Recently I left the office to see at the corner an SUV that had been turned upside down after being struck by a small sedan. The police were already at the scene and it looked like both drivers and passengers were safe and calm on two corners. I credit the benefits of technology that allows us to often survive a car accident, no matter what we, or someone else, did to the car(s). My friends in engineering tell me that the average new car has 16 or more computers on it to keep you safe that the driver may never notice. 

As part of doing a financial plan for clients, it is customary to ask the question about what plans the owners have for the real estate in their portfolio. One new client said, “I own five houses, and when I retire I will sell all of them and use the money for my retirement.” The answer we hear most often is the owner(s) plan to sell in five years. The explanation is often we won’t need the big house once the kids are gone, so we plan to sell it when it is convenient. 

“Mann Tracht, Un Gott Lacht” is an old Yiddish adage that means, “Man Plans, and God Laughs.” Rather than set some convenient, arbitrary goal a better idea might be to study the buying behavior of ordinary Americans first, and affluent Americans second, based on age. 

You have been taught that the three most important things to know about real estate, is location, location, and location. That may be a great practice when buying, but what can help when selling? We won’t get lost in the weeds of what to do with the money. That’s a separate decision. It may be that the property has served its purpose. If the mantra, buy low and sell high works with stocks the same logic can be applied to other appreciated assets. One new idea we have come across is for owners to sell the big house, rent in the same neighborhood, and buy rentals in up and coming areas where prices are low that can benefit from having good public school systems

The common practice to assess home values is to look at ‘comps’ or comparable sales. This refers to homes in the nearby neighborhood that are similar in size, condition, and features to the home you are trying to buy or sell. The challenge is that the data is often comprised over the past six months. The best comps may be derived from looking at the homes that are currently ‘pending.’ A pending home is one where the buyer and seller have reached a price agreement, so this information is a piece of live market data. 

Thanks to the U.S. Census Bureau 1, here are some of the data that commands my attention. Americans on average bought their first house around 31 and their biggest house at 41. It is reasonable to this observer that home prices have only one way to go when 76 million people come to life between 1946 and 1964. Please notice that number is so extreme, what does not matter is who was legitimate, Ill-legitimate, legal or ill-legal. There must be a lot of new construction just to accommodate such a large number of people in about 20 years. 

But our GPS system in our cars is not focused on the past. None of it. To see ‘objects on the road ahead’ the satellites are helping you see ahead of where you are now on the road. Again, thanks to the U.S. Census Bureau 2, the average homeowner sells at 79. In 2018 that means that the oldest Boomer is 72 and the youngest is 54. Boomers bought their McMansions between 1980 and 2000 for what we knew to be individual reasons, submits Dent Research. All at the same time on lot sizes between one-half acre to ten acres. If 79 remains the average of selling could it mean what lies ahead are twenty years of selling?

The richest Americans, who often don’t feel rich at all, own most of the financial assets and have seen their wealth skyrocket in the ‘economic recovery’. But some of the Homer Simpson’s of America who aren’t part of the 1% club, were so completely devastated from the last crisis that they were either unable or unwilling to figure out how to participate in the ‘recovery’ that things have not improved. The map below shows things have in fact gotten worse.

Map Source: Dent Research3

All of that blue you see does not represent who voted for Hillary. The blue does represent the prosperous parts of America that have enjoyed strong economic growth, new jobs, rising home values, and higher pay over the past two decades. Much of the prosperity is concentrated in cities like San Francisco, Seattle, and Austin, TX, the fasted growing western cities that happen to be technology centers.

The orange and red represent the America this ‘recovery’ left behind. It’s the old industrial cities that once were the engines of our economy that you see now in your rearview mirror.

Harry Dent observed3, “In August 2017, five states (and D.C.) saw significant year-over-year increases in foreclosure filings. Mississippi is up 9%, Vermont up 12%, Louisiana up 59%, Washington D.C. up 67%, Wyoming  up 79%, and Alaska is up 100%.”  Some of the hottest housing markets in cities like Denver, Austin, Dallas, Nashville and Columbus, Ohio that comprise nearly a quarter of the nation’s largest metro areas are seeing rising foreclosures.  “Even New York City is seeing foreclosure auctions explode to levels we haven’t witnessed since 2009!” submits Dent. 

According to me, it’s not about the prediction. It’s always about the preparation. To avoid regret take the road less traveled which can be a lot less odorous than following the herd. 

The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.

Source:

  1. Dent Research calculations of the Bureau of Labor Statistics’ Consumer Expenditure Survey https://www.bls.gov/cex/
  2. Dent Research calculations of the Bureau of Labor Statistics’ Consumer Expenditure Survey https://www.bls.gov/cex/
  3. Dent Research. https://pro.dentresearch.com/p/BNB_REALESTATE/WBNBU401

 

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