Real Estate Is Here to Stay
As most of you now, I have always been attracted to the real estate market and still use it as an investment tool to diversify my portfolio. Today, the nation is concerned about a "bursting bubble" in the real estate market, but Standard & Poor's recently announced the creation of a product that could help allay fears of losing your investment leverage by hedging against any pullback in real estate prices. The indexes will be called the S&P Case-Shiller Metro Area Home Price Indices and will use calculation techniques developed by economics professors Karl Case and Robert Shiller, authors of the book "Irrational Exuberance."
S&P announced this week that it will release a number of home price indexes in the upcoming second quarter that will highlight 10 major U.S. cities and serve as the foundation of cash-settled futures and options contracts that is anticipated to begin next month. By the way, the cities the indexes covered will initially include major U.S. real estate markets; cities like San Francisco, Chicago, Los Angeles, Miami, Washington D.C. and, of course, New York.
According to those in the know, this new home price indicator will use the "repeat
sales" calculation technique pioneered by Professors Case and Shiller. The indices will also leverage a large and carefully created directory of home sales from a variety of sources, including lenders, multiple listing services and public records. Statistics for the indices will be continuously gathered, and the indices will be updated and published on a monthly basis.
A home seller would be able to link the price of a home to the index by making it a multiple of the index for any particular metro area. For example, a residence in an upscale neighborhood in Las Vegas, for instance, might be listed at a constant 1,000 times the Las Vegas index of 500, rather than $500,000. As the index moves up and down the scale, the real estate price will also adjust. In this respect, both the buyer and the seller can be assured that the value of the property remains genuine at the time of the purchase.
There are a variety of factors that affect the real estate market; the time of the year, the shape of the economy and the weather can even play a big part. For example, existing home sales in February actually rose 5.2 percent to 6.91 million units. After six months of declining home sales, weather reportedly played a huge factor in the increase. David Lereah, chief economist of the National Association of Realtors, said this number is an aberration because it seems to be much higher than it should for this time of the year due to better than expected weather. He still feels the housing market is softening and so do many of the nation's major homebuilders. A reminder, David Lereah will be our featured cover story in the James Dicks Magazine in May, so watch for more information on the shape of the nation's real estate market.
Also, be sure and visit a bookstore near you or go to Amazon.com and get your copy of my new book, How to Buy and Sell Real Estate for Financial Freedom. My Uncle Jack and I are zealous about staying involved in the real estate markets and we pay little attention to talk of a possible "bubble." Like any investment, you can be successful depending on how you approach the opportunity. Get educated about this great diversification method. Real estate is here to stay.
Originally published in the Outspoken e-newsletter.