Why You Should Go Buy a House, Maybe Even Two

“If I was an investor that was a handy type and I could buy a couple of them [houses] at distressed prices and find renters, I think it’s a leveraged way of owning a very cheap asset now and I think that’s probably as attractive an investment as you can make now.” Warren Buffet, February 2012
 
Buying North American real estate is likely one of the best investments you can make right now.

Record low interest rates coupled with depressed real estate prices mean that housing affordability is at a record high.

Rental property owners are also sitting pretty in many areas of the country as potential buyers hold off from buying a home. Memories of the latest real estate crash are still too fresh to be easily forgotten.

This past weekend I had a drink with a friend who lives in the Boston area. He and his wife just paid a full month's rent just as a finder's fee for their next apartment. That tells me rental demand is back. And the rental property they own in Cape Cod is filling their bank account with cash, having been rented throughout the entire summer.

Certainly some markets are faring better than others. And relatively speaking the Northeast is doing pretty well. But most data shows that the worst of the real estate crash is behind us across the rest of the country too. As a result, homebuilder confidence is surging.

On Tuesday the National Association of Home Builders reported that its housing market index (HMI) leapt by 20%, up 6 points to 35. Every region in the U.S. posted gains with the West and the Northeast leading the South and Midwest.

Gains were recorded on all three variables in the HMI: current single-family home sales volume; projected single-family home sales volume for the next six months; and current buyer foot traffic.

Generally speaking a reading above 50 is bullish for home builders while a reading below 50 is bearish. Note how low this index was over the past couple of years and the dramatic increase in recent months.

We're not in bullish territory yet, but we're certainly improving. And that means now is a good time to increase your exposure to housing.

If you're still on the fence, consider the following:

The inventory of existing homes for sale has fallen to a near-normal level of six months worth of inventory...

In May 2012 builders started 26% more single-family homes than in May 2011...

And the widely followed S&P Case-Shiller Housing Index showed that prices rose in April 2012 by 1.3% after seven consecutive months of declines.

This is all good news, but by no means is this a bull market yet; it's just an improving one.

While data shows things are getting better, sales of existing single-family homes are still below 5 million annually and single-family home starts are around a paltry 650,000.

Both of these are well below historical figures dating back before 2000. And the Case-Shiller Housing Index of 20 cities, while improved in April, is still down by 1.9% year-over-year.

So what we have here is still a soft market, but one that likely has the worst behind it and is going to get better - possibly much, much better. When it does, the right real estate investments you make now should pay off.

Good Investing,
Tyler Laundon, MBA
Editor, Pay Dirt