ON THE MONEY: ON THE MONEY: When it comes to home assets, you can’t take it with you


March 22, 2018

Before I share some good news with you, let’s begin where we left off.

It makes sense to study history as something like what happened before may happen again. I prefer to learn from history rather than simply repeat it.

It is almost inconceivable to imagine experiencing 1929 to 1932 when we can see that at the exact same time New York real estate was off 60 percent that the Dow was off 89 percent. If you had $1 million in each asset class, what was $2 million in about 24 months became approximately $500,000.

Both took over 20 years to fully recover, which means with the average lifespan of 57 you probably died with regret long before you were back to either high water mark.

Looking ahead, people dying will outpace people buying (41 is peak buying and 79 is peak selling).

But not everyone suffered during the Great Depression.

The real good news is that on a per capita basis, more Americans became millionaires starting during the Depression than any time in history. Perhaps that was the time that we learned “cash is king,” as those with cash were able to snap up bargain businesses and become millionaires as a result.

Notice there is nothing quotable about equity. Companies you know today like John Deere, Douglas Aircraft and Reynolds Metals were bought at that time.

Debt can be your friend when values are increasing, but we also know debt becomes your worst nightmare when prices plummet. A grandfather you remember as Colonel Sanders started serving fried chicken at his gas station. Before he hit the road with his first Social Security check to go national by 1937 he had expanded to a 142-seat restaurant.

Thanks to the media, the same investors who get caught up in the drama of a 1,000 point stock market reduction have no idea how much risk they are accepting in their static bond funds and real estate holdings. Financial advisers today can help investors with tools to measure your risk exposure. Allow me to shed some light on the real state of real estate now.

Just as baby boomers have been hanging on to their houses, builders have held back on new construction other than measured high-end developments. While both have choked supply, the combination contributes to the problem with affordability.

People are routinely priced out of the market, but this situation is not sustainable. Before the real estate bubble bursts, my recommendation is to sell all non-strategic real estate for your business and personal use this year.

Moving is a pain, but it’s a pain you can live with. In fact, you may more easily recover from the pain of moving than living with the regret of a big kick in the assets.

As you may recall, starting in 1999 my firm began paying for independent research that we routinely study. At Dent Research, the data is based on the predictable spending patterns of people as they move through different ages and stages of life.

Put it simply, if over a 20-year period you saw 76 million people showing up across the country, what do you imagine that kind of unprecedented demand would do to real estate pricing. Prices must go up.

That is what happened thanks to the baby boomers born between 1946 and 1964.

Boomers who agreed you must not trust anyone over 30 are now 54 to 72. Please look around the corner to see the average age of death is 86 for men and 88 for women, according to the U.S. Census Bureau.

As boomers look like World War II vets, what do you imagine is going to happen to real estate prices in the future after 76 million people can’t take the houses with them to heaven?

Now, do you want to be ahead of that wave, in the middle or at the end? You cannot say you didn’t see this one coming.

Your home is not an ATM machine, so if you may need the equity from that property to convert into an income stream in retirement for life, capture those funds while you can. Do not sit around and think about it. Un-thaw some assets this year.

You understand the logic of buy low sell high, and I am not suggesting that you sell high and buy high. Instead, go through the hassle of moving with your cash in hand, after selling high, then rent to see what happens, and have the money ready to close in 30 days after prices plummet.

How bad could it get? Dent Research suggests prices could drop from 58 percent to 72 percent in Los Angeles, San Francisco and San Diego markets.

John L. Grace is president of Investor’s Advantage Corp, a Los Angeles-area financial planning firm that has been helping investors manage wealth and prepare for a more prosperous future since 1979.

His On the Money column runs monthly in The Wave.

 

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