The 2010 Investment U Conference is underway! And even if you couldn't make it, now you can "bring home" more than 30 breakthrough presentations from the conference... Order the Deluxe MP3/Video Library for $99 to listen and view on your computer, or the Premier CD plus MP3/Video Library for $149 to listen to and view anywhere.
The Housing Market: Three Strikes Against Buyers
by Alexander Green, Chairman, Investment U
Investment Director, The Oxford Club
Monday, January 26, 2009: Issue #922
We all know that, within the housing market, home sales are in the tank, foreclosures are up and prices are down from the past few years.
What a wonderful time to be a buyer, right? Don’t believe it.
If you live in the hardest hit areas like Miami, Phoenix, Las Vegas, Sacramento, Orlando or a few others, there are bargains out there for the picking.
But in most towns, the real values are few and far between. The nation’s housing market is completely dysfunctional right now, in my view.
3 Types Of Sellers In The Housing Market
Three types of sellers in the housing market are preventing prices from reaching their natural level.
- The first is the home seller who bought his house in the last five years. Many of these folks bought their homes with little or no money down and with adjustable-rate mortgages that have ratcheted higher, making the home unaffordable.
At first blush, you might think that a distressed seller would bring their asking price down fairly quickly. But times are different now. Most of these folks are under water, some of them seriously. If they can barely afford the payment, they definitely can’t afford to bring $100,000 or more to closing to make up the difference between what they paid and what the home might reasonably fetch today.
In other words, strike one.
- The second type of seller is the homeowner who bought before the housing mania really took off and therefore would be in a good position to negotiate his asking price. Except too often this seller pulled the equity out of his home to buy a new boat, or a house full of furniture or to pay off his credit cards.
Because these sellers used their homes as an ATM – often two or three times – they are in exactly the same position as the seller who bought near the top of the market. They owe more on their home than what it’s worth. Therefore, they are unable to bring their asking price down to realistic levels.
Strike two.
- The last seller to frustrate would-be buyers is the guy who bought his home before the run-up, didn’t pull out the equity, but simply can’t get out of his head what his home was worth “at the top.” He knows his neighbor got $650,000 for a similar home four years ago and – dagnabbit – he isn’t taking much less. He is an unmotivated seller – and a dreamer.
Strike three.
Housing Markets Nationwide – Bank Foreclosures At 50%
In many housing markets around the country, nearly 50% of home resales are bank foreclosures. The reason is obvious. The banks are willing to take a big loss. Most homeowners aren’t – or simply can’t.
Please don’t send me an e-mail reminding me that all real estate is local and your market in Salt Lake City or Charlottesville or wherever is different.
This dynamic is going on all over the country right now. And if the big slowdown hasn’t hit your community yet, just wait. It’s coming.
This is a highly mobile country. According to the U.S. Census Bureau:
- The average American moves once every seven years.
- More than 40 million people relocate each year.
- Fifteen million of them move more than 50 miles.
Most homebuyers are home sellers. If you can’t sell your home in one market, it’s difficult to buy one in another.
I’m not gloating about this, incidentally. I own two homes myself and I know that if I had to sell either one of them today, I would get a lot less than I could have a few years ago.
The Housing Market’s “Myth of the Buyer’s Market”
If you’re in the housing market to buy a home, however, get ready to discover “the myth of the buyers’ market.”
- It would be one.
- It should be one.
- But it isn’t.
- Not yet.
I expect home prices to grind lower for months… and perhaps years.
Potential buyers should look over the housing market listings in their area, but check the paper for auctions and bank resales, too. That’s where you’ll find the real bargains today.
Good investing,
Alexander Green
Editor’s Note: The Hulbert Financial Digest, the industry’s top independent watchdog, has consistently ranked Alex’s stock selections for The Oxford Club in the top 10 of the nation overall, based on their five-year, risk-adjusted return. Sign up and get all of his newest picks from The Oxford Club.
Today’s Investment U Crib Sheet
We’ve been looking at Real Estate Investment Trusts (REITs) and other income bearing investments recently.
Advisory Panelist Robert Williams took a look at one REIT that’s been bucking the trend in residential real estate. It’s been working in the face of the credit crisis, and it’s been paying its dividends like clockwork. Read more about “Bulletproof REIT Bargains.”
David Fessler explained how some investors are profiting from the bank sales and foreclosures, just the kind of thing Alex Green suggested. He showed us six residential and specialty REITs that have been carving our profits amidst the real estate carnage. Find out more in “How to Invest in the Booming Real Estate Market.”
But there are other reasons we recommend these investments. We recommend holding 5% of you portfolio in REITs. It’s part of our asset allocation model. It’s a strategy based on a Nobel Prize winning strategy, and it works. You can find out more about the “Asset Allocation Model For Maximum Gains.”
- The Housing Market: The Disappointment Of The Decade
- Housing Prices: Why Greenspan Is Right About Real Estate Investments
- Buying Real Estate: This Century’s Greatest Investment
|
The Company Set to Dominate a $60 Billion-a-Year Market
$60 billion is spent on cancer treatment in the U.S. - each year. And one company is poised to receive the lion's share of it.
The medical director at the Alta Bates Comprehensive Cancer Center says, "...possibly a third of our cancer patient population will soon be undergoing this [company's] treatment."
Another doctor at the University of Texas MD Anderson Cancer Center says he intends to treat over 1,000 patients a year with this technology.
Here's how you can claim your stake in the company before this cash infusion sends shares soaring.
One Response to “The Housing Market: Three Strikes Against Buyers”
Comments
**By submitting your comment you agree to adhere to our Comment Policy and Privacy Policy.Check out our selection of daily Investment Research:
 |
 |
Alexander Green is the Investment Director of The Oxford Club. A Wall Street veteran, he has over 20 years experience as a research analyst, investment advisor, financial writer and portfolio manager.
Investment U RSS Feed
January 27th, 2009 at 2:01 am
When the tax payers are bailing out failed companies by government officials, who are they really helping? A free enterprise works on who makes a product customers want to buy, if they don’t they fail. Someone who loans money to those who are unable to pay back, why do they expect to get paid back? Being a tax provider, should we benefit some from the failed companies and banks? So, why do banks continue to apply large interest rates to our 30/15 year mortgages? 5%-6% may not seem much, but in 15 or 30 years it does add up. It would seem to me allowing the home owner to pay a reasonable interset rate over a 30 year period would avoid a housing crisis, and a foreclosure problem. The banks continue to benefit from the interest rate, the banks don’t have to foreclose, the homeowner keeps his home, and the extra cash from lower interest rates goes into the economy, sounds like economics 101, and everyone is a winner.
The Woo
Reply