An Investment Sector We Should Continue to Avoid
Monday, July 7th, 2008
By Michael Lombardi, MBA for Profit Confidential
Being involved with real estate in one way or another for over 20 years, you could call me a “real estate man.” I’ve seen boom and I’ve seen bust in the property market. Most importantly, I am an avid researcher of past real estate cycles dating back to the 1920s.
Plain and simple, housing prices rise when interest rates decline and housing prices decline when interest rates rise. After former Fed Chairman et al. reduced interest rates so aggressively in the early 2000s, housing prices in the U.S. surged to record levels. The housing market in the U.S., as has been so well advertised, peaked in 2005.
Interest rates started to move up in the mid-2000s and housing prices started coming down. In certain pockets of the U.S., home prices have hit bottom. In other areas, they have not fallen enough. How big the boom was, and where it was, determines the bust. For example, housing prices in Florida, Nevada and California have fallen very sharply, as supply outweighs demand. In New York, housing prices in the Big Apple are off only slightly — they have more room to go down.
As an investor, if you are looking to get into the housing market to make some money, I do not believe the time is right just yet. And I believe this for two key reasons:
— The stocks of the largest homebuilders as measured by the Dow Jones U.S. Construction Index have not turned solidly up in price. Many of these stocks have stopped going down and some have even shown some strength. But as stock market investors we want to buy when a stock has hit bottom and has shown clear signs of a price rebound. In essence, we want to buy on the way up.
— Housing price trends are long-term, not short-term. Yes, you can get into the property market today at the best prices in three years, but you will need to wait years before you see those prices rise again. Don’t expect to buy today and make a profit next year or even the year after. Until all the excesses of the U.S. housing boom are worked off, until all that supply of houses on the market is absorbed, which could take years, housing prices will not rise.
Next Post: The Perfect StormPrevious Post: Current Loser Could Become Big Winner
Tags: dow jones, housing market, interest rates, real estate market, stock market
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
