The Creative Investor - Correction Imminent In Many Upscale Home Markets

I received the following from H.S. Dent, author of The Roaring 2000's, The Great Boom Ahead, et al. I thougth I would share his insight with the rest of TCI. To view his website, visit www.hsdent.com

Home prices in high-priced markets will slow and decline over the remainder of the decade, according to the October edition of the H.S. Dent Forecast newsletter. These markets include Dallas, San Francisco, Denver, Miami, Boston, New York. Predicting an increasingly booming U.S. economy over the remainder of the decade, the

widely respected Forecast says that upscale real estate is likely to be of significantly higher risk than stock or mutual fund portfolios.

"Residential real estate may be nearing a long-term top over the next two years with many markets not seeing new highs for decades given the larger decline our demographic indicators are forecasting after 2010," the Forecast said.

The Dent forecasting method is based on proprietary demographic models that currently show baby boomers are peaking in their trade-up home buying cycle.

Rodney Johnson, president of H.S. Dent Publishing, writes: "If you are trying to decide whether or not to sell your current home or purchase one in a certain area, then national trends are only part of the equation. You must consider local demographics."

While demographic trends in many locations will put pressure on high-end residential prices, a strong economy and low mortgage rates will cushion the decline "until after 2010 when prices will fall much more substantially," the newsletter said.

In upscale markets, there have been rising prices on declining volume. "Like in stock markets, you are likely nearing a top," the Forecast points out.

Looking to more positive real estate trends resulting from baby boomer demographics, the Dent analysis points to "continued strength and rising prices in ex-urban and vacation/retirement areas" as people in their late 50s and early 60s buy just ahead of retirement.

Noting that only about a quarter of retirees relocate for retirement, "the relocation of 24 percent of baby boomers over the next two decades will cause major growth pressures" in retirement areas, the newsletter states.

"This maturing segment, especially those in their mid-50s to early 60s will represent a strong force in residential real estate trends for the next two decades as the massive baby boom generation moves in rising numbers into peak trade-up, vacation and retirement buying," according to the Forecast.

"This is the primary reason that vacation homes and residential prices have accelerated so much since 1999 in attractive retirement/vacation markets like Miami and Ft. Lauderdale, and why such markets are likely to out-perform again after this likely near-term correction."

"The downside in upscale and the more bubble-like markets from Miami and Ft. Lauderdale to Boston, New York and San Francisco could be substantial," the Forecast advises readers. "If you are already looking at moving or relocating or paring down real estate holdings, assessing and acting sooner than later could make a big difference."

H.S. Dent Publishing of Dallas, Texas helps people to understand change and anticipate its arrival through its publications, including the monthly H.S. Dent Forecast. The Dent methodology is based on demographics, or the study of whole populations. Its demographic models have consistently proven their ability to provide incredibly accurate economic predictions.