One of the most common questions that comes up when a group of real estate professionals meet is: When will the next real estate recession occur? Ouch! I don’t like to think about it!
My former partner and very good friend, the late Vance Miller, had a theory for lawyers and economists. He used to say, “By God, we need more one-handed attorneys and economists.” Why? “Because every time you ask them a question, they say, ‘On the one hand it’s this, but on the other hand it’s this.’” Never a straight answer. Words of wisdom.
Many people who are smarter than me have readily shared their theories, backed by mounds of research, that explain in great detail the impending doomsday. I’m more like David Letterman in that we both see and explain grave issues with 10 distinct, simple points of recognition.
Understand, these findings are not based on any statistical or formal equations or diagnoses, but only by personal experiences and past observations of critical events leading to a real estate recession.
Forget graphs and statistics—focus on what’s going on around you. People make recessions; focus on the people.
Here are my “10 Seat of the Pants” indicators that point to an impending real estate recession:
1. You’re sitting in your dentist’s chair, grimacing in pain, and he taps you on the shoulder, points across the street and says, “See that new building going up? I’m building it!” (This actually happened to me.)
2. Many of your real estate friends are buying and trying to sell you a piece of a new restaurant deal. Be cognizant and be skeptical. The monies lost in the end never justify being recognized as an owner when you walk into “your’’ restaurant’s front door while, your money goes out the rear door! This will be a high price to pay for your ego gratification. (Yes, this has happened to me more than once.
3. Most of your friends are buying into oil and gas ventures and other risky “black holes” such as race horses. Stick with what you know best.
4. A friend who owes you $100,000 invites you and your wife to his new 10,000-square-foot home in Preston Hollow and proudly shows you his new Bentley and a 5,000-bottle wine collection in the cellar. The loan is never mentioned, and I can’t afford the scotch he gives me.
5. Many people you know leave well-paying jobs and companies to put up their “new shingle” in a Class A office building along with very expensive finish out, new furniture and furnishings, and assistants who look like Las Vegas show girls.
6. Every Thursday night, those friends meet at Alpha Aviation at Love Field, for a “business trip” to Vegas on their private jets. No photos please!
7. Many of your friends are “partners” with a very successful, high-profile developer, and you wonder why you weren’t considered. Why are so many of your broker friends now “developers” and partners with the same guy? Remember the guy (acquaintance/client) who fled to Brazil? Sound familiar?
8. There are so many “high rollers” eating at Al Biernat’s every night with their shirts hanging out (old age “cool” fad), yet I can’t make a reservation with my old pal Al. Another bottle of your finest champagne, please, for a guy who used to drink cheap beer.
9. Balding old guys with new money start sporting “pony tails,” divorce their older wives and marry women who are 30 years younger.
10. Finally, many of your friends are changing their phone numbers, won’t return calls, and the FBI is calling you for information and their “last known whereabouts.” Your friends in the banking business ask if you have heard from “so and so recently,” and the guy who owes you money calls to borrow more. I see his Bentley in the used car lot, people are looking for “paying jobs,” office furniture is dirt cheap, and Al now has plenty of open tables.
My advice is to forget the reams of research and reports and focus on the above “seat of the pants” approach to the economy. It works better than a weather report and comes from years of experience with volatile markets. There has never been, nor will there ever be, a “last cycle.”
Thank God we’re in Texas and Dallas-Fort Wroth, because this is the best place to be to ride out any storm that’s down the road. With the state of our politics, business climate, and entrepreneurial spirit, I don’t see a major correction any time soon.
So, be positive, work hard, make and save money. Remember, cash is king!
