Friday, April 01, 2005

Housing Boom to Continue!

Housing Boom Will Continue Posted by Hello

The John Maynard Keynes maxim that in economics the majority is always wrong is tried and true. The problem is how to discern when the majority has actually tilted too heavily in any one direction. Investors should read the Alice in Wonderland Story so that they may appreciate that things are often different than the way they seem.

One of the many upside-down and backward things about markets is that the media only reflects the attitudes of the public. The media can only sell itself if the public wants to read what is being published. Thus we get the front cover phenomenon. The front cover of the major business magazines tend to highlight what is of concern to the majority but we know the majority is wrong.

I have taken advantage of this phenomenon on numerous occasions. For example, in 1982 one of the front covers was about the death of farming. I bought Deere and Company. This big old company re-invented itself and made me and few hundred clients some serious bucks.

The baby boomers in America are currently 47 to 59 years of age and their children are something like 18 to 29. The housing boom will continue because a very substantial portion of our entire population is at prime home buying age or prime second home buying age. It took a lot of years for the average home to have one TV but now most homes have two or more TVs. It took a long time for the majority of families to own one home and now a growing percentage own two or more.

The average home in America went up 9% last year. The average apartment in New York went up 23% last year. The buyer in New York who invested 20% last year made more than 100% on his investment.

Investors have much to worry about. However, many of the worries are the same as folks had in the mid 1970's; rising interest rates, rising oil prices and rising inflation. My wife and I invested $5,000 in a home in 1974 and our investment was worth $35,000 5 years later. Interest rates had risen, oil prices had risen, inflation rates had risen and so did the value of our house.

The public is worried but still buying. My wife and I have our house for sale; our children are grown and gone so we are "down-sizing". I must admit that it makes no sense for two people to live in a 4 bedroom 4.5 bath house. We, like many our age, have purchased a couple of "second homes". We think we have done the smart thing by buying only 10% of our second homes which we share with 9 other couples. In the past two weeks, we have had at least a dozen appointments to show our home. We have beach homes for sale and are amazed at what has sold and how little the supply on the market.

We made plans to retire at the age of 55 more than 30 years ago. Therefore we are selling our resort rental property business. Our timing is good in that prices are much higher than a few years ago. Our timing is probably bad because the Business Week front cover shows that the boom is still alive!