Yesterday I posted an article on my facebook page about how banks were building a real estate empire of foreclosed homes. As we all know, banks are in the business of making loans, not owning and managing homes. Although home prices have dropped considerably, the housing crisis is still alive and well. Here’s a graphic from the article that will help you to visualize the foreclosure crisis:
The way I invest is to prepare ahead of time for what I see coming so I can pounce when the time is right. For quite some time, I’ve felt a short-term bottom in real estate would come in the winter of 2011 or some time in 2012. Right now I’m preparing. If the situation in housing changes for the worse by 2012, I will have lost a grand total of 0 dollars. I trust in my ability to change my mind according to the facts without being personally attached to one point of view.
All of this bearish news for housing is actually bullish to me. Think from the bank’s perspective. There is this huge backlog of properties that they can’t possibly manage. Every single day that passes they lose money because there are costs to carry these properties. So under these circumstances, banks are highly motivated sellers. Therefore, the more supply of houses banks have, the more bullish I get on real estate as an investment.
Baby Boomers Hold the Key
I try to think from the perspective of Baby Boomers because I understand that they will drive key political and economic changes. A large majority of my readers are Boomers, which makes sense to me because the type of things I say resonate with people who have been around the block. I don’t have time for BS. Because a large majority of my readers are Baby Boomers, I am even more inclined to think about how this crisis will affect them. Baby Boomers have done a lot for this country, and they deserve more than to watch our politicians spend our country into bankruptcy.
I generally feel bad for Baby Boomers because they’ve seen America rise to the pinnacle of power only to witness the fall. I also feel bad because they have paid into the Social Security system, and I can say with 99.9% assurance that they will not get 1:1 on their investment. More likely than not, Boomers will need to find other sources of income to survive. That’s where real estate comes in.
If I lived in a major city that didn’t experience quite that large a drop in prices, I would sell into the coming bounce and trade down to a distressed market. In theory, you can buy multiple properties for the price of one. You can live comfortably in one of the properties while renting out your other properties for a yield greater than that of a government bond. When you’re retired, you’re concerned about the safety of your investment. The government can print more money and more bonds, but they can’t “print” more homes. Sure homebuilders can overbuild, but are they not paying the price for their imprudence right now? This kind of recalibration of supply and demand happens in freer markets; it doesn’t happen when the government controls a market.
Boomers, you have to be proactive. I would not have more than a very small portion of my portfolio in U.S. Treasuries. Once peripheral European countries experience their crises, the stampede out of U.S. government debt will be on.Follow