Thought I would share…
Written by: Tim McLaughlin
There was a web based discussion a couple of weeks back; the talking points which were shared with me by trading partners on the street, which was entitled “Is Real Estate Finally a Good Investment”? Essentially, the moderators of the discussion pointed to three underlying reasons why Real Estate Investment, in certain scenarios, makes feasible sense right now (taking a traders mindset into account):
Hatred of the “Asset”: Hatred of an asset is often the precursor to contrarian interest, and being contrarian is at the heart of many investment strategies. To paraphrase Warren Buffett, “be fearful when others are greedy and greedy when others are fearful”. Mr. Buffett backed that idea when he invested in the stock market in the teeth of the financial crisis in late 2008 and early 2009. Remember, Gold was hated for years (termed as “dead money”) before it recently became an attractive asset class once again and skyrocketed in value.
Smart Money is Buying: John Paulson, the hedge fund manager who made $20 billion betting against the housing bubble in 2007-2010, stated in a speech late last year: “If you don’t own a home buy one. If you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.” Why is Mr. Paulson so adamant? Because he believes long term interest rates are not going to get much lower. They have, in fact, risen since he gave that speech, but they remain remarkably low by historic standards. Low rates and the expectation that home prices will rise is his basis of this sound argument
Demand is Coming Back: Supply isn’t as out of whack as it was at the height of the crisis. At the end of Nov, home builders reported 197K new homes on the market, the lowest level since 1968, according to Yardeni Research. The National Association of Realtors reports that the inventory of existing homes for sale fell 4% to 3.71M homes, which represents a 9.5 month supply at the current sales pace, down from a 10.5 month supply in October. And that timeline appears to be falling.
Albeit, no one will really know when the “best” point in time is/was to buy or invest until it has already come and gone. But with “value” inventory and low interest rates, more and more observers think the time is now.