Predicting The End Of Real Estate Booms

Okay, there is no way to predict the end of a boom, well there is no accurate way. By accurate I mean accurate enough to tell you within a month when to get your money out. Booms are irrational creatures and trying to predict their behaviour is a fool's game.

But there are two pieces of advice that seem to stand the test of time that tell you the end is near. How near is hard to say but it is likely near.

The first one is one most of us have heard before, "When your cab driver is giving you investment tips, it's time to get out". I think that holds true because what it is really saying is when the average everyday blue collar working person on the street is an active investor, who is left to sell to? I remember during the last boom a couple years back receiving a call from a young man who sounded barely old enough to shave and his opening remarks were, "We are an international investment firm". I don't know but how did he get enough time and money to become an owner in an international investment firm?

The second one is one most of us have never heard. I only heard it once after the boom of the late 70s -early 80s and while I don't recall the source, it seemed credible and so I never forgot that advice. This person said that the end of a boom is near when utility rates start to move up dramatically.

I think this is really a variation of the person on the street theme, but it has proved accurate two booms in a row. You see, utility companies are the "man on the street" of the corporate world. Up until corporate greed managed to hoodwink governments into privatizing utilities, they were tightly controlled. Tight control of utilities is a part of Canadian culture. Governments have controlled dairy products, bread and utilities for years. This is part of the societal belief that stability in the staples of life makes for a better quality of life for all. This is why the price of these products usually does not vary all that dramatically.

So, when the price of utilities begin to rise dramatically, it is a sign that the inflationary pressures of a boom have hit everywhere and the whole thing is likely to collapse soon. The logic seems to make sense, and it has proven very accurate over the last two booms. I guess the only wild card is the aforementioned fact that corporate interests have managed to work their way into private ownership of utilities and they will likely take price liberties whenever they can.

Interesting stuff, but don't ever bet the farm on these kinds of things.