The Housing Crash Isn’t Over: Here’s How to Profit
The US housing market has not hit bottom and, depending on which view you take, has quite some room to move down further. The truth is that we are still in the middle of a historic crash. However, as with such market dislocations, there are very attractive opportunities to invest and make profits if one has capital, patience, expertise, and a good plan in place.
Using data, I feel the people that are calling for a bottom are the soon-to-be victims of a massive head fake; why the nightmare has a long way to go; and how you might be able to profit from it.
Why Everyone Is Wrong – This Isn’t a Bottom
There are four items in place that are tricking people into calling a bottom, when in fact three of these items are temporary. The result is an artificial restriction of supply and artificial pumping of demand.
1) It’s the seasonally strongest buying season
2) There’s a foreclosure moratorium about to end
3) Federal tax credits offered for 1st time homebuyers
4) Historically low mortgage rates (this may or may not change soon)
Why More Foreclosures Are Coming – A Lot More
Foreclosures will continue to come as long as the job market does not get better. Also, borrowers who have Alt-A loan products will have those coming due in the next couple of years and many of the loans will not qualify for the current values resulting in their homes being foreclosed on. The result is that the market will be flooded with new supply, and without artificially increased demand, prices will continue to drop.
So How Do You Profit?
There are a few places to fish to take advantage of these trends, depending on how you see things playing out. One school of thought says that all those people being foreclosed on will have to live somewhere, and that may mean that apartment buildings see higher demand. But you’d be barking up the wrong tree. Apartment rental rates are going down. More likely, people who need a house to live in and get foreclosed upon still need a house to live in. So house rental rates will be fine. In this case, apartment REITs in the big housing bubble cities might be one thing to short.- Larry Meyers
