Web Posted: 10/27/2005 12:00 AM CDT

San Antonio Express-News

For people who own real estate as investments, the Texas A&M University Real Estate Center has some advice.

Sell. At least, shed some of your real estate portfolio.

“If you are going to sell in the next two or three years, do it now. Go ahead and take some money off the table,” said Mark Dotzour, the center’s chief economist.

Investors have rushed into real estate investments in the past several years because stock market returns have been relatively meager.

The real estate craze, however, has nearly run its course, Dotzour warned about 130 business people at Wednesday’s annual economic outlook breakfast hosted by Frost Bank and Ernst & Young.

One sign is that the current economic cycle is unfolding much the same as the previous one, Dotzour pointed out.

The 1990-91 and 2001 recessions both were followed by three years of slow, jobless recoveries and a period of interest-rate hikes by the Federal Reserve to stem inflation.

When the Fed stopped raising interest rates in the mid-1990s, the stock market took off, with indexes posting double-digit returns through the rest of the decade, Dotzour said.

Therefore, the next turning point in investments will come when the Federal Open Market Committee signals a stop to its long series of quarter-point hikes in short-term interest rates, he said.

An additional sign that the real estate market may turn soon is the sheer number of people investing in it without understanding the market. Another is the prevalence of media attention. Dotzour joked about television shows titled “Flip This House” and “Flip That House.”

“If it’s on TV, it means things are getting dicey out there,” Dotzour said.

The economist said another craze — hedge fund investing — could collapse soon. Hedge funds are gambles on future commodity or security prices that entice investors with potentially better returns than stocks.

Dotzour reminded his audience that 75 percent to 90 percent of futures traders lose money each year.

“My advice is to take cocaine instead,” he said. “At least you will feel good before it kills you.”

The economist didn’t exactly predict a half-decade of outstanding stock market returns. He hinted that a rally might not materialize soon.

U.S. economic growth is slowing, the main signal coming from short-term interest rates, which have risen to nearly the same level as long-term rates. That means business costs are higher than normal.

Nevertheless, corporate profits will continue to rise modestly, as will job growth, Dotzour said.

The Real Estate Center’s second speaker was former Dallas Federal Reserve Bank President Robert McTeer, now Texas A&M System chancellor.

McTeer recalled last spring’s failed fight to win the Texas Legislature’s approval for revenue tuition bonds for a Texas A&M campus in South San Antonio, leaving that project in limbo.

McTeer reminisced about his years of working with outgoing Fed Chairman Alan Greenspan and revealed what University of Texas System Chancellor Mark Yudof told McTeer when the central banker turned chancellor a year ago.

“Yudof told me that being a university chancellor is like being a cemetery manager,” McTeer said. “A lot of people are under you, but no one listens to you.”

The Real Estate Center’s presentation this year did not address San Antonio’s economic outlook specifically, but Dotzour expects solid economic progress.

Referring to the city’s economic diversity, Dotzour said, “San Antonio’s long-term position is much bigger than Toyota. Toyota is the icing on the cake.”