Shocking Trends & the Future of Real Estate Investing
Key Market Forecasts, Trends & History
What does all this mean to you?
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Stock Market
Robert Prechter uses Elliot Wave theory to forecast market cycles. Peaking in October 2007, crashing October 2008 and bouncing to the high of January 2010, he forecasts the Dow below to 4,000 in 2010, and below 1,000 by 2014. Here another forecaster applies Elliott Wave theory to the current bear market. I suspect the B wave high (a 66% retracement) occurred in January 2010:
Here is a another perspective reported in July 2009:
One way to analyze stock market prices is the Dow/Gold ratio based on how many ounces of gold it takes to buy a basket of DJIA stocks. That topped in 2000, representing the start of a “long cycle” bear market which on average would last 17 years through 2017.
Dow Gold Ratio
From a historical perspective since 1900 there have been 3 Secular Bull & Bear Markets prior to today’s bear market:
Bear Markets
- 1906-1921 (16 years) - Average annual return of 1.58%
- 1929-1949 (21 years) - Average annual return of 1.69%
- 1966-1982 (17 years) - Average annual return of 1.59%
- 2000-2017 (17 years projected)
Bull Markets
- 1922-1928 (7 years) – Average annual return of 17.20%
- 1950-1965 (16 years) - Average annual return of 10.60%
- 1983-1999 (17 years) - Average annual return of 15.30%
As you can see, it does not pay to buy and hold during secular bear markets.
Based on longer term “seasons” of stock market price activity, here’s another forecast predicting a period of “winter” through 2017 with Dow below 4,000:
Home Sales & Prices
Forecasters believe that home prices may settle back to 2000 price levels:
History of Home Prices:
(click to enlarge)
Home price changes and direction:
Housing starts at record lows:
Housing market forecasts
by HousingPredictor.com
Best Performing:
Worst Performing:
Major Metro areas:
Foreclosures
Next Wave of Mortgage Rate Resets
As you can see on this chart there are two peaks. We are now in the eye of the storm:
But due to negative amortization, these products are resetting earlier than projected, like right now. With record high unemployment, many homeowners will not be able to pay 2 or 3 times what they have been used to, causing a new wave of foreclosures beginning this year, 2010:
Rates were projected to recast 5 years after the original loan, but we are peaking now in 2010, and then 6 to 18 months for banks to take foreclosure actions on the new defaults.
Record Foreclosures
The map shows percent of homes in foreclosure in 2009. Note that many states have not come even close the the number of foreclosures in “The Sand States” of CA, NV, AZ and FL:
Foreclosures in The Sand States, well above nation average:
Bankruptcies
After new laws in 2005 caused a boom then bust in bankruptcy filings, the trend since then has been up. In fact 15% higher than a year ago:
Personal Incomes
Unemployment and loss of income from investments is driving down household income:
Unemployment
Rising unemployment since 2007 should remain high for some time. ShadowStats.com says the blue line is the real number, rising over 20%:
Money Supply
Excessive money supply without anything to back it up would normally lead to either inflation or depression. Many forecasters expect a deflationary shake-out period for years to come, leaving us in the current crisis we’re in today:
Bank Failures
The red line here is bank failures. The black line represents exponential growth. It’s a frightening trend but cannot be maintained — as there is a limit to the number of bank that have not failed yet:
Interest Rates
History – trending lower
February 2010 Rates
CD rates – February 2010
What investors get on conservative products:
History of Depressions in the US here
Disclaimer: I am not a professional market forecaster or investment advisor. The conclusions I have drawn are purely my opinion based on research and personal experience. For the sake of the nation I hope I’m wrong. But I am confident that my members, clients and students will be exceptionally better off if I’m right, and even more successful with their real estate investing if I am wrong.
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Robert Prechter embarrassed himself with his prediction (or lack of) prior to the 1987 stock market crash, and there is no reason to believe that he is any more capable now…
Everyone who predicts the future gets it wrong — because no one can predict the future. All I do is make educated guess, normally extending the trend, and using both fundamental and technical observations. It has served me well and made me millions, saved me millions, etc.
As Doc Brown said in Back to the Future III, “The future has not been written yet. The future is whatever you make it, so make it a good one” I have tracked Prechter for 18 months now and his insights are valuable, not flawless. Same for Harry Dent and Jack Lessinger. Based I Jack’s work I expected a depression to start 5 years ago, but who knew what lengths the government would take to prolong the inevitable, only making it worse in the long run.
Don’t let any news or predictions stop you from pursuing your goals. Plan for the worse and hope for the best. Put yourself in a position to win either way.
So… you don’t believe things will get worse before getting better? You don’t believe we’ll see new lows before we see new highs in stocks? You don’t believe the shack up in the credit markets is not over? Whether you do or don’t, keep applying my best investing practices and you be good either way.