I last updated my quarterly Fearless Forecast (motto: often wrong but never in doubt) February 5. By Costa Rica standards, this three month update is early, but it´s tough to change cultures totally. So here we are, three months later (Costa Rica time). Yawwwn. Strrretttch. I was knocking back a couple of beers last night at La Caracola with my San Diego friends. Surf was good yesterday at Playa Avellanas and Playa Negra, time for Playa Grande today. But first, let´s see how our forecast did.

February 5: Construction appears to be proceeding rapidly at The Oaks (see Nov. 25), but I am exiting the predicting business on this one. I am hoping that the holiday months of February and March will result in more than progress.

Now: The holiday months of February and March resulted in some progress, but we really got going during the holiday months of July and August. We have now delivered 10 buildings to our owners (out of 16).

Future: We have high hopes that 3 more buildings will be delivered “in three weeks”, with the balance by the end of November. I would kill someone if that didn´t happen. Problem is, no one would notice. But, history is history, and 10 buildings are now delivered. Hooray!

February 5:  Real estate prices are going to continue to go down in the United States. More of the same. Real estate moves in long cycles, and this one isn’t long yet.  

Now: Spot on. More of the same.

Future: More of the same. This cycle still isn´t long yet.

February 5:   As the recession gets more obvious, the Fed is going to keep cutting interest rates. More of the same.

Now: No need for Nostradamus. The Fed has said that the rate cut cycle is over. And they never change their mind, right?

Future: Read the headlines. Bank failures are not only front and center, when you include Fannie Mae and Freddie Mac, they are historic. Banks need to get well, so I´m not holding my breath waiting for any rate hikes in 2008. With lending choked off, there simply is no mechanism to pass inflation along. Long term rates will go down before they go up, first no  lending, then a recovery that will lead to inflation pressures, short term rates will go down and stay relatively low, and most of the remaining banks will slowly get better. Bank stocks will go up, since they have led the way down. Banks will issue new stock and raise capital. Only after that will rates go up, putting the hurt on the new shareholders. 

February 5:  From November 2007, oil, in dollars, is going to keep going up. (from $80 per barrel in November 2007 to $90 per barrel in February 2008).  Predicted February 5: stay tuned. Probably in a range, fear of recession will bring the price down, political risks keep it up. No clear trend short term.

Now: Oil traded today (October 6) at $87.81. Give the Fearless Forecast an A+!! (If you´ve been surfing nonstop, that´s a joke, folks. From $90 to $147 and back can hardly be called a “trading range”).

Future: Oil is going down! Can anyone say fifty? Then it will go up. But for this forecast, down! On the other hand, maybe you better ask Nostradamus.

February 5:  The dollar probably will be more or less stable. The big move happened last year. Note the probably. Humble.

Now: After remaining stable for over three months, the dollar started rising. All things considered, not a bad call.

Future: As hard to predict as the price of oil, and not unrelated. But with Europe apparently sliding into recession, a continuation of the trend is a decent bet. Dollar rising. Canadians, buy now. You read it first here.

February 5: Buy Costa Rica real estate. In October, the lowest priced two bedroom, two bath condominium unit available at The Oaks was $142,500. In February, the lowest priced unit was $159,000. Prices will rise again by March, and then again in April or May when phase two is sold out. Probably by another 11% or more, which is still below appraised value.

Now: The lowest priced unit available is $185,000. My predictions get better the closer they are to where I live. I actually underestimated the price rise.

Future: Just down the street, a billboard offers competing units at $225,000. Next door, prices are over $200,000. Appraised values are rising because of demand (more airline seats, new hotels) and construction price inflation. And something else. The new 310 room Marriott hotel at Hacienda Pinilla is almost finished and opens in late December. Want a room after Christmas? A pool view one bedroom junior suite at the Marriott will set you back $1,549 a night starting December 26. That´s $9,294 for 6 nights folks.  A pool view two bedroom two bath suite at The Oaks will set you back $1,800 for the same 6 nights. Split it with another couple (two bedrooms, two baths) and that´s $900 a couple.   Prices will go up.

February 5: The U.S. dollar will fall in value against the Costa Rica colon by at least 5% within the next three months, and by 10% or more within 12 months. (The rate of exchange was 493.72 colones/$.)

Now:  The rate of exchange is 550.5 colones/$. Far from falling, the dollar rose by 11% against the Costa Rica colon. I was wrong, wrong, wrong. The after-the-fact explanation is that the Costa Rica government sold dollars early in the year to hold down the dollar´s value against the colon, then was wrong-footed when the price of oil went up. Why? Internationally, you pay for oil in dollars. In Costa Rica, you pay for oil at the pump in colones. So, the country was receiving colones at the pump and sending dollars to Mexico and Venezuela. Result. Devaluation of the colon.

Future: Depends on the price of oil. Oops. Politically, the Costa Rica government is restraining lending, but domestic inflation has soared 15% year over year. Also asking for a favorable subsidized oil deal with Venezuela. Got help from their new political ally, China. Still, until domestic inflation calms down, it´s hard to say the trend will reverse. They have to fix the damage they caused earlier in the year. 600 colons to the dollar or bust. Often wrong but never in doubt.

February 5: You knew it was coming. The time to buy Costa Rica real estate is now. For quality construction and sound environmental design, check out The Oaks.
See you in three months.

Now: Got that one right.

Future: More of the same. See you in three months (Costa Rica time).