The Future of the U.S. Suburban Real Estate Versus Rural Retreat Real Estate

In recent months I’ve been asked by several consulting clients if it is still a good time to buy a retreat property. The answer is yes. If you find a really phenomenal property, the answer is always yes. (Yes if you can buy it without going deep into to debt. ) In fact, some close family members bought the place of their dreams after consulting with me this last year.

Say that you find a property that is in the region that you’ve selected, and it has all of the features that you’ve been looking for–such as gravity fed spring water, defendable terrain, good soil, open space for gardening and livestock–then you probably shouldn’t let it get away from you.

It is notable that SurvivalBlog recently launched a spin-off web site––which features only survival retreat properties. Some might think that this is not a wise time to start such a venture. But consider that most of the advertised retreat locales are in areas where the price of real estate is likely to drop no more than 10%, even in the event of a prolonged bear market in real estate. In those areas, the downside risk is minimal. Further, the Baby Boomers will start hitting retirement age in 2011. many of them are planning on relocating to rural areas at that time. Some will be planning on using their equity in their city or suburban home to buy a home outright in a low-cost-of living rural area. Some will be retiring to a locale with great hunting or great fishing, to fulfill a lifelong dream. Others have a dream of owning rural acreage so they can have all the critters they’ve dreamed of, and that big garden. I believe as we approach 2011, property in rural areas will actually increase in value, especially if they have water frontage, are in an area renowned for great hunting or great fishing, or in some other way meet the qualifications of being someone’s retirement “dream” property. Our close family members took our advice and bought a waterfront property in a prime hunting and fishing location in the inland northwest. If the Schumer hits the fan then they are ahead of the game because they are actively preparing and upgrading their retreat. If it doesn’t, then they have still made a great investment for the future by buying their retirement property way ahead of the Baby Boomers.

Meanwhile, in the Coastal Suburbs…

In contrast to rural retreat properties, coastal suburban real estate is clearly in a declining market cycle, where time is on your side. There will be exceptions to the down trend, like the Silicon Valley, where industry is still humming along (at least for now) and where new immigrants are keeping demand high. But within a couple of years, most of the over-bought coastal real estate in the US will resemble Cape Coral Florida, where the listed prices have already dropped 22%, or Phoenix, where the inventory of unsold houses jumped 523% in one year. It is in the formerly “hot market” coastal regions that prices could decline by as much as 40% before the market starts to recover. These areas include San Diego, Orange County, Sacramento, Seattle, much of Florida, the Atlanta metroplex, the entire Washington DC region, eastern New York, and the entire “commuter corridor” portions of New England.

Economist John Mauldin recently reported that the largest number of residential home adjustable rate mortgage (ARM) resets–some $110 billion worth–will occur between October of 2007 and March of 2008, with the peak in March. Come next spring and summer, look for the U.S. home mortgage foreclosure rate to skyrocket. California is already leading the pack on foreclosures, registering their highest foreclosure rate in 11 years. The ARM resets (or “ARM twisting”, as I call it) will only make matters worse. Banks will be repossessing hundreds of thousands of houses and they will doubtless dump most of them on the market. And remember that these are regional markets that already has far too much unsold inventory. (In Sacramento, California, there are so many vacant houses with unkempt swimming pools that public health officials are fearing outbreaks of mosquito-borne illnesses.) I think that we can look for the bottom to fall out of the US coastal real estate market, most likely next summer. And by the summer of 2009, I predict that we will witness some “fire sale” prices, particularly in the inflated price regions where ARMs predominated. Again, for anyone looking to purchase property in coastal regions, time is on your side. Just watch the market patiently. In particular, watch for foreclosures. (Subscribing to a service like or is a good way to avoid missing foreclosures as they become available in your chosen retreat area.) Keep your land-buying bankroll in easily-accessible short term paper–preferably something like TIPS. Be patient. It may take as long as eight years for the coastal real estate market to bottom. But when the price is right, pounce.

Today’s market is already a “buyer’s market.” Soon, it will be a genuine bargain shopper’s market. With this in mind, don’ hesitate to make a “low-ball” offer. Make your offer low enough to offset the downside market risk. That way you will be able to sleep at night. As the market deteriorates, offers will be few an far between, so even low offers will be given consideration. And if yours is the only offer, then you might be pleasantly surprised. Assuming there is a property that you really want but the asking price is too high, one tactic is to make a standing offer at a lowball price. Such offers are best made in October or November. Tell the seller that your offer will stand for six months. Odds are that the offer will initially be rejected. But then, if the seller gets nervous about the market and has a mood swing into desperation, the chances are good that the seller will eventually accept your offer. OBTW, your real estate agent will probably discourage you from this sort of tactic. But remember that he makes his living on commissions from home sale closings, so anything that delays a closing is discouraged. They just love that phrase “time is of the essence”. But in today’s market, at least on the coasts, time is on your side.