The U.S. Real Estate Bubble: Are You Sitting on Top of It?

Fed blamed for "outrageous prices" of U.S. homes. Depression forecast, but best-selling financial author sees a silver lining that could provide comfortable retirement for many.

(PRWEB) July 22, 2005 -- "This is insane," says website and newsletter publisher, Sydney Tremayne, of house prices on both U.S. coasts. "Those modest three-bedroom homes selling for $1 million should probably be priced at $100,000," the former investment advisor, now living in Panama, suggests.

He says homes are at outrageous prices because the Fed has been stimulating the economy for so long with cheap interest rates. Result: people have borrowed at bargain-basement interest rates, and spent. Credit cards are maxed out, and there is heavy secondary financing against the increased equity in these homes. Some of that equity, he says, has been used to speculate on other homes, forcing prices higher.

"But what happens when the U.S. enters the next recession or depression? When the economy contracts and people start to lose jobs? When buying dries up and homeowners can't meet their mortgage payments, especially if they have adjustable rate mortgages? When bankruptcy levels rise to historic proportions, putting more companies out of business?"

Tremayne, whose 1987 book Take the Guessing out of Investing was a bestseller, says much of the wealth of private America is in its homes, not in other forms of investment or cash. High real estate values have led to a feeling of wellbeing and to some extent of complacency. With inflated-value assets, increased credit has been easy to obtain, and that borrowed money has mostly gone into consumables.

"When the economy contracts (and history shows it always does), spending dries up. Factories cut back production. People are laid off, put on reduced hours, overtime disappears, and the average person has less money to spend. Some of the early ones may be lucky enough to sell their homes without too much of a discount. But the real estate bubble will burst. Make no mistake about it. Record numbers of people will simply walk away empty-handed from a lifetime effort to keep a roof over their heads. And they will still owe money."

But, he adds, when a $100,000 home can be sold for $1 million, especially in a region prone to hurricanes that are forecast to increase in intensity over the next few years, some people may now want to consider their financial options carefully.

Get away from ownership, he recommends, even if that means renting.

Why, he asks, is a modest three-bedroom house now worth $1 million in certain markets when the same house, with the same degree of comfort and convenience, can be had for $50,000 to $100,000 in Panama? "And this Panamanian house will be constructed in concrete, not wood, in a country that is modern, democratic, safe, and where there are no hurricanes."

His recommendation for those able to move: Sell your $1 million home, and retire to Panama. "You can buy a better property than the one you now own, and you still have $800,000 to add to your retirement savings."

There is no tax on foreign income in Panama, and the U.S. does not tax the first $80,000 of income made overseas ($160,000 per couple). The IRS even lets you deduct the interest portion of your mortgage payments in accordance with your tax bracket.

Tremayne, publisher of http://www.yourpanama.com, says Panama is an attractive place in which to live in any economic climate. The economy is not an industrial one, and that will shield it from the worst aspects of a global depression. Coincidentally, he adds, Panama real estate is an excellent investment decision.

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