Financial Markets and The Housing Sector

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Financial Markets and The Housing Sector

Financial Markets and the housing sector in particular can be a scary place to be in these crazy times, but there is a ton of money being made every day by savy investors. Unless you've been lost on a deserted island over the last two years or so, you've probably heard about what's going on in the financial markets out there. The government stepped in and finally approved a bailout bill to take all of the bad debt and non- performing mortgages and paper off of the books for so many banks and companies that drive our economy. And regardless of whether you agree with their plan or not, it was a necessity. It was actually the lesser of the two evils. I firmly believe that the markets would have "eventually" corrected themselves, but not until after a long drawn out period of recession that was inevitable.

Now that they are working on a plan, finally, to make the banks allocate the funds to stimulating the economy, and not paying bonuses to executives, we should start to see some relief over the next several months. The government is now playing with the idea of a government owned "bad bank" to handle the non performing paper that's out there. And Obama will eventually have a tight grip on how these corporations are using government bailout funds. With the bad mortgages taken off of the books, the banks credit rating goes back up, they actually have money in reserves again, they have working capital, and they can actually put mortgage money back into the housing sector for home buyers and investors. Personally, I think a lot of this bailout money should actually come from money already stashed for some of these exec's parachute retirement plans and exit packages.

Anyway, that being said, this situation has made the stock market and equities a terrible place to be. The Dow Jones industrial average dropped below 10K on Monday Oct 6th, for the first time since 2004, and continued to drop until it finally got some support around 8K. 8K! When it was at 14K just a year and a half ago. Most experts continue to believe that the stock market will continue to rise and fall irradically for the next 2 years or so. It has continued to float around 10K or so for the last few months. You have to understand what's happening there. So many people have lost so much money in the financial markets that they're trying to time the market and make some of it back. Volatility is a scary, scary thing in the markets, but it also creates big swings to the up and down side, and with that, some think, opportunities to make a quick buck. But, most times they wind up pulling their hair out and losing more money. Anyway, with all of the volatility in the equities market right now, people are scouring their options to find a safe place to put their money. What's left of it.

So who will the real winners be in all of this? The smart investors that are buying depressed real estate right now, will come out of all this ahead of everyone else. Why? Because real estate will always be the long term winner. There are deals being had right now in the housing market that are unprecedented in history. Let's look at some of the facts.

** Foreclosures are everywhere. Let's face it, it is what it is. This is a huge opportunity for those that are capable and are looking for a real return on their money. Depressed real estate presents an opportunity for those that are smart enough to go get them. You always make you're money when you buy. You may not capitalize on it until it's sold, but you always make it when you buy.

** All other properties on the market are priced very attractively and provide unbelievable value just because of conditions in the economy. Properties don't have to be foreclosures to offer fantastic value. With so much real estate on the market right now and fewer qualified buyers, the opportunity is there to capitalize like never before.

** The tax advantages, long standing and new tax advantages, because of incentives put in place by Bush, make real estate an even smarter place to put your money than it's ever been before.

** There is an abundance of good tenants right now, simply because alot of them don't understand the market or can't qualify for the mortgage they want. Renting an investment property is more viable than it's ever been before.

** Some of the foreclosure deals out there are so good that you don't necessarily have to rent the property. You can rehab it and put it back on the market. And all of this is before the majority of the military re-alignment buyers/tenants start to come in next year. After a year or two of renting the property, the profit potential in the market value of the property may be so good that you decide to cash out. After a year and a day, your capital gains drop considerably on real estate.

** Let's not forget about the area that we all live, work and play. The Sandhills has produced steady appreciation long term for years. Solid appreciation. People are dying to get into this housing market as soon as possible. Perfect climate, small town feel, great schools, shopping, restaurants, golf capital of the US, and controlled growth means no big city problems. To say that finding all of this in one location is rare, is an understatement. Appreciation will continue to grow solidly over the next 5-10 years here, just because of the community in which we live and the fantastic people that have already found it.

** If you're a builder, it's still a great time to build. You just have to be in the right areas and price points, to stay attractive to the masses and most active potential buyers. And I'll tell you this now. If you don't have product already started, out of the ground, chances of you selling a home are drastically reduced. Buyers, in this current economy, have become increasingly wary of building and buying a custom home. They want to see it and touch something before they commit. Build the right spec, in the right location, and in the right price point. Look at sold comps for that neighborhood within the last 3 or 4 months, and what's sitting on the market in that neighborhood, for the right indicators and to find your niche.

** If you're an investor, you're going to start to see the banks loosen up a little bit eventually. Those "lines of credit" that have disappeared over the last year or so, will start to come back into the picture. As this bailout plan eventually starts to put money back into the financial markets and the stock market continues to try and rebound, you're going to start to see more and more buyers show up that have been waiting in the wings. Waiting for their opportunity to buy that home they've been looking at online, or watching the progress of, as it continues to be built. And if you come across a potential multifamily property(condos/apartments) that's manageable, take a long hard look at it. When you have an asset like this that generates higher cash flows, it can change your whole financial outlook.

** If you're a first time home buyer, and you have decent credit, There really couldn't be a better time to buy. Bush has instituted a $7500 tax credit for first time home buyers, if you buy before June/July 2009. You're buying at prices that haven't been seen in quite some time. There are some overpriced properties out there, just because a lot of homeowners got themselves in a pinch by leveraging themselves too much. Know the areas that you're looking at, and consult with a professional for advice on market values of the property that you're looking at and on finding a qualified mortgage professional that will go over all terms with you.

** Last but not least, let's not forget about the military population that are still coming and have not slowed up. They have orders and they have to be here. The first big chunk of the population will start to come in early 2009 and continue to grow for the next 3-5 years. It doesn't matter whether you're renting to them or if you're selling them a home that you've been holding as an investment, the picture really is bright. Military clients have accounted for some 50% of the real estate that we've sold this year at Carolina Property Sales. The other 50% are investors, first time home buyers, and downsizers.

All of this makes real estate an invaluable addition to your portfolio, short or long term. Timing IS everything.

Unfortunately so many people forget the old adage "Buy Low, Sell High". Why do you think Warren Buffet has invested some 15 Billion dollars over the last 2 years in GE, Goldman Sachs, and other failing companies, etc? Because he knows the payoff will be phenomenal. He's been doing it for years. Wait for the bottom to drop out. Step in and buy it when it's cheap. That's Why Berkshire Hathaway A shares are around $125,000 a share, and why most feel he's an investing god. Buy Low, Sell High.

You're doing the same thing with real estate, just working with smaller numbers. And capturing some fantastic benefits along the way. So if you're looking for somewhere to put your money, don't overlook the real estate sector, and don't misread this downturn cycle of the markets. It's been doing this, in cycles, for years. The financial markets and the housing sector still holds opportunity.

The winners of the future will be the ones that step in with their own "Homeowner Bailout Plan

Scott Riggsbee
Broker/Realtor
910-528-6367

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