The Greatest Investment Opportunity Of Your Lifetime Is Here

It's been some time since I've written an article for my blog. I felt like there was a bit of redundancy after 60+ articles, and I wanted some new factual data to inspire me. We are now in our 4th year of the real estate market correction, and I have found factual evidence that supports my assertion that this is the greatest investment opportunity of a lifetime but not in the way you might think, based on the majority of my posts. Although buying real estate is still my primary investment focus, I'm going to highlight the reasons why you should now be buying homebuilder stocks.

Before I get to the facts, I'm sure you are hearing or reading, on a daily basis, that the recovery in the real estate market is going to take years to get back to some sort of normalcy. High inventory, due to foreclosures and short sales, has been the leading reason that's given for the negative outlook. On the surface, that would seem to be a prudent position to take. The law of supply and demand would seem to support this hypothesis, but you have to look below the surface to see what will drive the next appreciation cycle. It is in looking below the surface, that I have uncovered facts that are history making and will impact the real estate world in the very near future in a positive way, at least from an investor's perspective.

Homebuilders contributed to the high inventory of homes by overbuilding during the housing boom. In 2005, there were 2,068,000 housing starts. In contrast, if you average housing starts between the years of 1980 through 2010, you get about 1,454,800 starts per year. It's clear to see, that there was definitely a huge increase in the number of housing starts during the boom, that contributed to the excess inventory. But lets dig a little deeper into the stats. Between 1980 and 2005, the lowest number of housing starts occurred in 1982 (1,062,000) and 1991 (1,014,000). These two periods in time had a lot in common with the depressed market conditions we're facing now. In 2009, there were 554,000 housing starts and in 2010, we are on pace for approximately 540,000 housing starts, which marks the LOWEST housing starts in 30 years. Now what makes this even more potent, is that the population today is about 25% greater than it was during the depressed housing market in 1991. Can you say "supply and demand"? To recap, in 2010, we have about 1/2 the homes being built than we had in the early 1990's but an increase in population by 25%. At this rate, once the inventory of foreclosures are eliminated from the banks books, we may actually have a SHORTAGE of homes if this depressed level of building continues. Inventory will not be able to meet the populations demand for housing which will lead to rapid price increases and massive profits for the public homebuilders that stand to take their market share.

Many of the private homebuilders have gone into bankruptcy. The land they once owned has gone into foreclosure and is being purchased for pennies on the dollar by the bigger publicly traded homebuilders like Pulte, KB, Lennar, D.R. Horton, and MDC Holdings (Richmond American). What this means for the investor willing to buy these homebuilders' stocks now is great appreciation in future stock value. Almost all of the fore mentioned homebuilders I've listed here, are trading at a fraction of their 2004 & 2005 values. I believe the potential for 300% to 500% returns on your investment in homebuilder stocks is not only possible but probable due to the current population growth and record low housing starts. You want to invest in sectors that are the most depressed, if you want to invest in sectors that have the greatest upside potential. Remember, the key to investing is to buy low and sell high. I believe there is light at the end of the tunnel for homebuilders within the next 1 to 2 years, so I'm making my investment buys now.

3rd Year Aniversary

Wow, it has been 3 years already. I haven't been as prolific as I would have liked, but the information is still relevant, and there has never been a more exciting time to buy real estate. We are in a very rare period in history, where interest rates are at a 50 year low coupled with real estate being sold for pennies on the dollar. Enjoy this opportunity, because it may be a once in a lifetime opportunity.

The Train Is Leaving The Station...Are You On-Board ?

We've been in a real estate market correction for just over 3 years now. My prediction has been that the market will correct for 4 years before it starts to appreciate again. The typical real estate cycle appreciates for roughly 5 years and then corrects for about 2... a kind of 5 steps forward, 2 steps back scenario. Since we had an extraordinarily long appreciation cycle this time around (1996 -2006), it shouldn't surprise real estate cycle followers that 4 years of correction is proper and in line.

Signs of investor bottle-necking are here. Multiple offers on foreclosures are now the norm, especially aggressively reduced REO's looking to clear themselves from the books. The laws of Supply and Demand dictate the climate of offers, whether it be few to none or a dozen offers on one listing. I've witnessed the latter being the case, finding offers of a few thousand or more over asking price being the norm rather than the exception. This domino effect leads to the bottle-necking I was referring to, where everyone has the same subdivisions and homes in their sights with only one to emerge the victor. Is this the proverbial, "The train is leaving the station...are you on board?". I think it is, and it is important that you give it some consideration if you've been sitting on the sidelines waiting to make an investment move. Timing is everything in investing, and this period of amazing opportunity to buy real estate for pennies on the dollar is quickly eroding away.

The Rental Market Is Picking Up In A Major Way

I've never seen rental properties rent as quickly as they have been lately. With almost no vacancies to speak of, I find myself looking to add additional properties to the portfolio.

As I've mentioned before, investing in today's real estate market is setting the stage for phenomenal returns. Price appreciation will come in due time, but renting your investment property for profit has never been better if you've been buying distressed priced foreclosures and short sales. In the Arizona market, homes in the 1,200 - 1,500 Sq.Ft. range are selling for as little as $40,000. These aren't old fixer uppers either, these are homes that are only 3-5 years old. At that price, you could charge as little as $750 per month rent and still draw a 22% return per year or a 100% return of principal in just over 4 years.

Todays rental environment is very different from years past. In a normal rental market, there is a stable and fairly predictable movement of tenants in and out of rental properties. Today, the rental market has been flooded with families that have lost their homes due to foreclosure, short sale, and bankruptcy. This increase in renters into a once stable market has created a shortage of desirable rental properties (SFR's, not apartments), and it's not unusual to get a dozen or more calls within hours of a vacancy being advertised. Since foreclosures, bankruptcies, and short sales have the potential to tarnish one's credit report and FICO score for as long as a decade, the rental market for investors looks to be quite lucrative for some time.