Book offers plan to weather housing market downturn

The chief U.S. economist at Deutsche Bank AG in New York recently said: “The housing market’s in trouble. We have become decidedly more cautious on the outlook since the index has started falling,” according to a report by Bloomberg News.

Bloomberg said the National Association of Home Builders/Wells Fargo index of builder confidence dropped to 39 from 42 in June; the lowest level since December 1991. It was the eighth straight drop for the index in nine months.

If that kind of news is making you nervous as a real estate investor, there’s hope and help. It’s a new book by Louis Hill, MBA, titled How to Prosper in the Changing Real Estate Market.

Hill is a real estate professional with many years experience. His publication is an e-book that can be downloaded from

The work explores how bubbles are created in various markets and how some of them relate to today’s real estate market. The dot-com bubble of the ‘90s, for instance.

Hill examines the major bubble markets in California, Florida (Miami), Las Vegas, Washington, D.C., and New York City. He outlines what is happening today in those markets and why, as well as what is going on in real estate markets around the globe.

Hill writes: “We are now seeing the signs of the current boom coming to an end, including high-profile condominium projects being cancelled and pre-construction buyers actually backing out of their contracts, giving up their deposits to avoid buying an overpriced home.”

The book answers such questions as: “Where is the real estate market going? What is happening in the international real estate market, and is it a sign of what is to come in the United States? What do Warren Buffet, CNN, The Wall Street Journal, billionaire George Soros, Fortune magazine, and the largest real estate investor on the planet, Tom Barrack, have to say about the real estate market today?”

Hill talks about the mob psychology that propels bubbles, also known as the “herd mentality.” He says: “This group thinking is also known as the greater fool theory, because one can always sell to another fool. Ultimately, many people end up buying at peak prices while the smart money has already left the market.”

He explains how to spot the shift in national sentiment as the housing bubble begins to deflate and how the market shifts from a seller’s to a buyer’s market. “The entire question of manias,” Hill says, “is that people must become investors, not speculators, making smart decisions based on fundamentals and not on emotions.”

Hill looks at the Japanese market bubble of the 1980s and how it applies to the U.S. real estate market now. He said the end of the boom came when the Bank of Japan raised interest rates. “Following these interest rate increases,” he writes, “their real estate and stock markets collapsed. Many times through history, markets rise as interest rates fall and then collapse as interest rates go back up. Along with the falling stock prices, real estate prices plummeted by 80 percent between 1991 and 1998.”

Hill asks the reader some pertinent questions, such as: “If you had to buy your home today, could you afford to do so?” “If your neighbors had to buy their homes today, could they afford it?” In Manhattan, the average price of real estate is more than $1,000 per foot.

He said the U.S. real estate market was estimated to be worth $19.11 trillion at the end of the third quarter of 2005. That outstrips the stock market, which was valued at $15 trillion, and is nearly as large as the bond market that was valued at $23.5 trillion. Hill said: “The growth of the real estate market has driven the economy for several years, and as we begin to see a slow down in the real estate market, we will begin to see the economy decline as people’s consumer spending drops.”

So, how does Hill view the real estate market overall? He states: “As we look at many of the nation’s hottest real estate markets, we see a pattern forming of more homes on the market, falling asking prices for homes, a sharp contrast in the cost of renting versus owning, and a growing number of people who stand to lose money on their investments. These bubble markets are simply not sustainable.”

Yale economist Dr. Robert Shiller, Hill reports, who wrote a book titled Irrational Exuberance—a phrase we’ve heard from Mr. Greenspan—warns in his latest version of the book that real estate prices could drop 40 percent “in inflation-adjusted terms.”

Hill’s book offers a number of facts about the real estate market that potential investors need to know. For one, real estate markets are different from financial markets and why? In the past 18 months, home loan delinquency rates have risen. As interest rates climb, holders of adjustable rate mortgages (ARM) could see their monthly payments rise by 60 percent, Hill said.

The book goes on to examine the effect of Greenspan’s economic policies on the market and spells out the latest theories on when the market will crash and how long it will take the economy to recover.

The book proceeds to the key questions of the title—how you can prosper and protect yourself in a declining market if you own property and are thinking about selling; or you are looking for hedging options to bolster your portfolio if the market turns down sharply; or you want to sell your home or property for maximum gain; or you want to buy property in a value area and make a good investment.

From the July 26-Aug. 1, 2006, issue

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