Veteran readers know that I'm a credentialed real estate bear, although there have been some notable exceptions. In issues past, I've directed your attention to property in places as diverse as Hong Kong and Spain (both of which showed returns of around three to one over the last five year). But there has been previous little I could recommend in the U.S. market, apart from suggestions on bottom fishing for distressed property in the oil patch. But I now have something that you can do easily, something that will do well not just in spite of, but actually because of, the continuing bear market in property. And real estate that's more than just a speculation, but somewhere you should consider as a place to live.

I've suggested you investigate resort towns in the past, and have actually gotten a few letters from some readers who went there, bought, are happier, and have made considerable money to boot. And being happy with their real estate holdings is a position few people are in today. The real estate market in the U.S. generally is very soft, and some people who bought at the top a few years ago, especially on the coasts, are already down 20-40%. It's not over by any means, and when interest rates head back up, these people could be looking at losses of 50-75% in real terms. l That was the case in the l930's, and if anything the no-fun 90s should be even worse.

But just as in every bad stock market there are always some issues hitting new highs, the same is true of property. The riots in L.A. acted as a catalyst; people who were just idly thinking about leaving major metropolitan areas in general, and California in particular, "someday", suddenly decided they'd had enough. For the first time in history, California is losing people; most of the emigrants are going to places like Oregon, Washington, Nevada, Utah, Arizona, Colorado, and Wyoming. (The can be tracked with driver's license registrations.)

A Change In The Megatrend

From the 50s through the 70s it became an item of conventional wisdom that the key to making money in real estate was simply to buy in the path of growth, and wait. The "megatrend" was for population to flow into suburbs, both from the city centers and rural areas, which suffered absolute as well as relative declines in population. It was a winning formula. Now the suburbs contain over 50% of the U.S. population, becoming what can be termed "fringe cities".

Fringe cities now have most of the problems of the old downtown area (e.g., crime, pollution, and high taxes), plus some of their own (e.g., the necessity of driving a car to get anywhere, excessively crowded roads, and round-trip commutes of two or three hours).

But that doesn't mean the cities are going to make a comeback anytime soon. Poor minorities, many of whom have developed family traditions of living on welfare, are increasingly concentrated in them. And the governments of the big cities are troubled and teetering on bankruptcy, even while their tax bases shrink. If the economy does as badly as I expect, that trend will likely accelerate.

So what you're going to see is more migration out of the cities, and the start of massive migration out of the suburbs, at least by people who can afford to make the move. Where will they go? No to farming areas. Someone who's used to the amenities of town isn't likely to go for rural Kansas, Nebraska, Texas, South Dakota, or such. Those areas will remain places to grow food, and property prices will fluctuate accordingly, for the indefinite future.

The answer is that they'll pile into resort communities. Their schools are generally excellent, reflecting the high average wealth and educational standards of their residents. They don't have a permanent underclass. While local politicians are often leftists, they're at least subject to the peer pressure that can be exerted by neighbors they see daily; they're generally not hardened political criminals such as populate the governments in the big cities.

Crime is not a problem. Crowded highways are not a problem. The quality of life is right.

Much of this is true of small towns generally, of course. But although small towns will benefit from the migration, they won't benefit nearly as much. The reason is apparent from an examination of the archetypal resort town: Aspen, Colorado.

The Aspen Idea

Up until the very recent past, most people didn't seriously think of moving to a resort town for full-time residence. They loved visiting, but thought of it as a strictly seasonal affair. Their business activities were elsewhere, and the towns more or less closed down during the off season.

But that has changed radically with the coming of the fax, the computer, the cellular telephone, and Federal Express; none of these were a factor even a decade ago. In addition, l980's created a whole new class of multimillionaires, who've made a pile, and want to enjoy the lifestyle it can buy as they move into their middle and later years.

Aspen is the perfect case study for all this. It's a town of 6,000 people, at what amounts to the end of a small state highway going through the middle of nowhere. Why, then, it is internationally famous, constantly making the pages of People Magazine and the New York Times? Why did Thatcher and Bush pick it for a conference last summer? Why do dozens of Hollywood megastarts live there? Why do (get this!) 300 of the Forbes 400 have a presence there? (That is not necessarily a recommendation, but an indication). Why, in short, is it different from East Podunk, Iowa, and the thousands of other small towns?

There are a number of reasons, and you should keep them in mind then thinking real estate these days:

1. Natural Beauty - This is why people go to Yellow stone, and not Newark for their vacations. Pretty scenery burns itself into the imagination, and can't be underrated as a factor then a potential buyer possesses an environmental consciousness;

2. Ambiance - There's something going on every day of the year. A festival. A conference. A cultural activity. An athletic event. And there are plenty of corner cafes. Under this category is the fact that once a place becomes chic with a few of the rich and famous, they tend to bring their friends. These people like to hang out with their peers, and like to do so in places where they're treated like ordinary people. That's why Beverly Hills is what it is. That's why you want to think resort towns, not just small towns; most small towns are just too boring and provincial to tolerate;

3. Facilities - Aspen has at least one first-class health club, a great hotel, local Federal Express deliveries, several movie theaters, and good stores. People may want the advantages of small towns, but they don't want to give up the advantages of the cities they're deserting;

4. Isolation - It's important to be physically away from it all, to be able to walk l00 years in any direction and be out in the wilderness; otherwise why not just stay in a suburb. This is the problem with some towns like Vail, which located right on an interstate and only a two-hour drive from the major population center of Denver. Further, once a place catches on, you want some artificial constraint on the supply of land; that helps to drive the price up. It's like owning a popular stock with a tiny market capitalization. Mountains and seacoast areas are naturals in that regard. The West is ideal, since it's owned 50%-90% by various governments. And there are few people, except in pockets.

Prices in Aspen are high; the average house if over $l,000,000, and there are many in the $5-$l0 million range, or even more. If you're a player in that league, fine. It's a liquid market, because if someone is worth megabucks he'll write you a check for something he wants without looking too hard at the right side of the menu. Furthermore, the market in those upper reaches is for cash, making it quite stable; people don't have to scramble to crack the monthly mortgage nut. But plenty of property is still available for much, much less; and it's no secret that you're smart to own the cheapest piece of property in a neighborhood.

What And Where

I'm not writing this as a academic study; I suggest that you take off a couple of weeks this month, and investigate the situation first hand.

It's a fact of life (recently a sad fact for most people) that their major financial asset is their house. Like it or not, although a house should be just a consumer good, it is de facto the investment of a lifetime for most people. That's why if you're thinking of a move to a small town (and millions of your friends and neighbors and countrymen certainly are or shortly will be), you want to choose one that will benefit from the trend most, one there your property will appreciate most. My picks would be Aspen, Telluride, Crested Butte, Jackson Hole, Sun Valley, Taos, Santa Fe, and Sedona. All but the last are ski resorts, which gives them a life during the winter. And skiing, of course, is a sport that draws a monied clientele. They all fit the parameters spelled out above. It's not an inclusive list; those are just the ones with which I'm personally quite familiar. You get the idea. But it's critical to stay with up market, top-end towns. The second raters could stay second rate forever.

The best advice on the type of property to buy was offered by Frank Lloyd Wright 50 years ago. He said, and this isn't an exact quote:"No matter how far out you're thinking of going, go twice as far. Growth will catch up to you." Of course, in these areas there isn't room to expand forever, as did Chicago and L.A. But whereas an hour's drive in L.A. seems like nothing, l5 minutes seems like forever in Aspen, because people are so spoiled. So you go out 20 minutes, and land prices drop radically. And large pieces of land are what you want to buy, at least l0 acres, better yet l00. Something that a rich city slicker can make into a "statement" if you decide to sell it. But you won't want to. That's why this stuff is going to get much more expensive.