Stop the Presses

Roger Schlesinger
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Posted: Mar 04, 2008 12:00 AM

Do I have a hot news story for you? Not exactly. I wrote stop the presses because I would like to see the news media stop reporting on the real estate industry until (a) they get it right; (b) they quit calling everything "the subprime crisis" (c) their stories are put into context (d) and that once in a while they give the other side of the real estate story and not just the one that makes the sky seem lower than the ground!

Enough already!

Real Estate is here to stay and probably is the best buy we have seen in years for three reasons, which are all related: the weak dollar, the net population growth and the fact that the inflation genie is out of the bottle. All three will help stem the tide of the nay saying that is flowing from your local or national news person. And these facts aren't made up, or taken out of contact or sensationalized to sell "The News".

Do we have a weak dollar? You betcha! Is this good for us? That is a matter of constant debate. However, weak anything usually isn't good. Then how can it help real estate?

This is number one of the three reasons why real estate is very desirable at this time. Before I go any further I wish to remind the reader that everything I say must be tempered by the three main words in real estate: location, location and location.

The Euro is now over $1.50 versus the dollar and this gives all those who hold Euros a giant discount on dollar denominated assets: real estate being a major one. Therefore we are having a buying spree by foreigners from various locations taking advantage of our real estate. Note: In the western United States Canadians are buying in ever increasing numbers in desirable second home locations. The Loonie, Canada's currency is now over $1.02 versus the dollar which is up from around 62 cents less than a decade ago. Increased demand is directly coming from the buying power of foreigners because of the weakness of the dollar versus their currency.

Second point is the net increase in population from the increase of births over deaths and immigration (measurable legal immigration). We are growing about 1,100,000 family units a year that need housing and we are currently ramped down to about 700,000 new units a year. Obviously with unsold new homes flooding the markets in some areas and generally existing in all markets to some degree the need for these additional units won't kick in for a year or so, but the need is not going away and the building will start again. Builders are poised to start building at the first sign of a bottom and the start of the real estate turn around.

Third and most important point is inflation. Simply put, the imbalance of supply and demand. This can come from either too little supply or too much demand or both. Look at the gasoline prices in this country. Generally it is believed that with China's entry into the 20th century the demand for oil and oil products has jumped dramatically thus causing a quick and large increase in the price. There is also the fact that OPEC is controlling the supply which helps create shortages and thus, higher prices. The same price action will occur again in real estate because of excessive demand and not enough supply.

The problem most people face is the fear of being too early or not getting the lowest price possible. Let me tell you why this is "fools gold" thinking. The average American will not find out that real estate has turned for 4 to 6 months after it happens. When real estate is purchased an offer from a buyer to a seller is accepted. The we have the escrow or closing period of any where from 30 days to 90 days, probably averaging about 45 days. Those who track real estate sales do so at the end of every month. If you buy something on March 15th and it closes May 2nd then those who report will get the info in June. You will know about it at the end of June which puts you about 4 months behind the buyer.

IF ENOUGH BUYERS ACT AT ONE TIME TO START A TREND you will miss the beginning and the prices that are "oh so affordable" now will be but a distant memory.

Lets look at the stock market and compare and contrast it to real estate. The stock market is the nations investment arena, or so say those connected to the market. In 2000 it self destructed and the world had come to an end. By 2007 it hit new highs thus completing an investment cycle. The real estate market is different to a degree and that is what makes it better. No one has to invest in the stock market and the reason they do is to make their money grow. That is the main purpose of the stock market as far as investors are concerned.

Real estate is a great investment to make your money grow but it also has a utility that the stock market doesn't possess: a place to live. Everyone needs a place to live and that gives the real estate market the edge, in my opinion, over the stock market. Forget the tax advantages of deducting the interest on the mortgage, or the tax free accumulation of money created by the $250,000 profit exclusion upon sale of an owner occupied house per person (husband and wife get $500,000), real estate is a real shelter, pure and simple. That is why my money is where my mouth is, so to speak.

The best thing that can happen is the rebounding of the real estate market and most of the problems that are hurting Wall Street would be gone. Loan portfolios would once again be worth face value and we could get on with the normal business of both banks and brokerage firms. This would really be a win, win situation.