The Future Of Real Estate In America

By Mark Whistler | January 06, 2009 AAA

Without a doubt, Suze Orman is one smart cookie, well versed in matters of personal finance. Some may remember her email segment with Jeff Gurnari, the stage director-turned-email-editor "sidekick". Now Gurnari has embarked on another path (though he is still keeping his feet wet at Fox News Network and Fox Business Channel, stage directing such shows as "The O'Reilly Factor", "Geraldo at Large" and "Hannity and Combs". Here, Gurnari provides readers with information on why he is making the transition into real estate and what he sees within markets for the months and years to come.

Where Real Estate Is Today
No matter how one tries to slice the news, overall, real estate did not perform well in 2008. On December 15, the NAHB Housing Market Index showed readings near record lows. In detail, the report indicated the Housing Market Index at 9, down more than 50% from May of the same year. What's more, expected single family home sales for the first six months of 2009 declined in December to 16, a 38% decrease from prior year numbers. Sounds wretched, right? The numbers have been nothing but dismal throughout the past 12 months, but there is a silver lining.

In the fourth quarter, the Federal Reserve announced that it planned to buy up toxic mortgage debt while also lowering rates for consumers. What's more, there's talk that the U.S. Treasury has similar plans in the works with target interest rates for mortgages in the 4.5% area. More on this in a moment... (The Federal Reserve doesn't interfere with the economy every time it flounders. Be sure to read The Whens And Whys Of Fed Intervention to learn more about how this body tries to help a failing economy.)

Four Cities With Largest Housing Price Declines
Looking into the NAR Metro Housing Prices Report released in November, Q3 housing prices declined 9 percent year over year. The largest declines came from Los Angeles (down 35.1 percent), Las Vegas (down 28.3 percent), San Francisco (down 25.3 percent) and Washington, D.C. (down 23.9 percent). Overall, investors can expect another dismal housing prices report (due on February 12) for Q4 2008. However, with price declines also come affordability and opportunity.

Coupled with declining interest rates and the government's pronounced efforts to spur housing again, real estate could actually now be in the "bottoming phase", potentially even seeing a start in recovery by the final two quarters of 2009.

Lower Interest Rates Prompted Refinancing
According to the MBA Mortgage Applications Survey (released December 26), the composite index increased 193% from the final week of October to the third week of December. It's important to note the REFI index increased almost 424 percent while the purchasing index increased a mere 12.6% in the same period. Clearly the Q4 decline in interest rates prompted significantly more refinancing than actual buying. Obviously, the decline in the 30-year rate from 6.4 percent at the end of October to the present 5.25 percent has helped significantly.

The question at hand now is whether those who are attempting to refinance (even with low interest rates) will actually be granted loans at reasonable rates, given tight credit conditions. At the end of the day, though, low interest rates will help many who need lower housing payments to stave off foreclosures.

While the purchasing index is not showing massive gains right now, refinancing at lower rates will prevent many "fire sales" of homes, thus helping to stabilize inventory numbers. With housing prices having fallen dramatically, as inventory stabilizes in the first half of the year, opportunity-hungry buyers could begin wading back into markets. Thus, we could begin to see the purchasing index begin to recover as well.

Second Half Of 2009 Could See Stabilization
With all of the aforementioned in mind, it's obvious that real estate has taken a massive hit, with many unfortunate homeowners having fallen victim to foreclosure. While recovery won't happen right away, the second half of 2009 could see stabilization within housing markets and perhaps even the first seeds of recovery break ground into daylight.

Going back to Gurnari, we now gain some additional "expert insights" into what we might expect from housing.

What Jeff Sees Within Real Estate
It is important to note that Gurnari primarily sells real estate in New Jersey and New York, which have both been reasonably more resilient than other markets like Los Angeles and Las Vegas. According to the NAR Metro Housing Prices Report, New York prices declined a mere 5 percent compared to double-digit declines in other major cities. Commenting on New York's resilience, Gurnari said, "New York still draws people from all corners of the globe and is considered, by many and for a wide variety of reasons, to be the world's greatest city. The tri-state area (New York, New Jersey and Connecticut), as a whole, has proven to be a solid real estate investment."

Given that Gurnari left the Orman show for real estate, one has to wonder if the move was purely motivated by the amazing opportunity at hand within real estate. Specifically inquiring as to whether Gurnari sees recovery in 2009, he said, "I felt this was a great time to enter the real estate game, the perfect time to educate and ready myself for that, hopefully sooner than later, market turn-around ... a positive change in direction is inevitable ... 12 to 18 months at the most!"

Looking at the nation overall, Gurnari said, "Depressed areas may not recover fully and we may not see a 'boom' as of the recent past, but homeowners will once again gain confidence in real estate."

How To Position To Profit From A Recovery
Finally, when I asked Gurnari how consumers would best position themselves to profit if a larger real estate recovery does ensue, he replied, "Patience...When it comes to making money, the real estate market always favors one side. Sometimes it favors the seller and other times the buyer. If and when you find yourself on that 'favorable side', be patient, do your homework and take advantage when the timing is right for you. Overall, investment properties, i.e. multi-family homes/rental properties, are key to longterm stability."

Clearly, the downturn in real estate over the past year could open the door for savvy real estate entrepreneurs like Gurnari, but also for the average homeowner who understands the larger situation at hand.

Consider Real Estate ETFs
Should real estate actually begin to recover, stock market investors could profit from several real estate ETFs that have been beaten down significantly over the past year. Of merit, the iShares FTSE Real Estate 50 Index (AMEX:FTY) declined almost 45% in 2008. What's more, First Trust S&P REIT (AMEX:FRI) declined more than 40% in 2008 as well. Both of these ETFs could benefit in 2009 should real estate recover.

Investors may want to look for bullish action in the SPDR DJ Wilshire REIT (AMEX:RWR) as well. Continued price decreases would indicate consumers aren't convinced that it's time to start buying. However, prices beginning to stabilize and (gasp!) climb could provide a great buy for Wall Street investors willing to take on a little risk.

To learn more about using real estate in your investments, be sure to read our related articles Add Some Real Estate To Your Portfolio, and Investing In Real Estate.

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