I was asked earlier to give my thoughts on the housing market. Over ten years ago, I was employed by Wells Fargo which is a regional bank out in California. At the time I left the bank, the housing market was in a steep decline while the stock market was rapidly moving up. The people who I worked with everday were especially of mention. Some of the entry level workers were in their 40s and 50s. In Southern California, in fact, any entry level job at a bank was heavily sought after by all of the left-over real estate agents and small time mortgage bankers that were from the late 80s-early 90s real estate boom. There was one man in his late 60s who had been a "VP" at a mortgage financing outfit in the early 90s who was now answering phones at the bank as a receptionist. There was yet another man in his late 40s who was resigned to doing other similiar administrative work at a seemingly low rate of pay. The reason why these overqualified individuals were back in these lowly paying jobs was simple. Real Estate is a highly cyclical industry and many get caught in a trap. There is no money in real estate or mortgage financing unless the industry is on a tear. Otherwise, when its not on a tear, there is simply not the cash or demand for these workers. During the down times, these individuals get caught in a trap. They earned a lot of money during the good times and *SPENT IT*. Now they dont have any cash left and have to take whatever work they can find. It was funny because a young woman called me yesterday to tell me that she was now going out with a man who is a "physical trainer and real estate agent". I looked up her myspace account and saw the guy there. He had pictures of a boat, a new car and a new motorcycle. I quickly nodded my head and rolled my eyes. This man will become like those guys I saw at Wells Fargo in the 90s right after the real estate bust. He had the thinking that the housing market will roll on forever and that he will always make the kind of money he received the last few years. He will eventually be proven wrong though. So just how bad can real estate get...There is no doubt in my mind that its going to get a lot worse for all involved. Unlike the stock market, which seems to be more consistent and there is always a bull market in some way, shape or form. Even during the tech crash, there were still quite a few industries where cash could be made or you could have purchased puts on the tech stocks themselves. Over the summer, I was watching CNBC where a hedge fund manager that was listed in Trader Monthly magazine as a top money maker had sold his house and was now renting. This guy explained in great detail how he thought the housing market had come to an end and now was the best time to rid yourself of a house. In another segment, I watched how the President of the realtors foundation had his house listed up for over a year and still could not sell it at the asking price. Even an experienced realtor could not sell his own house. This downturn is going to get slowly worse. The stock market has similiarities and differences to the real estate market. The stock market is similiar to the real estate market in that sentiment can last amongst the two for a while. There are still many people I know who refuse to get back into the stock market because they lost so much in 2000. This will happen in the same with the real estate market. However, when it happens in the real estate market its a lot worse. If John loses a few hundred thousand in his brokerage account, it happens over the computer without him really experiencing it. When he loses a few hundred thousand on a house he lives in, it becomes a lot more personal and stressful. John doesnt live inside his brokerage account and cant experience it firsthand. Another key difference is that funds can be liquidated quickly in the brokerage account where as a house cannot be liquidated quite as fast. So with the very personal negative sentiment and the fact that a house cant be liquidated so quickly, a persons house can in fact depreciate very quickly in a few years of time. The key to winning the battle is to hold properties over 20 years. Some of my properties have been in the family for well over a 100 years. In fact, there is 1 property that is well over a hundred years old and was originally a farm house. Over the years, many things happened such as the Parkway went through it and they built a town around it called Elmwood Park. One hundred years ago, a man would have stepped out of this house to see rolling farm land much like Minnesota for miles. Now he walks out to see a bustling NJ township and the Garden State Parkway. Some of you might not have that kind of time to wait, however. I would steer clear from the housing and mortgage related stocks. Bill Gates had sunk some cash into them, but I believe that this might in fact be a dead cat bounce. When an equity falls far enough, people believe it to be a bargain and try to rush into it. However, there will be more negative sentiment to come in relation to housing. There will be many more negative reports. The tech stocks in 2000-2002 had experienced a similiar dead cat bounce where people believed the stocks would go much lower, unfortunately, there was still some more way down to go. Will the housing stocks go up or down from here? Honestly, I dont know. The P/E ratios do seem compressed and these companies have a lot of cash from the last few years so they might be able to wait out a long downturn over the next few years. I prefer not to get involved with these stocks as the situation is, at best, unpredictable. Time will tell what happens to housing and I might be wrong with my candid observations. I already have plans for 2010-2011 when I believe sentiment will be at its worse for houses and real estate will again be a buy. My opinion of when to get back into housing is this...when everyone feels that you are crazy for buying a house, then thats when you should get back in. As long as people feel that a house is a logical investment, then you shouldnt touch it. Remember your lesson from the tech crash. In 2003, you would have been thought of as a crazy man for buying Apple, Yahoo and other tech companies. In the same way, when everyone thinks you are crazy for buying a house is the time you should be buying one. The two guys I described we could all learn from. In the good times, you do not overextend yourself and, in fact, its best to live under your means. The times wont always be this good for any industry or profession.