There are some old investment sayings worth noting: 1) They don’t ring a bell to tell you when we are at a top (or bottom); 2) Things often look worst at the bottom and best at the top; 3) Be positive at times of most fear and cautious at times of great exuberance.
It is time to examine where we are in the real estate cycle and the banking crisis, given recent strong signs of a recovery in both. Interest rates remain absurdly low and will likely stay that way for a long while. Real estate prices remain depressed in many areas, with the fear of foreclosure inventory swarming the market holding many would be buyers back. Bank balance sheets gradually improve, and amidst all the valid complaints about the bail-outs and subsequent lack of banking lending, the truth is that their financial positions are beginning to show renewed strength. This will lead to more lending, particularly given the onslaught of outside pressure to stop the simple process of borrowing from the government at zero and lending back those dollars at 3%. Such an easy business.
In earlier blogs I mentioned the coming rebound in housing stocks, citing in particular the positive comments from Pulte. This view is gaining strength in the investment community, as more lean and mean builders begin to see upticks in many markets. And housing-related stocks are surging higher.
Someone needs to be bold enough to just say that things are getting better, and that the improvement is likely to continue. So let me be the first: things are getting better and are likely to improve.
In residential real estate in Northern Virginia (and I sense in other areas, but that is my focus of expertise), the surge in rents and spot shortages of rental units has dramatically shifted the “rent/buy” equation in a way that is likely to not only contribute to a positive reversal in real estate sales and values, but to create a suddenly recognizable shift that feeds on itself and creates a jump in prices, possibly as soon as this spring. In particular, be positive on properties in places like Reston (further boosted by the imminent opening of the Silver Line metro), Arlington, Alexandria… draw an area geographically depicted by creating a funnel from Arlington to Loudoun County, bordered by the Potomac River and Route 66. This is the Fertile Crescent of NoVa real estate and economic growth.
The environment for an immediate turnaround is firmly in place: media skepticism; malaise commentary from politicians in an election year; public outcry to “do something” now. The likely result: easing monetary conditions, more efficient companies, keen investors jumping on opportunities, as others seem crippled by fear and uncertainty. This is common at the bottom of any market.
There is a turnaround in banking and real estate in progress. Someone needs to point that out to you. I just did.
Chartered Financial Analyst (CFA)