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Why RIGHT NOW Is Deal Time in Real EstateBy
Wednesday, December 2, 2009
U.S. home prices are down 70% in terms of gold.
Everything else on the planet is up: gold, stocks, bonds, emerging markets, commodities – you name it. But home prices are down... And I'm buying. Here's why:
People buy homes based on their mortgage payments. They ask, "How much can I afford per month?" So housing "affordability" is a matter of three things: 1) home price, 2) mortgage rate, and 3) family income. Home prices have crashed, and mortgage rates are at record lows. But family incomes have held up... So falling home prices plus ultra-low mortgage rates mean homes are more affordable than ever. Take a look...
The last time home prices were even close to this affordable was the early 1970s. And you can see, home prices nationwide soared from those cheap levels. But affordability has NEVER been as great as it is right this minute! Sure it feels bad out there in real estate. But that's the feeling you need to get some truly "stupid" deals... Let's use the last big bubble as our guide... the dot-com bubble of 2000. Take a look at the chart. The story is simple...
After the Nasdaq Bust, the biggest gains were made in the Bounce... from October 2002 to January 2004. In just 15 months, the Nasdaq nearly doubled. Much bigger gains are possible in real estate. You can make bigger gains because, unlike the stock market, you CAN find absolutely stupid deals in real estate. All real estate is local... and each piece of property is unique. That's not true for, say, shares of Apple. And you would never have the chance to buy shares of Apple way below the market price. But the seller of a unique property may be desperate and ready to sell at a huge discount. Right now, the same sequence is happening in real estate as in the dot-com days: Bubble, Bust, Bounce, and then the Grind.
I believe we're in the end of the Bust and the beginning of the Bounce. This is where the deals will happen. Finding a deal now will be your only legitimate shot at making triple-digit gains in residential real estate over the next few years. But you have to do it right. You're not going to make triple-digit profits buying at market price and selling at market price. You must buy WAY BELOW market price. I expect the real estate Bounce will be meek. So you CANNOT count on price appreciation to make you your money. Instead, you have to buy at the first red star – cheap, cheap, cheap – and sell at the next red star – which is STILL below market price. Personally, I have made lots of offers... I was on the courthouse steps just yesterday to bid on a property. I've bought some property at ridiculous prices, so I can personally attest that there are extraordinary opportunities out there. What I'm talking about takes a lot of work. And I've done a bunch of homework and still not gotten a property. That's OK. Be stingy... only be willing to pay less than 50% of market price. (You can use your county property appraiser's website to see the tax-assessed value of a property.) Look, homes are more affordable than ever. But it feels bad out there. This creates your opportunity. It's deal time in real estate. Get started! Good investing, Steve
Further Reading:
What the Mainstream Headlines Won't Tell You About Housing Market NotesSILVER STOCKS: ONE OF 2009'S BIGGEST WINNERS
Time to check back in on silver stocks.
To recap, silver is among the most volatile assets in the world. It's half precious metal like gold, half industrial metal like copper... so its price fluctuates wildly along with currency fears, factory production, and interest rates. As we like to say around the office: If all assets were patients in a mental ward, bonds would be the guy who sits silently in the corner and stares out the window. Stocks would be the guy who wanders the hall and mumbles to himself. Silver would be the guy they keep in the padded room all day. The companies who mine the stuff soar when folks smell inflation and currency mismanagement. Today's chart shows this idea at work. It displays the 2009 price action of one of our favorite silver stocks, Silver Wheaton (SLW). In response to rising silver prices, SLW has gained 162% this year. If the government's funny-money scheme turns out badly, the gains made this year in SLW are only the beginning. 
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