| Are you familiar with the term "the chattering | | | | held on to, for the most part. It was a long-term |
| classes"? Briefly, they are the TV talking heads, | | | | thing. |
| print pundits and local community activists who | | | | Old meets new The next two years offer great |
| know how to run your life better than you do | | | | opportunities for people to get into real estate at |
| yourself. | | | | true market valuation, not the American version |
| They're from all points on the political spectrum, | | | | of the Dutch Tulipmania of 1636-37. (Look that |
| and declaim on every matter of interest to | | | | one up if it's new to you. Unbelievable.) Dohmen |
| modern humankind. They will tell you how to | | | | says it's not the bottom yet, which the next few |
| vote, whose movie to go to, what cause to | | | | months will confirm, he expects. That said, there |
| support, which stock to invest in and when, | | | | is certainly no reason first-time buyers should not |
| where and why to buy a house. The nice thing, | | | | start preparing themselves for home shopping. |
| too, is that you can shop around until you get an | | | | Just this week, in Yuba City, California, half an |
| opinion that you agree with. Some chatterer | | | | hour north of Sacramento as the freeway flies, a |
| somewhere will co-sign the idea you already had, | | | | four-bedroom house with a separate in-law studio |
| allowing you to proceed with authority. | | | | in the back yard sold for just over $100,000. It |
| Contradictions peacefully coexist among the | | | | was listed in March 2007 at $189,000. Dohmen |
| chatterers, because, well, everything is | | | | suspects it will dip even lower (perhaps not in |
| everything, right? My truth is my truth, yours is | | | | assessed value, but in actual resale worth) before |
| yours. Right? That must be right, since on the one | | | | it starts appreciating again in 2011 or so. |
| hand, lots of chatterers are saying that the | | | | The new owner, Sherry Hutchins, is a single |
| current financial crisis makes this a great time to | | | | woman about 50, with a credit score of 750 |
| buy real estate, while others say just the | | | | (very good). She put zero down, paid no closing |
| opposite and advise a wait-and-see approach. | | | | costs and will have a monthly payment of around |
| It's almost like a contest of battling cliches. In this | | | | $700 and change. She can get $300+ per month |
| corner, "The credit crisis changes everything, just | | | | from renting the back studio, so her net |
| like 9/11 did." And in this corner, "There's nothing | | | | mortgage payment for her new home is going to |
| new under the sun." | | | | be about $400 a month. She currently pays over |
| Okay. Simple question: What the heck is going on | | | | $800 for rent on a much smaller duplex, with |
| with real estate? | | | | fussy neighbors, to boot. She put together a |
| Here, there, everywhere There are some regional | | | | great deal for herself, cutting her "rent" in half, |
| differences but, generally speaking, real estate in | | | | achieving freedom from troublesome neighbors |
| the U.S. has been on a slide. In late October 2008, | | | | and securing herself for the future, too. Triple |
| Standard & Poor's Case-Shiller Home Price | | | | play! |
| Index of 20 cities reported its comparison of | | | | Hutchins' plan is to move up in five years, which is |
| August 2007 with August 2008. The Index | | | | sensible. She will be putting sweat equity into the |
| showed the biggest annual drop in history, almost | | | | home even before the general market upswing |
| 17 percent. Only two cities in the survey, Boston | | | | helps raise its value, and paying a little extra on |
| and Cleveland, held steady, while Los Angeles, San | | | | the principle each month. Her good friends, Michelle |
| Francisco and San Diego all dropped a full 25 | | | | and Matt, are both do-it-yourselfers, and Matt can |
| percent. In Phoenix and Las Vegas, the loss in | | | | do carpentry, plumbing, painting, electrical and |
| value was a staggering 31 percent. | | | | most anything else. Since the house is a bit of a |
| Does this mean it's a "buyer's market," and that | | | | fixer-upper, Hutchins plans to strip some rooms |
| everyone who can should run out and buy a | | | | down enough to add some built-in shelves, French |
| house? Of course not. That's never a good piece | | | | doors and a state-of-the-art video security |
| of advice anyway, since it is not individualized. | | | | system. |
| Beyond that, the best of the best of the financial | | | | "As long as I'm working on the place," she says, "I |
| analysts tell us the bottom is still 24 to 30 months | | | | figured I might as well build in the small fixtures |
| away. How do they know this? | | | | for the surveillance cameras, which are about as |
| A long-term thing There are a lot of things that | | | | big as a soda can. The wiring can all be out of |
| go into a modern economy, far too many for | | | | sight since we're getting down to the framing in a |
| one person to keep track of. And the things that | | | | few spots." Right now she likes the idea of |
| need to be perking along in the economic pipeline | | | | controlling the video surveillance from her |
| to support growth in the "housing sector" are | | | | computer, which is easy to learn and allows her |
| numerous, often mysterious and subject to | | | | to log on from anywhere in the world and take a |
| constant fluctuation. But by looking at hard goods, | | | | look around her property. Before she makes a |
| tool and die orders, the building materials | | | | final decision, though, she is "going to see a demo |
| manufacturers, credit availability, employment | | | | of this self-contained system" that uses a DVR |
| figures, mobility patterns and dozens of other | | | | (digital video recorder), just so she can say she |
| "indicators," the smarter fellows among the | | | | did her "due diligence diligently." |
| market and financial analysts can make some | | | | Persistence is key The nation has weathered |
| pretty accurate predictions about home | | | | tough economic times in the past, and will do so in |
| construction, sales and resales. | | | | the future, too. Government cannot prevent it, |
| Bert Dohmen pens the biweekly Wellington Letter | | | | nor counteract it, nor "pay" for it. The future, as |
| and other investor advisories, and is one of the | | | | always, is in the hands of the 300+ million |
| very few "smart money" men (or women) who | | | | Americans who will get jobs and lose them, buy |
| can show articles from 12-18 months ago | | | | homes and sell them, make loans and collect |
| predicting a "credit crisis" and "financial meltdown." | | | | them, invent things and build them, and do all the |
| Dohmen's book, Prelude to Meltdown, was written | | | | other billions of things each year that, collectively, |
| at the end of 2007 and released in January, and | | | | add up to "what's happening in America." What |
| by that time he had already made it clear that | | | | they do with real estate in the next few years, |
| credit was the big bubble getting ready to burst. | | | | frankly, will determine "what's happening" for at |
| One of the industries that Dohmen keeps a | | | | least a generation, perhaps two. |
| microscope on is home construction. It is literally | | | | The best bet is - drum roll, please - history. As |
| the architect and contractor of the American | | | | Mark Twain is alleged to have said, "History might |
| Dream. | | | | not repeat itself, but it does rhyme." Principles |
| R. H. Johnson, a financial planner who passed away | | | | don't age, anyway, so the notion that some |
| in 2006, was well known for being a big, friendly | | | | "new" forces would be at work in propelling you |
| "bear" of a man. He was also a market bear | | | | through life, instead of the usual hard work and |
| more often than not, like Dohmen today. He was | | | | persistence, is downright silly. The same good, |
| predicting, as far back as 2004, the popping of | | | | solid, sensible habits that built the modern |
| the credit and real estate bubble, a condition he | | | | (Western) world over the last few millennia will |
| saw as being that of parasite and host, | | | | get you into a new home, too. |
| respectively. The valuations were too high, he | | | | And these are not "optional" moves, either. Unless |
| argued, and were driven by "non-rational factors," | | | | you inherit a lot of money, you will have to work |
| among which was the relatively new trend of | | | | and save, then work and save some more. You |
| viewing real estate as a wealth-creation, rather | | | | will have to shop around, make bids, negotiate |
| than wealth-storing, vehicle. | | | | with lenders, find the right property finally and |
| Johnson saw the beginnings of the "reality TV | | | | then tie it all together. And then you will have to |
| economy," where shows like Flip This House and | | | | pay for it. There is just no other choice. This is |
| others touted buying/fixing/selling as a way to | | | | the way you have to do it. |
| play Monopoly with real money and build a real | | | | Now, of course, the other part, the computerized |
| estate empire. In Johnson's adult life - he | | | | video security installation - that decision is yours |
| graduated from college as an engineer in 1944 | | | | to make. See? Apparently you do have some |
| and switched to financial planning in 1970 - he was | | | | options after all. (But video surveillance is a good |
| used to looking at real estate as something you | | | | idea, so think it over. |