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Investing during the housing slump

The slowing housing market has deterred many people from investing in any sort of real estate.

Although the market is slowing there may be some smart ways to invest in housing right now.

The August 15, 2006 article, “5 smart bets for the housing slump,” by Business Week, and featured on MSNmoney.com, gives some great strategies for investing in real estate stocks during this slow time.

“If you didn't buy a house while prices in Las Vegas zoomed 46% in 2004 and 15% last year, maybe you felt like a sucker. And given that the Standard & Poor's Homebuilding Index has skidded nearly 38% so far this year, you probably feel lucky if you don't own real estate stocks. But are you brave enough to bet against conventional wisdom and buy real estate stocks now? Even if you are, bear in mind that it's hard to find five stock picks in real estate now. And forget about finding short-term slam dunks for investors. Yet there are a handful of ways to approach real estate's up tick -- whenever it happens.”

The article gives some important tips on who to place your money with and what signs to look out for.

The first tip they give is to be long term in your decisions and approaches. “ Mark Zandi, chief economist for Moody's ( MCO, news, msqs ) Economy.com, predicts existing home sales will fall this year, next year, and again in 2008. Same for housing starts. He figures U.S. home prices will rise 4% on average this year (compared with 13% in 2005), and 1% in 2007 and again in 2008.”

They also say that you should watch out for the company Cendant, which has now split into multiple corporations. The one that matters is Realogy. They are the world’s biggest real estate franchiser and own Center 21, ERA and Coldwell Banker brands.

“The interesting thing about Realogy is it can serve as a proxy or neo-index for the housing market. If you think housing's decline will be manageable followed by an eventual resumption of a long-term secular trend, Realogy is a good place to be.”

Looking for stock companies in key geographic locations is essential to investing wisely.

“Look for companies with more exposure to markets that have not had big run-ups in housing prices and less exposure to markets where prices have skyrocketed and will most likely come down. In other words: more Texas and less Florida.”

The second to last tip they give when investing in real estate stocks during the housing slump is to not chase performance. The example they give here is about REITs and how they have been doing well but are probably not going to stay that way.

The last advice this article puts forward is to look for the big names.

“Big brands gain share in real estate recessions -- and this is especially true in home building, where access to capital and the ability to hold on during tough times play such a large role. But it's also true for brokers. You can probably buy the leaders a year from now and get them at least as cheaply as you can at present. But the housing recession isn't a depression, and there will be a big, vital industry left standing when the storm passes. So the best thing to do is watch for the companies that are built to withstand the downturn and grab more market share while sales shrink. They're the ones that are likeliest to zoom when the economy puts some wind back in their sales -- whenever that is.”

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