Smart Money

Real Estate: Finally a good investment?

The housing market still looks pretty bleak: There were a record 1 million foreclosures last year, home prices are still falling in many regions, and the number of “underwater” properties is at a record high.

And things don’t look much better in other areas of real estate. The number of construction jobs continues to decline, even as other parts of the economy have added jobs. And mortgage rates have moved higher as long-term Treasury yields have backed up during the past few months.

Basically, the real estate market remains a mess.

Real estate encompasses a wide range of markets – homes, apartments, hospitals, office buildings, strip malls, dormitories and other properties. But for our purposes, let’s focus on residential real estate, or homes. Here are four reasons to think residential real estate might represent a bargain – with one big caveat.


• Everyone hates homes – When the housing market is in the doldrums, people tend to avoid thinking about the value of their home. Sellers complain they’re not getting offers and buyers bemoan the strict lending requirements. However, prospective buyers should be contrarian and take advantage of a down housing market.

• Smart people are buying real estate – A prominent hedge-fund manager said in a speech last fall: “If you don’t own a home, buy one. If you own a home, buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home.” He believes that interest rates and home prices will rise this year, so real estate bargains won’t last much longer.

• Real estate performs well during inflation – Convention says Treasury Inflation Protected Securities, commodities, and real estate do well in an inflationary environment. Real estate performed well during the period in the 1970s, when persistent inflation and high unemployment occurred.

• Demand may be coming back – Job creation and getting people employed are the two major factors in the housing rebound. There’s much debate about when the job market will recovery. Optimists say the recovery will happen this year, while pessimists say it won’t happen for several years. Read the full story

CNN Money

Existing home sales jump 12 percent

Sales of existing homes jumped in December, marking the fifth month of gains in the past six months, based on an industry report released Thursday. Read the full story

New York Times

When mortgage rate locks expire

As mortgage rates have edged higher, many borrowers have been locking in loan rates for a home purchase or refinancing. Read the full story

USA Today

Credit scores get easier to track down and less secretive

You may be a pillar of your community, admired by your colleagues and beloved by friends and family, but if you have a mediocre credit score, you probably won’t be able to get a decent interest rate on a car loan, mortgage, or credit card. Read the full story

San Francisco Chronicle

CalHFA mortgage aid program for jobless begins

On Monday, more than two months behind schedule, the California Housing Finance Agency will begin taking applications for a federally funded program that will give some unemployed homeowners up to $18,000 each over six months to pay their mortgage. Read the full story

Los Angeles Times

Home seizures by banks decline in state

Fewer Californians grappled with foreclosure last year, bucking a national trend and giving homeowners fresh hope that the state’s housing market could be on the mend. Read the full story

What You Should Know About The Market:

  • Historical data from the National Association of Realtors (and adjusted for inflation by show that in 18 of the 25 largest metro areas in the U.S., the value of homes purchased in 1990 had increased by 2010, often by double digits. And this in a year when real estate prices around the country have softened since their peak in 2006. These houses would have been worth even more a few years ago.
  • In an analysis of the country’s 25 largest metro areas, found that the Portland, Ore., area had the largest real price gain since 1990, with the median sale price in this year’s third quarter ($242,100) up about 85 percent over 1990, in inflation-adjusted terms. Home prices in the Denver, Baltimore, and Seattle areas also made gains of more than 50 percent in that period.
  • Yet in some other markets where homeownership skyrocketed during the housing boom, inflation-adjusted prices have fallen so dramatically that they are now below 1990 levels. Real prices in the Atlanta metro, for instance, are down about 21 percent compared with 20 years ago, and in Sacramento they are down 19 percent.
  • After recovery from the housing bust, home prices are expected to settle into a price-growth trend that’s slightly higher than inflation over the long-term. So in that sense, housing is still a long-term investment with a positive yield.