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I read A. Gary Shilling's article, "Real Estate Hazards" and was a little puzzled by his evidence and his conclusions.

Doctor Shilling sees a real estate future in which we have lower interest rates, higher savings (investment) rates, and lower building costs. As a real estate investor, I would find all of those factors to be a positive envirnoment in which to invest, build, and finance real estate. Futher, my tenants would find it an enviroment in which expand their businesses.

Doctor Shilling also has the peak housing formation behind us as we baby boomers move on into retirement and death: "fewer people in the next age cohort". No, Dr. Shilling, there are more- a lot more and housing demand is still growing, albeit at a lower rate of growth. The population is not declining, only the rate of growth is declining.

There is no evidence that building costs are going down or that the cost of available building lots is declining. The current evidence for building costs, material and labor, show both are rising.

Building costs for modular housing and site built housing are approximately the same in this area when the costs of the lot and set-up are included. However, the resale value of site built housing is higher.

While there is talk of labor costs going up as we reach full employment, labor costs in construction have already gone up. Drywall and insulation contracts are being being pushed out 6 weeks and up 10%, if one can get them at all, since we can't find installers.

We are looking forward to Dr. Schilling's reduction in building costs; but, we're not counting on it.

His vision also includes cost-cutting by businesses and shrinking office space, but strong demand for class A buildings. I would think that under his scenario class B buildings would do better.

I think it's very difficult for anyone can get their hands or mind around the real estate industry completely. The land is under all and is valued by its utility. We can only report what we see in our own little sector of the market. In that sense, it's much like the blind men describing the elephant. Each description is valid from the impression of each of the reporters. In this case, Dr. Shilling and I are looking at different real estate markets and have unavoidably come to very different conclusions.

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