WhyeveryoneisworriedaboutUSproperty

Onefriendisadeveloper,andabighomebuilderjustwalkedawayfrommanymillionsofdollarswithhim。

Theydecidednottobuildhomesonthelandhepermitted。

Anotherfriendisarealtor。

He’sfrustratedthatnothingishappening,eventhough“nothingiswrongwiththeeconomyatall,”hesays。

Isawanotherfriendatlunchyesterday,andhe’samortgagebroker。

He’snowchangingjobs。

Whileeveryoneseemsworriedaboutwhatwillhappen,myadviceis,DON’TWORRY…

Whilewehaven’tlivedthroughrealestatebubblesrecently,wehavelivedthroughafewotherinvestmentbubblesinrecentyears。

Whatwecanlearnfrompreviousinvestmentbubbles

Todaylet’stakeaquicklookattherecentinvestmentbubbles,andseehowbubblestendtoplayoutastheyburst。

Iexpectthecurrentrealestatebubblewillplayoutjustthesameasotherburstingbubbles。

Wehavetworecentexamplesofburstinginvestmentbubblestodrawfrom…theAsiancrisisinthelate1990s,andtheNasdaqbustthatstartedin2000。

Here’sthewayitgoes…

Atfirst,peopledon’tbelievetheboomisover。

Investors“buythedips。

”Butaftersixmonthsorso,whenit’sclearthislatestdipwasnominordip,thefinancialpresskicksintooverdriveAtthispoint,everystory,itseems,isabout“theburstingofthebubble,”or“whenpriceswillriseagain。

”Thisiswherewearenowwithrealestate。

Themediafrenzyhangsaroundforalongwhile–maybeayear,ormore。

Itlastsaslongasfolksarewillingtoreadaboutitandhopetheirinvestmentsgobackup。

Thebearmarketcontinues。

Theinvestmentsstaydown。

Peopletireofreadingaboutit。

InsteadofcheckingthepriceofLucenteveryday,peopledon’tevenwanttoopentheirbrokeragestatements。

Sothemediastopswritingaboutit。

Sowhatwillhappentohouseprices?

Unfortunately,atthispoint,thegrindingbegins。

Oncethepressquiets,youcanusuallyexpectalongperiodofunexcitingmarketactionmaybesidewaystradingoraslowdriftlower–untilallthebullsarefinallywrungoutofthemarket。

Evenifthebottomishitearlyon,priceswillgenerallystaylowforafewyears,becauseinvestors–onceburned–don’trushintothatassetwiththesameexcitementagain。

TheAsiancrisisstartedin1997-98。

Thebearmarketbobbedalongatthebottomuntil2003,whenitstartedtofinallyrise。

TheNasdaqpeakedinMarch2000atover5,000。

Itbottomedin2002,butit’sbobbedalonginthe2,000rangeforfiveyears。

TheNasdaqbubblewassospectacular,it’lltakealongtimeforpeople’sattentiontowane。

Drugstocksandbiotechsareanothergoodexample…from1998to2000,drugstocksandbiotechstockswereextremelypopular。

“Youcouldn’tgowronginthem,”wasthestory…“Therevolutionincomputingpowerwasgoingtoimproveourlivesevenquicker。



Thestoryisthesame,butthepricesofthesestockshavedonenothingineightyears。

Thestorieshavegraduallydisappearedfromthepress…Nowwecanbuythatstory,atanextraordinaryprice。

Basedontheburstingofpastinvestmentbubbles,whenitcomestorealestate,wedefinitelyhaveafewyearstogoofsubparreturns。

Investaccordingly。

Dr。

SteveSjuggerudisafrequentcontributortoDailyWealth,afreecontrarianinvestmentnewsletterfocusedonthesafest,mostprofitableinvestmentsintheworld。

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