THEME: Real Estate Top

Excerpts from a recent article in Business Week:

Baby boomers are seen as spendthrifts, credit-card addicts unable to deny themselves any pleasure, blithely ignoring the need to save for old age. "The boomer culture doesn't lead to saving for retirement," says Ann A. Fishman, president of New Orleans-based Generational Targeted Marketing. The vision of an aging group of 76 million heading toward financial catastrophe is deeply disturbing. Yet it could well be wrong. An impressive body of economic research paints a far more benign picture of the graying generation that makes up more than a quarter of the U.S. population. Many of those who rocked at Woodstock 35 years ago have accumulated more real wealth and earn more real income than their parents did at a comparable age. Boomers are also saving at roughly the same rate as their parents, suggesting they'll have more to tap after saying goodbye to their workmates. This generation is also expected to inherit at least $10.4 trillion, though most of that money will be highly skewed toward the rich.

...

Still, the fear of a collapse in residential real estate seems overblown. The strongest single predictor of the direction of home prices is household income growth, and in 42 states that growth explains all the price increases in housing of recent years, says Karl E. Case, economist at Wellesley College. The spectacular price spiral that dominates the headlines is confined to eight states, including Massachusetts, New York, New Jersey, California, and Florida. Markets in those states risk a plunge in prices, he adds, but everywhere else prices are more likely to simply stall for a considerable period. Overall, taking into account long-term forecasts of income growth, the housing market should appreciate at a 4% annual rate, or 2% after adjusting for inflation, figures Mark Zandi, chief economist at Economy.com.

Now contrast that language with the now famous line uttered in the fall of 1929 by Yale University economist Irving Fisher, one of the most highly regarded experts in the nation: "The nation is marching along a permanently high plateau of prosperity."

This was the same language that I remember for the dot.com Bubble, too. I remember people saying although many tech stocks were overpriced and would crash, the winners in the New Economy would far outweigh the losers, so it made no sense to sell tech stocks wholesale.

I am still unsure as to the timing of the Great Real Estate crash, but certainly Boomers tapping into inter-generational real estate transfer means that supply should eventually hit the market.

All I can do is to continuously monitor the patient's vital signs.