Writer and analyist Brett Arends of MarketWatch has heard all the negative news in recent months about the housing market, but he is finding it difficult not to be positive. Here are his comments from a recent article he wrote:
…when it comes to distressed housing, I’m finding it hard not to be a contrarian bull.
Why? Am I crazy?
Well, maybe. But I’m a medium-bull for all the reasons everyone else is gloomy.
First, prices in many areas are now cheap. They have corrected a long way since the bubble began to burst five years ago. Of course, it depends on where you are.
But in the places that have fallen the furthest, there are deals aplenty. Zillow found only four metro areas in America that have leveled out, or risen, lately. Notably, two of those are in stricken Florida — Fort Myers and Sarasota. Have they fallen so far they’ve hit bottom? Maybe
Look at this chart. It shows Miami real-estate prices, adjusted for inflation, over the past quarter-century, using Case-Shiller data. The picture is pretty remarkable. The gigantic bubble has been completely wiped out. We’re back to prices seen in the 1980s — when “Miami Vice” was on the air.
The second reason: There are tons of foreclosures and short sales on the market. And there are plenty more sitting in the wings. Banks are holding back big shadow inventories of homes. And that means you can get a great deal. They have to sell. You don’t have to buy. You hold all the cards. Remember, the name of the game isn’t “let’s make a deal.” It’s “take it or leave it.”
Third, in many places rental yields are terrific. It’s cheaper to own than to rent. There have been some forced sales in my building in Miami. Based on my math, the latest buyers have bought condominium units for six times gross annual rents, and maybe 12 times net rents. We’re talking net yields of 7% or more. And rents are rising, because so many former owners are now renters.
The fourth reason I’m bullish is that you can get a very cheap mortgage. Thirty-year conforming loans are going as low as 4.3%. Throw in the tax break on the interest, and you are talking cheap finance. See latest weekly mortgage-rate update.
The fifth reason is that, as painful as this collapse has been, real estate has historically proven to offer very good long-term protection against inflation. Returns have typically averaged about 1% or 2% above inflation. At a time when everyone has been piling into gold, commodities and TIPS bonds to protect themselves against the possibility of inflation, it seems odd that the most popular and successful hedge, namely real estate, goes a-begging.
The sixth reason I’m bullish is perverse, but I’m sticking by it. Everyone else is bearish. You cannot find a real-estate bull anywhere. No one wants to own this asset. No one wants to talk about it. No one wants to hear about it. Everyone seems to agree it’s just going down, down, down — forever.
They said much the same about stocks in 1987, 2002 and 2009; Treasury bonds in 1982; and gold in 2000. I cannot prove this is capitulation, but it sure smells something like it.
As ever, if you aren’t disciplined and patient, this probably isn’t for you.
I have absolutely no idea when real estate is going to hit rock bottom. It may take several years. I suspect it will do so in different markets at different times. But there are good homes out there going really cheap. If you hunt down the bargains, you’re disciplined about price, you get the right financing, and you hold on for five years or more, you’ll probably do pretty well from here.
Mr. Arends probably wrote one of the best thought-out reviews of the market I have seen. Many other articles touch on one or two of the points he covered, but I believe he laid out the case very well for homebuyers who intend to own for 5+ years to purchase now. Certainly, when the Time Magazine cover reads “now is the time to buy a home”, it will be too late to get cherry pick a great deal on one of the better homes in the neighborhood you like.
To read the entire article, go to: http://www.marketwatch.com/Story/story/print?guid=458F94AE-77F7-11E0-B3F3-00212804637C
Scot Campbell is the President of The Scot Campbell TEAM at Coldwell Banker-Campbell Realtors in Huntington Beach, CA. He has been a licensed broker for over 21 years and has brokered over 1000 homes and just about every type of transaction imaginable. View his website: www.RealtyDigestOnline.com He can be reached at 714-960-0700 at the office, 714-336-0394 on his mobile number or via email at Scot.Campbell@ColdwellBanker.com