March 17, 2010

What Does the Stock Market Have to Say About Housing

Real Estate Investment Trusts
REITs are investment vehicles that trade like stocks or bonds.
Looking at the REITs and the various real estate sectors can help us understand the underlying real estate trends we work with.

REITs have spent the past year raising money. All the sectors have been seriously damaged and therein lies the opportunity. REITs that have been able to raise money  are positioned for opportunistic buys. Cash heavy REITs wont have to rely on banks for loans and are waiting for banks have to unload non performing loans.These are going to be the winners here as some banks can no longer hold back on foreclosures. Stock market investors will often try to pre position themsleves, to buy before the rest and hope to reap greater profits. They arent always right and they can certainly be too early.
REIT Sector Performance
  1. Regional Shopping Malls: Up 11.9% in February
  2. Shopping Centers: Up 8.9%
  3. Apartment Sector: Up 8.4%
Given that many of these same sectors dropped 20-25% this time last year, its another sign that investors are beginning to think the worst may be over. According to the recent Price Waterhouse survey: many commercial real estate investors who held investments, overleveraged, or bought late in the cycle now face struggles because 2010 is expected to present many challenges as capital remains limited, rents continue to decline, and vacancies. But even with these snags, the firm says next year will be a great time to buy commercial real estate assets.
The Price Watehouse survey goes on to note that Next year should open the gates on distressed properties as more community and regional banks fail and the Federal Deposit Insurance Corp. sells their assets. Surviving banks will keep their best performing commercial real estate loans alive but foreclose on the rest as their loan-loss cushions allow. Sounds like bottoming to me...
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