Things to Know

In attempting to figure out the direction of the housing market, one needs to consider strategies of the major real estate investors.  This article from CNBC.com News gives some insight into the thinking of a few major REIT fund investors, where they feel the real estate market is headed and when.

By: Jeff Cox, CNBC.com | 02 Jun 2009 | 02:27 PM ET

After taking a beating for the past two years, real estate investment trusts are regaining popularity with investors looking for bargains and a way to capitalize on an industry rebound.

More commonly known by their acronym, REITs are funds that provide investors with a broad range of investment opportunities while delivering substantial tax breaks to the corporations that set up the vehicles.

Wildly popular in the earlier part of the decade during the real estate boom, REITs nosedived in 2006 and 2007 as the market fell correspondingly.

But recent developments over the past several weeks have sharp-eyed investors again examining REITs as a way to profit from a looming rebound in the industry.

* REIT Stocks: Long and Short Strategies

And contrary to the growing trend of investors to eschew the traditional buy-and-hold stocks strategy, REITs are being looked at as long-term plays that will stand up against expected economic trends.

* Special Report: Investor Spring Cleaning

“It’s not a play I’m looking to go into for a month or two. Over the next several years there will be opportunity in REITs,” says Joe Heider, president of Dawson Wealth Management in Cleveland, which manages more than $400 million in assets.

“The market did oversell, and if you look at the replacement costs, the net asset value of these individual REITs, and roll them up into a portfolio, that is where the opportunity is.”

But it’s been a tough ride getting here.

REITs have fallen precipitously over the past two years. In 2007, the FTSE National Association of Real Estate Investment Trusts All REIT Index fell 17.83 percent, then dropped 37.34 percent in 2007. While the index is down more than 10 percent in 2009 after negative months in January and February, March posted a 4.41 percent gain and April saw a rise of just under 28 percent.

Industry experts trace the rebound in REITs to several factors.

Over just the past several weeks publicly traded REITs have gone to the marketplace and raised more than $10 billion in equity, according to Real Capital Analytics, a New York firm that follows real estate trends. While that can be dilutive to share prices, the ability to raise cash in a market that has struggled for liquidity has been a show of strength from some of the less debt-laded companies.

There also has been an important economic trend that has fed into enthusiasm for REITs: Growing optimism that the economy is improving–so much so that inflation could be the next significant problem. Real estate is generally seen as an effective hedge against inflation as property values increase. [read more...]

During the last three weeks, in the small community of Newport Heights, Newport Beach California, five homes have been placed into escrow. They were all in the asking price range from $1,595,000 to $3,595,000. Is it possible that these buyers are also tracking the play of the major REIT investors?

For the past several months clients have been coming through my frequent open houses in the Newport Heights community of Newport Beach asking the same question- how is the housing market doing in this area? I have been telling them that the premium properties along the coast have been holding their values far better than their inland counterparts. Here is an article from the California Real Estate Journal ( by Chris Hawkins, a bankruptcy attorney ) which outlines several reasons for the stability of this isolated market segment.

But I believe another factor is that the Southern California economy is doing better than many other regional economies around the country. Here are the reasons why I believe that to be the case.

Construction and real estate are hurting here, obviously (and my colleagues and I do see a lot of clients in these fields under financial stress). But other prominent sectors of the regional economy are picking up the slack and softening the blow.

Domestic tourism, although slightly down, is still holding steady in Southern California. Many Americans who used to fly overseas for vacation are staying home due to airline prices, currency valuations and security reasons – and they are now staying domestic, and California has a lot to offer.

Many Californians who used to leave the state for vacation are staying close to home – planning “stay-cations” and taking advantage of what their own cities have to offer. Both trends are good for the local economy, as the tourism dollars continue to pour in here, providing business income, jobs and tax revenue.

International tourism is doing well. Many foreign economies have been growing mightily this decade, with China, India, Russia and Brazil leading the way. Their citizens have money and like to travel; many come to Southern California; and the currency exchange rates make our corner of the world seem downright affordable.[read more ...]

With the considerable inventory to choose from, it might now be a good time to revisit the idea of purchasing a home in the Orange County California coastal areas.

According to an article by the National Association of Home Builders builder confidence rises for the the first time in seven months.

September 16, 2008 – Builder confidence in the market for newly built single-family homes rose for the first time in seven months this September, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The HMI gained two points to 18, rising from its record low of the previous two months.

“Builders have several reasons to be more optimistic at this time,” noted NAHB President Sandy Dunn, a home builder from Point Pleasant, W.Va. “Many are sensing that home sales are nearing a turning point with the support of the newly enacted first-time home buyer tax credit. Meanwhile, with the government’s explicit backing of Fannie Mae and Freddie Mac now assured, this should help keep mortgage rates at very favorable levels going forward.”

Following the Treasury Department’s announcement that it was placing mortgage giants Fannie Mae and Freddie Mac into conservatorship last week, the average rate on 30-year fixed-rate conforming home mortgages declined by nearly half a percentage point, falling to below 6 percent for the first time in several months. Market responses to the Lehman Brothers bankruptcy filing and the purchase of Merrill Lynch by Bank of America have put additional downward pressure on prime conforming mortgage rates.

“Nearly half of the builders in our September survey indicated that they expect to see a positive impact from the tax credit in their market areas,” said NAHB Chief Economist David Seiders. “Of those respondents, 20 percent said their market has already experienced some of this effect. Meanwhile, consumer confidence has risen and more households are saying that now is a good time to buy a home. All of these factors, along with the recent downward movements in mortgage rates, suggest that new-home sales will be stabilizing in the final quarter of the year.”[read more...]