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Real Estate Investing : Real Estate Investors Last Updated: May 14th, 2012 - 22:24:01

Housing markets do have corrections

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We heard two compelling arguments.

The "housing bubble" camp pointed to the deflated stock market's erosion of Baby Boomer wealth, the growing disconnect between skyrocketing home prices and household incomes, the inevitability of higher mortgage interest rates and the possibility of an economic recession. The housing bulls cited Boomer and immigrant demographic trends, rock-bottom interest rates, flexible easy-qualify mortgage products and land-use and zoning restrictions that hamper new housing construction.

Two points haunt us: history and our gut. The housing market has corrected every decade since the 1960s: in the early 1970s, early 1980s and early 1990s. Sobering. Indeed, the housing market has been cyclical, and we believe it will continue to be so. Corrections are a natural part of the marketplace -just as errors are part of baseball. You learn to live with it, and plan for it if you can.

Our second concern is what our gut is telling us. The bubble rumble feels much like the debate that raged over the stock market in the early part of 2000, months before the market collapsed under the weight of "irrational exuberance." The fact that there is so much ringing of hands is in itself a signal. Moreover, back in early 2000, the New Economy theorists were defensive and full of hubris, predicting that business cycles were a thing of the past. That sounds a lot like what we are hearing from the housing industry-that cycles have somehow been wrung out of the marketplace.

Come on, gang. We feel compelled to shake folks up a little, just like warning a good friend to stop driving 90 mph.

In the end, we do not know for sure what is in store for the housing market in the future. But having a Plan B for a less-than-optimistic outcome makes good sense. What if? How will you plan for your business, your real estate investments and your future home purchase plans if the market stops booming?

Taking a little time to think about it will pay off if things go awry. If there had been more honest financial planning and less rah-rah before the recent stock market crash, some of our 401(k) accounts would be much fatter than they are today


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