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What Haboobs Can Teach Us About Real Estate Bubbles

“People need to be reminded more often than they need to be instructed”
– Samuel Johnson

I’m not 100% sure when we started calling Monsoons Haboobs but I can totally understand why it stuck. Nobody wants to look out towards the horizon and yell “a monsoon is coming” when they could yell “the haboobs are coming!” 4th grade humor aside when I ran across the photo of the uprooted tree below I began to think about the idea of preparing well for the storms that life periodically throws at us.


The Storm of Real Estate

In my real estate world, the storm I am most often asked about is the real estate bubble of 2007. Are we heading towards another one? In response to that question I recently started a recurring bubble watch blog post which you can find at www.monthlybubblewatch.com. As I have really thought about what kind of metrics to look for while helping people discern weather or not the market is due for a correction I realized that even if I have the best metrics on the planet bubbles are VERY hard to predict. Storms, bubbles, tragedies and winning Arizona sports teams are by their very nature rare and difficult to see coming. What makes this even more complicated is that even when we DO see the storm coming most people just ignore it or don’t do what’s required to prepare for it. The recession of 2007 was not that hard to see coming but we see it coming.

This problem is an ancient one. Recently I re-read the ancient story of Joseph and his technicolored dream coat. Early in his life Joseph gets sold into slavery only to become the chief advisor to Pharaoh, the most powerful man in the world at the time. Joseph has a history of having and interpreting powerful dreams that predict the future and while serving under Pharaoh he interprets such a dream. Pharaoh has a vivid dream which Joseph interprets prophesying that 7 years of feasting in the land would be followed by 7 years of famine. Pharaoh then puts Joseph in charge of administrating a nationwide plan that sets aside 7 years of reserves so that when the famine does indeed come they will be prepared. Pharaoh and Joseph are preparing for a very big storm.

As we read the story thousands of years later it’s easy to overlook how crazy it is. It’s no small accomplishment to create a system for saving up seven years’ worth of reserves for an entire country nor is it the kind of thing you can keep quiet. I’m sure all of Joseph’s buddies thought he was crazy. Here he was saving up for what amounted to the end of the world while the biggest problem the nation had was how to eat all of its food and spend all of its money. He was acting kind of like the 2 or 3 people you may have known who decided to sell their houses in 2006 right before the crash. Why sell your house when prices are going through the roof?!

After seven years the storm does indeed come and most of the known world ends up coming to Pharaoh and Joseph to be saved from starvation. It appears that nobody who saw Joseph preparing for the worst joined him in creating their own stock pile of food and so they became servants of Egypt to avoid starvation. It also appears that our propensity as people to enjoy rich times while avoiding preparing for the inevitable storms of life is an ancient one.

Here’s My Take
So, are we in a bubble? Check out the blog for my take but in summary, probably not. The only thing I can say for certain is that there is indeed a storm coming and that most people will not be prepared. Most of us will live fat and happy and enjoy this incredibly robust economy until it’s not so robust anymore.

However.

If you’d like to do a little haboob preparation here are few things my family and I are doing that you might consider as well.

1. Take some chips off the table. If your way ahead in real estate or stocks or whatever consider selling and realizing some of your gains
2. Take a Dave Ramsey class. His advice is ancient in its wisdom and simple to apply
3. Cut your expenses- This is VERY hard advice to follow when things are good but it just might pay off for you!
4. Get rid of debt and save- Be like Joseph!
5. Text me in a few months to be sure I have not forgotten this lesson yet!

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