The National Association of Realtors last week said that pending home sales rose 6.7% in the month of April.  This represents the third month in a row that home sales are looking brighter and brighter, and that the recession may be slowing to some extent.  The report also showed that year over year pending home sales have increased by a larger than expected number.

More contracts in process means more home sales a month or two from now!  More home sales means the flood of inventory will start to contract to some extent.

Unfortunately, after plummeting to the mid 4% range, the 30 year mortgage rate has jumped substantially in the last month.  The massive amounts of government debt are piling up, and the United States credit status is now being called into question.

China has been buying our treasuries, effectively loaning the United States money to float our substantial economic recovery programs and budget deficits. However now with the credit status of the United States being called into question it remains to be seen whether or not the Chinese will continue to “float us”.  If they stop buying our bonds, interest rates on those bonds will have to move higher to attract investors.  Unfortunately this will correspond with higher mortgage rates and could squash our hopes of a near term economic recovery.

With mortgage rates at or near recent lows, many people are taking advantage of refinancing their existing loans – many opting for a longer term 30 year fixed rate mortgage.  This is helpful for the economy because it adds stability to the average homeowners largest expense and typically puts extra cash in their pocket to spend.  All in all, this is a positive turn of events.

That being said, new homebuyers are still avoiding real estate like equity investors are avoiding the stock market.  People think they can time the bottom, get the best deal ever.  It’s just not possible with the exception of statistical luck.  Things are on sale America!!!  Wake up!  We probably won’t see home or equity prices in these ranges in 5 or 10 years, and we’ll all wish we would have scooped up the bargains when we had the chance!

Markets, both real estate and equity, are always forward looking.  They don’t care what happened last week, month, or year.  So you too must be forward looking, and assess your financial plan and investments in real estate and equities with a longer term view.  Will we be better off in three years than we are now???  My best guess is “Yes”.  If that’s the case, trying to pick and time the absolute bottom is a futile course of action.

Greg

There’s a headline you probably would never have guessed. It’s good to diversify and rebalance any investment portfolio. It’s always hardest to rebalance into an “ugly” asset class like real estate (REIT’s) have been perceived to be for the last two years roughly. After all, who wanted to buy real estate over the last couple of years as valuations were sliced and diced seemingly every day?

According to the National Association of Real Estate Investment Trusts, through the first three quarters of this year equity REIT’s on average (including dividends) were up approximately 1.8%. The broader S&P 500 was down 19.3% – a better than 20% outperformance!

In the misery of the capital markets, isn’t it surprising that REIT’s were a lone bright spot? It just goes to show you market timing doesn’t work – because the time to have been IN REIT’s would have been the first three quarters of this year, when most people were OUT of REIT’s!