Author Robert Campbell is a market timer. He explains his secret to success - the short memories of housing market ups and downs by others.

"I've always been fascinated by the market," says Campbell, "All of us are emotional creatures driven by fear and greed and that is what drives the market. You develop indicators for supply and demand and you know when they get out of whack. We live in a cyclical world."

Campbell says that real estate cycles last 10 years, but people's memories only last five. "Everyone lives in the present," he says, "and they lose sight that things can change, up or down, and that trend will continue."

Let's talk some more about that cycle thing.

"What has happened in the U.S. since the stock crash of 2000 is the FED has dropped interest rates to 1 percent to combat a struggling economy teetering on deflation," explains Campbell. "Low interest rates fulfilled the goal, but eventually it happened that they have inadvertently fueled, with cheap and easy credit, a housing bubble that we haven't seen in 50 years. Anytime an asset gets above its underling value, a bubble is created. That's what happened. Housing prices have gone up 40 percent in the last eight years, and what has to happen is either real estate prices will come down in-line with incomes and rents or incomes and rents will shoot up to realign themselves with real estate values where they are today."

Campbell says there is no national market, but there are trends. "Since 1968, the median price of homes has never declined and has moved up lockstep with incomes," answers Campbell. "Everything is going up because of inflation. Supply and demand works 85 percent of the time, but what's happened is that normally real estate prices go up with incomes. That isn't close to the case today. What we have instead is cheap and easy credit."

Is this the first time/housing environment that has happened?

"We've had stated income loans before," says Campbell. "Real estate is driven by credit and it has never been easier to get credit. People are up to their eyeballs in debt. People are living off their homes. They are borrowing, using credit cards, refinancing, and they aren't cutting up their cards, they have run their bills up. Never has household debt been higher as a percentage of household income."

What's a reasonable debt load?

"It is 20 percent," says Campbell. "If someone is making $50,000, then $10,000 goes to service debt. The FED is a perpetual wealth machine, as long as they can keep interest rates low, you don't need a job. You can buy your house and a year later you can sell it for a profit.

"Markets turn - not because we don't know what triggers it," says Campbell. "The pure effect is that prices start getting so high that people come to their senses and interest rates come to their senses, and they start backing off. They are under pressure, and they'll start backing away from spending. Upcycles are driven by greed. Down cycles are driven by fear. What matters is at what price is real estate a good investment? If you buy at a peak, debt is the evil enemy, and that is where they get into trouble. That's where the biggest potential risk is - where the reversal of the trend is - and now we are on the downside."

Why is debt such a serious risk, and why are we so comfortable with it?

"If you have too much debt, you won't be around for the long term. You don't have a cushion," reasons Campbell. "People don't save money anymore, and 70 percent of American households live paycheck to paycheck. People are living on the edge. The longer a trend goes on in one direction, the greater the risk and the more complacent people get.

"A 10-year trend has more risk," he continues. "We've had an eight-year housing run. This thing scared me two years ago. I'm not a prophet, but I see these things developing. I know housing prices went up eight percent, incomes were flat, and inflation was one percent. The risk right now is that inflation is building and accelerating and the FED has painted themselves into a corner they don't want to be in. Now they've almost got no choice but to raise interest rates and fast. Debt levels are sky-high and out of alignment with incomes, and homes prices are sky high, and whatever the correction is, even if they can engineer a mild correction, people are still going to get hurt. They are speculating, they are looking at it as a speculation. If those expectations aren't met where they can't refinance, those dreams are dashed and that could spell the turnaround in the market as well."

Campbell continues, "We live in a society that asks not 'what is the price?', but 'what is my monthly payment?' If they can max it out and afford it, and that allows them to buy as big a house as possible, the risk is this - everybody's doing it, and they are maxed out on the debt. It doesn't take much of a rise in interest rates to push people over the limit. They aren't concerned at five percent, but they are looking at seven or eight percent, they can't afford it. They can only offer 75 percent of what the seller paid for the home. If you are qualified for a $220,000 loan, and you add a down payment, you are qualified, but people give themselves no cushion, and when the next set of buyers come in and people can't qualify, then you have to sell for what buyers can qualify for. It is all about payments. It is the 'selling cars' mentality. Easy credit policies, or negative amortization loans."

What if housing prices don't go up?

"Now people are in trouble," says Campbell. "What do you think is going to happen? The best case is housing values will flatten out and they could drop between 5 and 10 percent, but a leveling out could cause more trouble than anyone anticipates."

What are we not anticipating? "That housing won't keep going up, and that they'll be able to sell it for more than they paid for it with easy credit. They are getting over their heads, overleveraged and overextended, and they are illiquid with no ability to handle the downturn."

Where's the hope?

"The economy is cyclical," says Campbell, "and they will have their way again. Hope is this - if you are not overleveraged and you are prudent, there will be so many bargains that if you don't own a home, buy one and if you don't have a rental, buy one. You can truly develop some equity for yourself. The risk is outweighed by opportunity."

Where is the opportunity now?

"Areas like Dallas, Austin, Denver, Seattle, Atlanta," says Campbell. "These were all hit by tech, airlines, telecommunications - there are also other reasons why they have spiraled down, like Dallas' poor city management. If you were going to buy investment property, buy it when it's down. It will recover and the return on your money is high. Our prices are so sky high like Boston and smart money is selling here (San Diego) and buying in those areas I just mentioned to you."

Campbell often asks himself, what would his guru Warren Buffett do? "If you want to learn to invest, invest like he does," says Campbell. "He's patient, self-disciplined, and he knows the lower you pay for anything, the higher the upside. He's not bad to model after. Real estate is overpriced relative to income, so buy on bad news. This may be over the top, but do the right thing with your money, so you can keep it. It isn't all about money, we're talking about markets. Buy when the blood is in the street. Is Dallas going to turn into a ghost town? Of course not, it will come rebounding back."

"The worse it is, the better it is," says the investor. "High price equals high risk equals low returns. Low price equals low risk equal high returns. When you buy real estate, you have so many more options when prices are high. Things can get bad and you are still OK, if you buy early. It is all about at what price do you acquire that asset?

"Nobody wants a house when its cheap, but everyone wants it when its expensive. When cycles are down, sales activity is low, and when prices double, everybody wants it."