Macro Trading the Housing Market

Over the last two years we have all seen the devestation in the housing market.  In fact some people reading this have likley been foreclosed on and driven from what is now the banks home. So what can you do now to profit from the housing crisis?

Well lucky for you the crisis is far from free and clear.  Although it is slowing down foreclosures are still on the rise and recently hit a new all time high.  On top of al the problems with residential real estate we have the newly started commercial real estate crash which is just getting going but is predicted to be really bad over the next few years.  Bascially real estate is still a minefield or a battlezone if you will but like any great crisis there are plenty of opportunities to profit from it all if you know where to look.

One of the first things you leanr when researching real estate is that location is first second and third in order of importance, the saying actually goes “location, location, location.”  If you are looking for area to invest your hard earned money one of the best tools is that of the Case Shiller housing indexes.  They cover 20 different cities and allow you to find the strong and the weak markets.  Most real estate speculators should probably shy away from the middle of the road performers as they dont have the stability of the top performers, nor the potential of the bottom performers.  By only looking at the strongest and the weakest markets you will have a better chance at coming out ahead.

Your next step after finding an area is to go to a good real estate broker and find the good neighborhoods that are getting whacked by foreclosures.  Many of these homes are in relatively new and nice areas, exactly the areas where you likley will want to own a home ten years from now.  Now look at interest rates and what type of rate you qualify for.  Personally we think you should try multiple lenders and even look at some alternate financing vehicles in order to ensure that you are finding the best possible rate and financing package.

Right now (mid 2009) rates are still realtively low on a historical basis but are all but guarenteed to go up over the next few years as we are still near historic lows.  Because of this it is important to lock in a good rate now and not wait until later.  After all if before you buy yoru house rates drop like a rock you can just get a new loan.  Anyways once you have studied the interest rate trends and gotten a financing package it is now time to buy your home.

If you are buying a few homes it maks sense to spread them out geographically in a few different markets so that you aren’t wacked too hard if one of the markets does not recover.  Yes, managing the properties is a bit harder but the oveall risk is lowered substantially.  Another option is to find a good residential REIT and invest in it. You won’t get the same bang for your buck but the process is simple as you only need a stock brokerage account.  All the same principles apply in a REIT.  You want their portfolio to be robust and purely in residential real estate.

Hopefully this has been helpful and you now have the beginnings of a plan for getting into real estate.  You don’t need to buy only in your area but instead can take a macro trader view of things and go where the best risk to reward opportunities are.  Markets like Vegas, Phoenix, Denver are all likley good markets over the next ten years or so and most people will do well that are buying right now.