Why You Must Liquidate Your Real Estate Now!

So many times I've read so called "economists" predict a bust in real estate when Alan Greenspan start to raise interest rates. Interest rates does not drive housing.

Demographics drives housing - and everything else!

I've recently heard a C.E.O. of a national home building company cite its the demographic study that determine what and where the company builds. He also said that the interest rate increases had no impact on the company's sales. Now, he has it right, not the economists who believe interest rates drives the market.

Back in the '80's, I have been selling real estate.. even when interest rates were at 15-18%. It really does not matter what the interest rate is.

But thats only part of the story... theres big, Big, BIG trouble ahead.

Let's examine the demographics. Here's a chart of the population of the United States from the U.S. Census Bureau that you should print out to study.

(Yes, I have been looking at this before the 2000 chart below)

It is also available at http://www.census.gov/ipc/www/idb/pyramids.html

You can see an animated version at http://www.ac.wwu.edu/~stephan/Animation/pyramid.html

Since everybody just simply just loves sex, common sense would have you believe that the population chart should be more of a pyramid shape instead of diamond shaped.

India is pyramid shaped, and so are most nations in Africa and Asia.

But when it comes to the industrial nations like United States, Japan, Germany, Italy, United Kingdom it is diamond shaped and these are the nations with the largest gross domestic product.

Why the difference between a diamond shape versus a pyramid shape? I don't know. The most logical reason is perhaps the birth control pill, abortion killing 43 million babies since Roe vs. Wade, and war.

This diamond shape demographics is why you should expect... The King Kong Depression

The underlying factor of the economy is consumers spending money.

Once you are born, what you are going to buy at a specific age is predicable. For instance, as a baby, you will need diapers. You will need school supplies during your wonder years (or should I say troubled childhood). You will be buying cars beginning from about high school. You need college tuition and evenutally you will buy a home at a certain age. After your parents have an empty house its time to downsize (emptynester) move into smaller house or condominium and save for retirement. Eventually they may need nursing care, a wheel chair perhaps, and eventually a coffin and a grave. So you see, your life cycle and what you buy is very predictable.

People spend the most when they reach between 45-49.

People save the most between 35 and 44 and again between 50 and 74. Most of us buy the largest house at age 43.

People born between 1939 and 1943 bought homes between 1982 and 1986.

People born between 1945 to 1947 bought homes between 1988 and 1990.

The largest generation in history, the 78 million or about 1/3 of the population, the "Baby Boomers" were born between 1946 and 1964 is responsible for the biggest boom in housing history between 1993 to 2000.

After age 49, spending decreases in housing and furniture.

The baby boomers will reach their peak in earning and spending between 2006 and 2010. Baby boomers control over 45 trillion dollars of assets.

After 2010 there will be a crash is prices because simply the demand from the generation following will be nil due to its size.

A real estate bust should start from 2008 and end about 2025, until the next generation reached their spending peak.

I anticipate a depression larger than the 1929 depression. Unemployment larger than the 1929 rate of 25%.

Now look one more time at Japan's demographic chart. Their chart is a little different from the United States. One group is a little older and another large group is a little younger.

If you remember, Japan already had a real estate bust in 1990. Real estate prices dropped suddenly by 30% and is recovering. They will go bust once again.

This chart of Collier County is just an example of the same at the county level

How to Prepare

To give you an idea of how dramatic a real estate collapse is, consider the panic of 1837 that became a national depression. Real estate purchased for $11,000 an acre in 1836 sold for less than $100 in 1840

Heading into 2009, investors with large portfolios should begin to sell single|family real estate and be completely out of real estate before 2009.  Near the peak even though prices stay high, it will become more difficult to sell for cash. Not even the basic "bread and butter" rental houses are safe. The demand will simply not be there.

Update: May 29, 2006

Second home housing glut: The real estate bubble is already bursting in the second home market.  A Barrons article idenitifes a few markets overloaded with second homes with prices dropping 42 percent