Big Opportunity for Investors in 2011 Will Come From…

Almost one in four American homes is underwater—their mortgage is more than the value of the home. There have been several reports issued by various investment houses and research companies that predict that U.S. housing prices will fall next year again. Depending on which report you read, the forecasts vary from another five percent to 11% drop in the value of U.S. homes in 2011.

According to an excellent report released yesterday by home price data provider Zillow Inc., the value of U.S. homes will drop by another $1.7 trillion this year. This would bring the total drop in the value of U.S. homes (since the price peak in June of 2006) to $9.0 trillion.

About the most bullish I person I can find on the U.S. housing market is Doug Yearley, CEO of Toll Brothers, Inc. (NYSE/TOL), the biggest luxury homebuilder in the U.S. Toll Brothers has been aggressively buying lots to get ready for the real estate market’s comeback, which Yearley expects in 2012.

When in doubt, I check the charts. As I mentioned yesterday, the Dow Jones U.S. Home Construction Index is down 80% from its peak and shows no sign of life. Toll Brothers’ stock itself is down 68% since its peak in mid-2005 and the stock is down again this year. So, unlike retail stocks, homebuilder stocks show no promise at all right now. And this spells big opportunity for investors.

Advertisement

I’m one of those people who strongly believe that the secret to wealth building is to buy low and sell high. More specifically, buy when no is buying and sell when everyone is buying. Call it contrarian investing or whatever you like. This strategy has always worked for me. (I was especially a buyer of gold-related investments in 2002. when major world countries were selling their gold inventories because they thought the metal was dead forever.)

Looking ahead to mid-2011, I see more pain for the housing market. I see banks foreclosing on the remainder of the bad mortgages they have on their books, more foreclosures coming on the market, fewer new home purchases (already at record lows), and more consumers walking away from their “underwater” homes. On the other side of the coin, I see a huge buying opportunity for investors.

That opportunity may come in the form of great deals on buying homes for rental, vacation or other personal use purposes. But the best deals for investors looking for liquidity and profits will be in the homebuilder stocks. Mid-2011 may deliver an unprecedented opportunity for investors to get into the homebuilder stocks…and I’ll be there to tell my reader when I start buying these stocks myself.

Michael’s Personal Notes:

I’m waiting, waiting, waiting to buy more gold and I think I’m getting close.

My strategy over the past few years has been to buy more gold-related investments when the metal’s price corrects from an elevated price high. This trading strategy has served me well over the past eight years. As simple as it sounds, my strategy has been to buy more gold-related investments when gold pulls back either $50.00 or $100.00 per ounce from a recent high.

Gold bullion reached a new record price high on December 7, 2010, at $1,420.00 per ounce. Gold closed yesterday at $1,391.25 an ounce, just $28.75 below the recent high. I’m waiting for gold to fall to $1,370 per ounce again, at which point I would be a buyer. I would also be a buyer at $1,320 an ounce again in the event of a greater price correction for bullion.

Will gold get down to $1,370 an ounce? I think it will. There never has been a bull market that has just gone up in a straight line. All bull markets correct along the way up. Who knows? Maybe gold will move to $1,450 an ounce, then back to $1,400—at which point I will be back in buying. I’m buying gold on price dips on the way up, which is my key point. Hopefully, my readers are doing the same thing.

Where the Market Stands; Where it’s Headed:

I must have a lot of patience. I’m sitting here waiting for gold bullion to correct to $1,370 an ounce, so I can buy more. I’m also sitting here waiting for the Dow Jones Industrial Average to cross over 11,451, so I can say, “See, I told you it would happen.” Money grows on trees of patience, so I will have to wait a little longer.

The bear market in stocks that began in March of 2009 is alive and well.

What He Said:

“For the economy, the message from retail stocks is quite clear: consumer spending, which accounts for roughly 70% of U.S. GDP, is in jeopardy. After having spent like “drunkards” during the real estate boom years, consumer spending is taking the same trend as housing prices, slowing down faster than most analysts and economists had predicted. As news of the recession continues to make headlines in the popular media, the psychological spending mood of consumers will continue to deteriorate, lowering earnings at most high-end retailers and bringing their stock prices down even further.” Michael Lombardi in PROFIT CONFIDENTIAL, January 28, 2008. According to the Dow Jones Retail Index, retail stocks fell 39% from January 2008 through November 2008.