Carolinas, Florida, Arizona, etc?

It will be interesting to see.