The baby boomers - those born between 1945 and 1960 - were the primary consumers in the 1980's and 1990's. And they were BIG spenders, often giving little thought to their future. They had a lot of fun. It was as if they really believed the song about being "forever young".
But the Baby Boomers are getting older. Soon they will be the 'Funeral Boomers'. And this may make them scared, they may remember their parents - those who were born in the 1920's and 1930's and who were the primary consumers of the 1950's and 1960's. These people belonged to the "Safe and Sound" generation. Two wars and a Depression led to a safe and simple life. And a happy one. According to research, the time when people were most happy in the last century was 1957.
It's a proven formula - low debt and careful living equals happiness.
But the Baby Boomers considered their parents old-fashioned and conservative. They thought increased happiness meant increased possessions.
Today, the average family is smaller but the average homes are twice the size of the 1950's. The Baby Boomers have had wealth increases from property booms. They have appeared to get rich without effort. Greed has become acceptable. But they have failed to see the real cost of greed - insecurity. As Dr Patch Adams said, "Greed has infected our society. It is the worst infection." Harvard University economist Juliet Schor says that "Sixty percent of families could only exist for about a month if they lost their jobs". The recent corporate collapses have seen many people already forced to sell their homes.
Such signs are the beginning of the end of the real estate boom.
The only thing that will save many Baby Boomers from bankruptcy is the wealth they inherit from their parents - the Safe And Sound generation. But the Baby Boomers will not be passing on much wealth to their children - their inheritances will barely last their own lifetimes. There is only one solution for the future. 'Safe and Sound' will come back into fashion.
Greed is on the way out. Safety is on the way in. The world is changing.
REAL ESTATE EXPERTS
After the stock market fall in October 1987, several economic experts said, "The real estate boom is over." In the next twelve months, prices soared. In 2000, one of the country's most well-known forecasters said real estate would fall in 2001. Again, prices soared.
If the experts can be so wrong, there is little hope for consumers trying to predict the market. And if they listen to real estate agents, they will almost always be told it's a "good time" to sell or buy.
So what do you do?
You should base your decisions on your own situation. You should ask the most important real estate question of all, "What is the worst that can happen to me in my situation?" This does not mean that all risk is eliminated, but it does mean that safety should be your paramount concern. Risks must be kept to a minimum. If the worst case doesn't happen, then all will be well. You will be EXTRA safe.
There are three types of real estate consumers - homesellers, homebuyers and investors.
HOMESELLERS
When is a good time for you to sell? It depends on what you intend to do. If you are selling your home and buying another in the same market, it makes little difference when you sell. You should look at the entire "package" - the selling and the buying, not just one side of your situation. Always over-estimate your buying costs and under-estimate your sale proceeds. Not too much, but just enough to be safe and sound, to make sure you have more money than you planned to have.
If the market is going up and you intend to buy a more expensive home, the longer you wait the more it will cost you. If you are buying a cheaper home, the longer you wait the better off you will be. But waiting is dangerous if you only complete half the transaction - the risk is always there that the market can change and you will be financially caught short.
However, provided you sell and buy in the SAME market you will be fairly safe. Just remember, though, that when selling you should NEVER sign-up with any agent unless you get a GUARANTEE which protects you from the common traps of real estate.
HOMEBUYERS
The right time to buy a family home is always when you find the right home. This may not mean the BEST home, it means the RIGHT home. And the right home is one you can SAFELY afford. Be aware of the risks of financial over-commitment.
You should CONSIDER lowering your price bracket. If you are looking for a home "up to $500,000" and you are risking your future, buy a cheaper home, even if it means you do not buy in your preferred area. This is safe and sound advice.
To protect yourself from interest rate rises, you should always ADD three percentage points to the cost of your loan to see if you can still afford the loan. If not, DON'T BUY. Interest rates will rise. They always do.
What will happen if you lose an income? If you are young and you have two incomes and you intend to live on one income and use the other for the mortgage, what if you have children? Most divorces begin with financial problems.
Think about your NEEDS instead of your wants. Most of today's needs did not exist thirty or forty years ago - when people were happier. The happiest people are NOT those who have the most, but those who need the least. Don't make the classic mistake of spending money you can't afford in order to impress people you don't like. Too many people do that.
As the psychologist, David Meyer, said…
"More than ever, we have big houses and broken homes, high incomes and low morale, secured rights and diminished civility. We excel at making a living, but often fail at making a life."
One study showed that most couples are so busy trying to pay off their debts that they spend an average of 12 minutes a day talking to each other. Debt is often worse than poverty. Watch out for debt, it's very seductive.
Thousands of people get up early and drive to work in a nice car which they are paying off, so they can earn a big income to pay a big mortgage on a big home that is left empty all day because they have to go to work to pay for it. Something is not right.
Your personal financial and emotional safety should be your major priority.
If you buy a home you can afford, it won't matter what happens to the real estate market. You will be safe. And you will be thankful for this advice. If things go well, you can buy a more expensive home later. When you can EASILY afford it.
It's a proven formula - low debt and careful living equals happiness.
NEXT: PART
THREE - INVESTING IN REAL
ESTATE
