Rank: Administration
Joined: 10/7/2007
Posts: 186
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The real estate downtrend had to happen. Home prices were, and still are, way too high to be supported by incomes. So prices will fall. It's really not hard to understand, and many of us observing the housing bubble were astounded at the arrogance of "flippers." Real estate cannot be easily off-loaded, so when I buy real-estate, I like to make sure the fundamentals make sense. Flippers ignored this rule. For the record, the charts below show that the housing construction stocks (e.g., etf ITB) began their downtrend before REIT stocks (e.g., etf RWR). How low will they go? Simple - the bottom will be in when house prices are back in line with incomes. Historical data will guide the way, so I encourage everyone to post charts and data for different regions in this topic. For example, home price to income charts for various regions. Let's nail the bottom.
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Rank: Member
Joined: 10/10/2007
Posts: 11
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Admin: do you think globalization tendencies and world capitals can influence the real estate market in the US? E.g. when the housing prices are going down, at some point european investors would feel more and more interested in buying real estate in the US.
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Rank: Administration
Joined: 10/7/2007
Posts: 186
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UserName101,
Good point, as the US dollar continues to be devalued relative to other currencies, one would expect foreigners to buy US based assets with their stash of cash. However, what I don't see is foreigners buying US housing, since housing prices are too expensive as compared to the rents they would generate. Once housing drops, I do think foreigners might buy some undervalued prime real estate, but in the end, it all comes down to price to rent ratios, and since rents can only be sustained with local income, an equivalent metric is price to income ratios.
On a side note, foreigners are already buying US-based assets, just not housing. A recent article written by Peter Schiff on Financial Sense Online states:
On Monday we learned that Merrill Lynch, having just sold a $4.5 billion stake to the Singapore government, is again passing around the hat, this time wooing the Chinese and Saudi governments for badly needed funds. This of course follows similar moves by U.S. investment houses Citigroup, Morgan Stanley and Bear Stearns. These developments should be disconcerting on many levels, yet most seem unperturbed.
In the first place, the fact that troubled firms need to look abroad for cash provides startling evidence of the extent of the deterioration of America’s economic might. The reason we need to seek capital from abroad is that we squander our own on consumption.
However, these foreign investments come at great cost; specifically preferred shares that place new foreign shareholders in senior positions to existing American shareholders and burden the latter with substantial dividend payments (11% for Citigroup and 9% for Morgan Stanley). Of course, large dividend payments to foreign shareholders will only worsen our nation’s current account deficit, putting more downward pressure on the dollar and the American standard of living. Contrary to Wall Street’s positive spin of foreigners “investing in America,” such acquisitions really amount to foreigners buying up America, as our creditors take our assets in exchange for our debts.
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Rank: Advanced Member
Joined: 10/9/2007
Posts: 45
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The rate cuts and government handouts have caused a bounce in real estate related ETFs and financial ETFs. So the big question now is whether these sectors stall once they hit the long term downtrend lines. Any thoughts, fellow members?
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