Other than the stock market, investing in real estate has always been a great avenue or an alternative way to make money. Whether it is via your principal residence or through the purchase of investment property such a house, building, or multi-dweller residence, opportunities to invest in real estate will occur through time. You just need to be aware of this possibility.
The best thing about investing in real estate is the leverage impact of the initial investment, which is why real estate can be such a good investment. For example, say you put 10% down and bought a $500,000 house following the real estate market collapse in 2008. The real estate sector has been rallying higher since and has resulted in massive gains in real estate prices. Now say the house is now valued at $800,000. This means your initial $50,000 down payment generated $300,000 in profits, representing a profit margin of six times the initial payment.
The aforementioned example clearly shows the significant advantage of buying real estate due to the leverage. Imagine buying multiple properties and watching prices rise. Of course in a rising real estate market, you will see speculators who buy and subsequently sell the property for a gain. At this time, the real estate is showing some resistance. Investors should look for weakness in real estate as a potential entry point to buy real estate. They can also consider buying real estate via the stock market through real estate stocks or exchange-traded funds.
There are two key variables that continue to hamper the country’s economic renewal—the housing market and jobs growth. Unfortunately, while both are showing some encouraging signs, I feel it will still be several years before we see sustained strength in both. Without jobs or the confidence of getting a job, you cannot expect people to buy houses.
The housing market is clearly better than it was when the subprime mortgage fiasco led to a downfall in theU.S.economy and sent the unemployment rate spiraling higher. Yet we continue to see home prices decline across the top 20 metropolitan cities in America.
In November, housing starts came in at seasonally adjusted annual rate of 685,000 units, according to the Commerce Department. The reading was the highest since April 2010, but still well below the monthly one million plus housing starts that make up what is considered a healthy housing market.
Building permits of 681,000 in November were also ahead of estimates; but again the number is far below what is widely deemed to be a healthy housing market.
What the readings offer is some hope of better readings to come, albeit as I said, we also need to see a concurrent strengthening in job creation to drive a strong housing market. With strong jobs growth, consumers become more confident in buying homes and big-ticket items. Unfortunately, this has yet to happen and I feel it will not be until at least 2012 and 2013 before the situation in the housing market improves.
A strong housing market is critical for the retail sector as homeowners will tend to buy new furnishings, including many … Read More
The Dow Jones Transportation Average is now showing some real strength around the 4,500 level. This important index got hammered quite significantly. It dropped about 1,000 points since the beginning of July and you can see this in many of the railroad stocks that dropped like a stone when the broader market began to correct.
Smaller companies are the backbone of the economy, but they are also the ones that struggle the most when the domestic economy isn’t growing. Accordingly, domestic small-cap stocks should have a more difficult time than larger companies that can “pad” their earnings from international operations and a weaker dollar. This is why I expect the Dow Jones Industrial Average (DJIA) to outperform all other major home indices going forward.
As I have been saying, housing continues to be a cesspool for capital. The latest reading from the S&P/Case-Shiller Home Price Index of 20 major metropolitan areas in the United States continues to show declines, which, in my economic analysis, is not good.
It will take a bit of good fortune, but I think the S&P 500 Index can achieve 1,500 this year. We’ll likely get a correction or some sort of prolonged consolidation in the not-too-distant future and, barring any unforeseen shocks to the system, the stock market should reaccelerate due to continued growth in corporate earnings.
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