It's right in front of your eyes

Posted: Jul 31, 2007 1:26 PM
It's right in front of your eyes

In the late 1990's people were really getting their money's worth in the stock market and by 2000 everyone was looking for early retirement. During this period real estate was on the back burner and didn't begin to pick up until the early part of the new century, around 2003-4. The stock market was in a slumber coming off of recent "very" lows. Real estate really heated up in 2005 and continued into 2006 while few were paying any attention to the stock market. In 2007 everyone started to notice the stock market and the talk is that the Dow could hit 15,000 or even 16,000 No one is interested in real estate.

That was a brief history of mob disaster, relative to how much you participated and didn't take the contrarian approach. Those who did take that approach have done extremely well financially. It is easy to sum up if the mob is buying, one should be selling. If the mob is selling, one should be buying. Another way to look at it is to realize there aren't many great deals on the way up. Super value is found when either market is moving down, not up.

Which gets me to real estate in 2007. We have had foreclosures, up 799% in California. Sub-prime lenders going out of business right and left (or is it left and right). Builders are wringing their hands and the profits out of their companies. And sales of all types of houses are dropping further each month. Why, it is down right unimaginable!

The foreclosures in California on an annualized basis are about 68,000, a bit over normal but much less than 1% of the homes. Sales are way down but currently prices are barely down with some sectors expecting 5% drops and others ahead of where they were last year. Real estate is not national, but local, and unlike the stock market, is mainly dependent on just one thing: good employment. Unlike the stock market, a steady stream of nay sayers do not influence most people to sell their homes. After all they live there. What the nay sayers do is slow buyers from entering the market. The great majority of buyers, that is, not the contrarians.

I am not telling you to go out and buy a house, but neither am I warning you not to buy a house. There are a lot of positives in real estate if you take the time to find them and understand them. Because of the booming economies around the world, especially China, building materials are at a premium. This means the next big real estate boom will have prices for new houses going up or the builders will build smaller houses with fewer amenities and hold prices where they are. Either way real estate will cost more tomorrow than today.

Then there is the dollar problem: weak compared to almost all industrialized nations. This means that nations like Canada, England, France, Germany and China can purchase our real estate at a discount. This is accomplished by converting their currency into dollars and those exchange dollars are continually growing. Thus our assets can be purchased with less of their currency as time goes by. We have seen a big push of Europeans purchasing property in New York and other parts of the east coast as well as an increasing number of Canadians and Chinese buying real estate on the west coast. This is not a negative because, if you own real estate as in the stock market, value is created by supply and demand.

The "experts" are expecting real estate to bottom out by next year and start back up in 2009. Do you want to start your purchasing in 2010 to make sure the movement and higher prices are here or do you want to become a contratrian? My gages for purchasing are when it looks like the sky is the limit, I sell. When the situation makes your stomach ache, and the thought of getting into that type of investment has the reminiscence of the flu in the winter I am pretty sure it is time to start buying.

When the Federal Reserve starts cutting their short term interest rates, probably by the end of the year or the beginning of 2008, and mortgage rates head toward the 5% or lower range it certainly isn't too late to try and find something. Someone has to get the seats with the restricted views, but at least you are in the theater. Just this once why not try to get the good seats; be ahead of the Jone's and get a good piece of the cake, including the frosting.

All you need to do is hold your nose and jump in. It could be the experience of a life time!