Harry S. Dent | Monday, November 26, 2012 >>
Many people are saying real estate has finally bottomed out. I hear stories on CNBC all the time now. “Experts” are saying we’re seeing a sustainable recovery… and it’s time to buy real estate.
I couldn’t disagree more. In fact, it boils my blood when I hear these reports because it’s just not true.
You have to remember that when there’s a major correction or crash in markets – any market – when the bubble bursts, you get a first wave down. You always get some type of bounce which the dumb money prematurely calls a recovery, and then you get the second wave down.
We call the first wave down the A-Wave, the bounce the B-Wave and the C-Wave is the reality wave. That’s when markets are truly put to the test.
And it’s the latter we expect in the months ahead…
This is the Case-Shiller 20 city index in the United States. It is the best overall chart for major cities. It’s broader than the ten-city index, which is why we use it. And it is easy to use when illustrating our bubble bust rule…
Our rule is that all bubbles burst and when they do they typically go back to where they started, often they go lower.
As you can see, this means that the property market still has another 30% to fall… at the very least.
But this is where it gets tricky. Not all states (or countries for that matter) will fall that much. In fact, some states (or countries) HAVE reached the bottom of their property bubble and are indeed starting to recovery, if only slowly.
You see, the property market is like a popcorn maker. All the kernels pop, just not at the same time.
Here are the following states that are the highest risk…
Since the bubble bust began, property in Miami lost a little over 50% of its value. While some areas there have seen some recovery, there is still another 33% to 43% drop ahead there. I would not be willing to buy property in Miami with that level of risk.
Other danger areas in Florida include Orlando, Jacksonville and Tampa.
The story is worse in Los Angeles. It has endured a 270% decline in property values since 2005. Before this real estate collapse is over, LA stands to shed another 40% to 55% of its home values.
Also, stay away from cities like San Diego, Sacramento and San Francisco.
People think prices can never go down in New York but they’re wrong. Prices have already gone down there and they have further to fall. Watch out for another 38% to 50% drop of property values there.
But, not all is doom and gloom. There are several places in the U.S. where property has bottomed… where getting into the property market now may prove beneficial.
Although I must warn you that property is not the investment to look to if you’re looking for explosive gains. For one, it’s linked closely to inflation and for another the entire industry is set to languish at least until 2022, when the next generation moves into their spending phase that will boost property.
That said, tomorrow I’ll tell you about those places in the U.S. where the popcorn’s ready to eat.
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